Budget 2022 | Must focus on execution of elements of last year's budget: Rahul Singh, CIO-Equities, Tata Mutual Fund

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With only a few days left for Finance Minister Nirmala Sitharaman to present India's annual budget for the year 2022-2023, Rahul Singh, CIO-Equities of Tata Mutual Fund expects this budget to focus more on the execution of the elements of last year's budget, i.e., bad bank, privatization, steps for including G-secs in government bond index and more.

The attempt to revive the investment cycle is much needed to sustain GDP growth at a higher trajectory of 7 percent and Singh believes that early signs of investment revival in the private sector are visible.

A shift towards an accommodative fiscal policy, in addition to a monetary policy, is critical especially if the thrust of the additional spending continues to be on capital account rather than revenue expenditure.

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"However, given the pressure on informal/MSME sector and recent commentary from consumer sector companies about lacklustre rural demand, social spending and higher subsidies are likely to continue in the upcoming Budget. Similarly, changes in direct taxation, if any, are likely to be minimal and targeted towards lower-income segments", he noted.

Given the strong economic recovery, which has resulted in robust revenue collections, Singh thinks that government has enough elbow room to provide for higher capex growth and social sector spending like employment guarantee and cash transfer schemes.

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He also believes that this is potentially achievable even while setting a moderately lower fiscal deficit target for FY23 vs. 6.5 percent that was budgeted for FY22.

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The government's next few steps with respect to privatisation will be keenly watched, including the privatisation of public sector banks. Singh opines that even though the aggressive pivot on privatisation is a step in the right direction, the progress has been slow. Execution remains a key when it comes to asset monetisation as well.

When it comes to renewable energy, significant focus is expected in the upcoming budget on that sector, including manufacturing of generation and storage components. " Large investment announcements have already been made by conglomerate business groups and the momentum is likely to be provided further thrust in the budget", said Singh.

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Another sector that is expected to see sigh high spending other than the private sector, is healthcare given the pandemic we have been battling since 2020 now, said Singh.  He also expects the budget to be supportive towards the real estate sector in terms of taxation and funding.

With respect to the Indian corporate sector, profit estimates have largely remained steady over the last 9-12 months, indicating the broad-based nature of the recovery.

The revival in the investment cycle has only increased the visibility of the profit growth estimates for FY23 and beyond. In such a scenario, Singh thinks that the budget for this year must support this momentum "by improving execution of what has already been announced and adding more to what seems to be working".

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