Union Budget – Continuity in Policy…

Budget is an important economic event as it provides a roadmap for the economy. In this context, a Full Budget after a general election gains more importance. The budget was looked forward to for gauging the policy continuity, given the fact that the mandate received by the government was relatively weaker as compared to the previous two times. The biggest positive in the Finance Minister’s speech is the “Policy Continuity”; there has been no modifications to capex outlay. Secondly, the budget also addressed sufficiently the demand for regional development aspirations which has been the demand from the coalition partners of the government. The underlying tone of the last 10 years has been maintained, wherein the budget document is used as a long term planning document, and reforms continue unabated without being restricted to being a once a year event. Overall, the budget announcements are expected to have a positive effect on capital markets from medium to long term perspective, given the focus on capex and maintaining or expediting the fiscal glide path.

The key tenets of the budget remain the same as they were outlined in the Interim Budget – “‘Garib’ (Poor), ‘Mahilayen’ (Women), ‘Yuva’ (Youth) and ‘Annadata’ (Farmer). The theme of this budget within these broad contours is to focus on employment, skilling, MSMEs, and the middle class. The priorities that have been set by the budget document to achieve the above given policy objectives and the key announcements therein are as follows:

SR No.PriorityKey Annoucements
1Productivity and resilience in AgricultureA provision of Rs. 1.52 lakh crore for agriculture and allied sector
2Employment & Skilling• Direct benefit transfer of one month salary, up to Rs. 15,000, for first time employees in three instalments
• Manufacturing Sector – Reimbursement of up to Rs. 3,000 per month for 2 years towards employers’ contribution to EPFO
• Model Skill Loan Scheme to facilitate loans up to Rs. 7.5 lakhs with a guarantee from the government
• Rs. 10 lakhs loans for higher education in domestic institutions
3Inclusive Human Resource Development and Social Justice• The allocation to PM Vishwakarma, PM SVANidhi, National Livelihood Missions, and Stand-Up India will be stepped up
• Purvodaya plan for the overall development of the eastern region
• Major road and power projects for Bihar
• Allocation to Andhra Pradesh for development of a state capital
• Three crore additional houses under PM Awas Yojana
• Allocation of more than 3 lakh crores for schemes benefitting women and girls
4Manufacturing & Services• For facilitating term loans to MSMEs a credit guarantee of up to Rs. 100 crores to each applicant
• A new mechanism for facilitating continuation of bank credit to MSMEs during their stress period
• Mudra loans limit enhanced to Rs. 20 lakhs
• Measure to unlock MSME working capital by converting trade receivables to cash by reducing the turnover threshold
• E-Commerce Export Hubs will be set-up to enable MSMEs and artisans to sell their products internationally
• Setting-up of 12 industrial parks
• Integrated technology platform to improve the outcomes of Insolvency and Bankruptcy Code
5Urban Development• Transit Oriented Development plans for 14 large cities
• Central assistance of Rs. 2.2 lakh crores over the next 5 years for PM Awas Yojana Urban 2.0
6Energy Security• PM Surya Ghar Muft Bijli Yojana to install rooftop solar plants
• Research and development of small and modular nuclear reactors
• Advanced Ultra Super Critical Thermal Power Plants
7Infrastructure• Capex of Rs. 11,11,111 crores or 3.4% of GDP
• Focus on Irrigation and Flood Mitigation
8Innovation, Research & Development• Anusandhan National Research Fund with a pool of Rs. 1 lakh crores
• A venture capital fund of Rs. 1,000 crores for space economy
9Next Generation Reforms• Measures to improve the productivity of factors of production
• Land-related reforms by state governments
• Labour-related reforms
• Variable Capital Company structure
• Simplification of rules and regulations for FDI and Overseas Investments

Fiscal Deficit: Even as the government has set various priorities and has made key announcements to achieve the same, the fiscal consolidation glide path has not been compromised. The fiscal deficit for current financial year is estimated at 4.90% and this is an improvement on the 5.10% indicated in the interim budget. The gross government borrowing program is at Rs.14.01 lakh Crs., lower from Rs.15.50 lakh Crs in the last financial year.


Taxation: Short term and Long term capital gains taxation has been hiked with 20% for short term capital gains, up from 15%, and the long term capital gains revised upwards from 10% to 12.50%. This may be perceived as a negative factor in the immediate term, but investors and markets would realign to the new tax proposals very soon.