Union Budgets have evolved gradually over time. In the old days, analysts and fund managers awaited the Union Budget fine print to analyse the impact of indirect tax changes on various goods and services. All that changed with the introduction of GST in June 2017. Since then, most of the indirect taxes have been subsumed into GST and changes are made monthly in the GST Council meetings. Hence the budget has very limited role to play as far as indirect taxes are concerned.
However, customs duty still remains outside the ambit of GST and these changes still are made in the Union Budget. That has been one factor that is having an impact on various sectors. But the real driver has been the growth bias that is embedded in the budget policy note and that is what is driving the sectoral trends post the budget. Here is a look at how Union Budget 2022 impacts key sectors.
Big boost for the Agri Sector
The budget has a lot going in its favour for the agricultural sector. The budget has taken upon itself the responsibility of leveraging technology and the start-up culture in enhancing agricultural productivity. This year the government is paying out Rs2.37 trillion to farmers as MSP on various crops and that is going to be a big boost to rural consumption. But there is more to the agri sector.
The use of Kisan Drones for crop assessment and spraying pesticides will go a long way in improving productivity of agriculture. Another big boost will be the digitization of land records which will be the first step of getting more private participation in agriculture. The budget has also focused on encouraging natural fertilizers as an alternative to chemicals.
Customs relief for chemicals sector
Cuts in the customs duty on acetic acid and methanol are likely to be positive for Indian specialty chemical manufacturers. Both acetic acid and methanol are important input for a number of specialty chemical companies in India. These companies will gain from the lower customs duty as it would make landed cost cheaper and reduce their input prices. At a time when most companies are facing pressure from supply chain bottlenecks and rising input costs, this should come as a blessing in disguise.
Ethanol blending gets a leg up in the Budget
The Budget 2022 has tried to encourage blended petrol over unblended by tweaking the duty structure. Going ahead, the Budget 2022 has imposed a penal duty of Rs.2 per litre on fuel that is non-blended. This will prove to be an added incentive for the OMCs to get more aggressive on ethanol blending. The government has progressively front-ended its ethanol blending targets and most sugar companies have been investing heavily in fresh ethanol capacities. For these sugar players with a strong distillery franchise, the Budget announcements will be favourable.
Alternate Energy: EV batteries and solar
Budget 2022 has its heart and head in the right place. It announced key steps to promote clean transport. Apart from the aggressive multi-modal transport plans, Budget 2022 will also articular a full-fledged battery swapping policy for electrical vehicles. This will give a boost to the EV ecosystem and help EVs become items of mass consumption. While this will be a positive move for auto companies with an EV franchise, it will also benefit battery manufacturers which are preparing the ground to become EV ready.
Talking of green energy, obviously, solar theme cannot be too far behind. Budget 2022 has allocated Rs19,500cr for production linked incentives (PLI) to incentivize the manufacture of solar modules, solar panels and other support systems for solar energy. This is likely to create the right domestic ecosystem for a solar energy boost.
A thrust to infrastructure segment
First let us talk about the cement and construction space. They will gain deeply from programs like 25,000 KM of fresh highways this year, a big thrust to affordable housing, mass transit systems etc. While cement will be more about derived demand, infrastructure companies will reap the benefits of overflowing order books.
A big boost to water availability means more investments in water infrastructure. Pipes and other longs are likely to attract interest due to the Rs60,000cr allocation for the supply of piped tap water to an additional 3.8 crore households across India. That will obviously need huge investments in pipe infrastructure, benefitting long steel producers.
Pampering telecom and defence
It is now official that 5G is coming in FY23 and the same has been confirmed by the Finance Minister in her budget speech. Introduction of 5G will be a boost to telecom companies with the investment muscle and the bandwidth as well as for a number of innovative digital applications where only 5G would work. To top it, data centres have been accorded special infrastructure status in the Union Budget 2022, with all relevant benefits.
In a boost to domestic defence manufacturing, the Budget 2022 has decided to set aside 68% of its defence capex for farming out orders to local defence companies, as against just 58% last year. As a result, most Indian defence equipment manufacturers would gain from a surge in their order books. A positive step, it would be, for Make in India.