Budget reaction on economy: Kotak Mahindra Life Insurance

1 Feb 2022 , 03:39 PM

Leading into the budget, there was a common view that for a broader sustainable growth – both the government and private sector – Capex needs to be stepped up. In this context, Finance Minister has been very bold and has unveiled a Go for Growth budget on the backdrop of the PM Gati Shakti transformative approach. There has been a slew of measures announced for each of the 7 engines viz railways, roads, airports, ports, mass transport and Logistics infrastructure.

The FM announced a massive CAPEX Plan at 7.5 lakh crore which is a whopping 35% growth over last year clearly showing the intent to do the heavy lifting when it comes to leading investment-led growth and job creation. The large CAPEX, one hopes, will lead to downstream investments by the Private sector as well. This will put the country on a 9% growth trajectory for the next few years coming on the back drop of a 9.2% growth estimated for FY 22.

While there are concerns around inflationary risks due to the high commodity prices leading to fuel and food inflation, the government is betting on growth. The fiscal deficit of 6.9% for FY 22 and target of 6.5% for Fy 23 may seem very high but given the context of the global issues post pandemic the markets feel this may be required to spur growth. The intent to stay on the fiscal glide path announced last year gives some comfort. The good news is that the entire excess fiscal deficit is going towards Capex which will have a multiplier effect on the economy.

The buoyant tax collection with GST reaching record level of 1.49L cr in March and the net direct tax collections from April to mid-December, which were above Rs 9.45 lakh crore compared to Rs 5.88 lakh crore over the corresponding period of the financial year, clearly show that the economy is recovering and tax compliance has been improving. This must be the reason why the FM has largely maintained status quo on tax rates and policies.

Overall, there is widespread optimism that the FM has exceeded expectations on her growth stimulus, we need to watch out for the global geo political situation leading to higher imported inflation and rising interest rates, which could derail the bets on going for growth.

The grand plans have been laid out. Let us hope the execution keeps pace as we chase 9% growth in a volatile and uncertain world since the pandemic started 2 years back.

The author of this article is Mahesh Balasubramanian, Managing Director, Kotak Mahindra Life Insurance Company Ltd.

The views and opinions expressed are not of IIFL Capital Services, indiainfoline.com