Budget 2021

Nothing substantial for India Inc.

Lokeshwarri SK BL Research Bureau | Updated on February 01, 2020

The increased capex could help infra, cement, steel and other allied sectors

India Inc. had already received a bonanza in the form of corporate tax rate cut in September last year and there isn’t much more that they would have expected by way of tax rate cut (see adjacent tube) in this Budget. But corporates were hoping the Budget to address two main issues – slowing consumption and capital investment.

While there isn’t much of consumption booster in the Budget, the increased capital expenditure could help infrastructure, capital goods, cement, steel and other allied sectors.

No consumption boost

One, the biggest challenge for Indian companies in recent times has been the collapse in consumption. Private final consumption’s year on year growth fell to 3.1 per cent in June 2019. While there was an uptick to 5.1 per cent growth in September 2019 quarter due to festival spending, high-speed indicators such as auto sales, credit growth indicate continued stress on companies.

The cut in income-tax slabs, announced in the Budget, can put money in the hands of individual tax payers, but only in some cases. The need to forego exemptions and deductions would make many think twice about moving to the new tax slab. The revenue outgo of ₹40,000 crore may not be enough to spur growth in consumption demand.

Allocation to rural schemes such as MNREGA has been moved lower to ₹61,500 crore for FY21 from revised estimate of ₹71,002 crore in FY20. Similarly allocations to other rural schemes such as PM Gram Sadak Yojana, PM Awas Yojana have not seen too much of an increase in allocation.

The increase in allocation for PM-Kisan Yojana from ₹54,370 crore to ₹75,000 crore is one of the brighter spots for consumption. Companies in the FMCG, auto, consumer durables etc will, therefore, feel a little let down by the Budget.

Investments in the slow lane

The other challenge for India Inc. had been slowing government spends that had resulted in slower flow of orders for infrastructure and capital goods players.

The fall in gross capital formation to 1 per cent in September 2019 from 10.7 per cent growth in June 2018 quarter was indicative of the slower capital spends in the economy.

The Budget has tried to address this issue by allocating a higher amount towards capital expenditure for FY21. Share of capex to GDP has moved to 1.8 per cent in FY21 from 1.6 per cent in FY20.

Against gross budgetary support of ₹3,48,907 crore in FY20, the capex in FY21 is budgeted at ₹4,12,085 crore. This bodes well for construction companies, companies catering to Indian railways, real estate sector and so on.

It is hoped that higher capex spends by the government helps cement and steel manufacturers as well in a cascading effect.

Mixed bags for sectors

Infrastructure companies in the construction segment stand to gain from the ₹1.7 lakh crore outlay for road construction. But unless execution delays are addressed, they are unlikely to benefit. Not much has been done for real estate sector, besides extending the deductions available to developers on profits and to investors on housing loan interest is not too material to matter. The cut in fertiliser subsidy is not beneficial to fertiliser manufacturers. Many policy tweaks have been announced for banks and NBFCs but these do not add up in a material way to address the problems of stressed loan book that is hampering business growth.

All in all, there is not much to takeaway for Indian corporates.

Published on February 01, 2020

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