India unveils higher spending for infrastructure in growth budget

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Feb 1 (Reuters) - India unveiled on Tuesday a bigger budget of 39.45 trillion rupee ($529.7 billion) for the coming fiscal year, stepping up investment on highways and affordable housing to put growth on a firmer footing as the economy recovers from the pandemic.

The government has projected GDP growth at 8% to 8.5% compared with an estimated 9.2% for the current fiscal year and a 6.6% contraction the previous year. read more

All macro indicators indicated that Asia's third-largest economy was well-placed to face challenges, helped by improving farm and industrial output growth, the government's annual economic survey said on Monday. read more

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Here are some reactions from Indian businesses, economists and analysts:

ABHEEK BARUA, CHIEF ECONOMIST, HDFC BANK

"The 2022-23 budget finely balanced fiscal retreat with supporting economic recovery. It focussed on a familiar strategy of driving capital expenditure to drive growth, with the intention of crowding in private investment through higher public spending.

"Although markets could be disappointed with a higher fiscal deficit of 6.4% of GDP for FY23 than expected, it is perhaps prudent to not undertake aggressive fiscal consolidation at this nascent stage of recovery."

PRITHVIRAJ SRINIVAS, CHIEF ECONOMIST, AXIS CAPITAL, MUMBAI

"The finance minister is gunning for growth in FY23 budget at the cost of higher market interest rates. Higher spending in roads, rail, cargo terminals and irrigation is expected to crowd in private investment and improve efficiency of logistics. However, this push has come at the cost of delayed fiscal consolidation due to higher-than-expected fiscal deficits in FY22."

AURODEEP NANDI, INDIA ECONOMIST, NOMURA

"It's a big bang budget, but depends on where one stands on the bang perimeter. The massive ramp-up of capital spending and focus on infrastructure cemented the budget's credentials as a growth-oriented one.

"But even as directionally, the fiscal deficit has been reduced to 6.4% of GDP in FY23, as we had predicted, the government has announced a significantly large market borrowing to fund its plans.

"The sharp rise in bond yields after the budget announcement is testament to the surprise for bond markets, which now will need to absorb this large borrowing."

RADHIKA RAO, ECONOMIST, DBS BANK, SINGAPORE

"Higher capex allocation was one of the key thrusts of India's 2022 budget as the public sector takes to the wheel and hopes to draw in the private-sector players, while also backing new-age priorities including launch of sovereign green bonds, introduction of a digital rupee, and providing infra status to data centres among others.

"On the math, an increase in spending leaves deficit consolidation on a gradual slope than we expected, notwithstanding a double-digit nominal GDP growth. Market reaction was divided between upbeat equities while bond markets fret a sharp increase in borrowings as well as absence of tax measures to pave the way for bonds to be Euroclear-eligible and in turn ease inclusion into global indices."

NIMISH SHAH, CHIEF INVESTMENT OFFICER – LISTED INVESTMENTS, WATERFIELD ADVISORS

"While fiscal math is worrying the bond markets with yields up 15-20 bps, equity markets are in euphoria on the back of a budget that has shown credibility, continuity, and consistency.

"Capital gains taxation on crypto/digital assets and the introduction of digital rupee in 2022-23 brings about the intent of the government to regulate the space even before the Crypto Bill is tabled in the Parliament."

SANDEEP BAGLA, CHIEF EXECUTIVE OFFICER, TRUST MUTUAL FUND, MUMBAI

"Bond markets were expecting lower borrowing numbers and hoping for clarity on global bond indices. The market has to focus on inflationary trajectory and the mammoth borrowings next year. These harsh realities are leading to a bond sell-off and higher yields."

ADITI NAYAR, CHIEF ECONOMIST, ICRA, GURGAON

"An early implementation of the 24.5% expansion in capital spending to a substantial 7.5 trillion rupees can trigger a durable economic growth momentum, with the potential to augment job creation, prop up domestic consumption, and hasten capacity expansion by the private sector.

"The impact of higher capex by the government will be complemented by the interest-free bonds of 1 trillion rupees to the states, that will help them prioritise capex even as they traverse the challenges posed by the end of GST compensation."

ANOOP BHASKAR, HEAD - EQUITY, IDFC AMC

"On the tax front the simplification on Long-Term Capital Gains (LTCG) would be a key feature. Taxation on virtual assets will also make equity more attractive, especially to the millennials. The spend on capex is clearly the highlight of the budget, crossing 7 trillion rupee level is a key initiative to boost the capex cycle."

RAJANI SINHA, CHIEF ECONOMIST AND NATIONAL DIRECTOR - RESEARCH, KNIGHT FRANK INDIA, MUMBAI

"The government reiterated its commitment towards infrastructure development over the medium term. This will give a boost to the logistics and manufacturing sectors by reducing transportation costs.

"Given that MSMEs (micro, small and medium enterprises) are the backbone of India's economy and are struggling to get back to their feet, the extension of ECLGS (Emergency Credit Line Guarantee Scheme) for MSME is another step in the right direction."

GARIMA KAPOOR, ECONOMIST - INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI

"The budget announced policy programmes to provide right impetus to growth and make India future-ready. Capital expenditure chiefly on infrastructure, digitisation, energy transition and inclusive growth are clearly the four key pillars of growth.

"The 35% growth in capex spending over FY22 budget estimate, (19% growth vs FY22RE) is encouraging, but the effective capex of 10.37 trillion rupees including off balance sheet spending is lower compared with FY22 budget estimate, although we need to check the fine print. It is a growth-oriented budget."

SUNDARA RAJAN TK, PARTNER AT DVS ADVISORS LLP, CHENNAI

"The announcement of tax at 30% on digital assets, coupled with the government launching its own digital currency, is an indication the government intends to discourage it and that only high-net-worth individuals (HNI) could make such investments and that the centre shall not permit cryptos as a currency.

"The capping of surcharge at 15% is welcome and though no separate relief was given to HNIs, this would also be favourable to HNIs with high-capital-gain income.

"On the litigation front, the announcement that appeals shall not be made in case of similar issues of law pending before the High Court and Supreme Court is an important step in reducing the litigation."

KETAN DALAL, MANAGING DIRECTOR, KATALYST ADVISORS, MUMBAI

"The revised fiscal deficit is expected to be 6.9% of GDP in FY21-22, as against expected at 6.8%; the imperatives of government spend are apparent, and hence, in spite of buoyancy in tax collections, there is fiscal pressure.

"Given the increase in input costs, fuel and freight costs, there could be margin squeeze on companies; this is likely to lead to pressure on tax collections, and consequently, it's a moot point as to whether tax collection estimates can be met."

RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI

"The budget has recognised the need to nurture growth and its fiscal deficit levels for FY22 & FY23 are growth-supportive. Measures announced for infra building including roads and railways and renewable energy sectors, MSMEs, farm sector represent the need of the hour."

UPASNA BHARDWAJ, SENIOR ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI

"The fiscal outcome is broadly in line with our expectations with the government having its focus on infrastructure and rural demand. As expected, the government has refrained from a sharp consolidation. While the fiscal expansion is expected to be pro-growth, the heavy supply is expected to worry the bond markets."

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Reporting by Chandini Monnappa, Abhirup Roy, Neha Arora, Chris Thomas, Rama Venkat, Anuron Kumar Mitra and Nallur Sethuraman in New Delhi, Bengaluru and Mumbai; Editing by Sherry Jacob-Phillips

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