Decoding Budget: Capex spending top focus; boost to indigenous defence cos

Finance Minister Nirmala Sitharaman presented her fourth Union Budget in the Parliament on Tuesday. This was her second Budget after the onset of pandemic. With elections in key states, including Uttar Pradesh, around the corner, all eyes were on her to see if see announces populist measures. However, the finance minister presented a Budget with focus on growth and on reviving the economy emerging from the scars of slowdown caused by the pandemic. An increase of over 35 per cent in capital expenditure was the biggest takeaway from the Budget. Here's a sectoral analysis by Cyril Amarchand Mangaldas on announcements made by Sitharaman:

"This is a good sequel to last year's path-breaking Budget. The biggest point is the capex spending, and it comes from a position of confidence. The other aspects are the focus on ESG, and promotion of domestic industry. The growth aspiration of 9.2 per cent is exciting," said Cyril Amarchand Mangaldas (CAM) Managing Partner Cyril Shroff.

He said the announcements made by the finance minister on private equity investments are interesting, and should help removing regulatory cholesterol, while the announcements on GIFT City should provide additional impetus to the existing initiatives.

The FM also extended the ECLGS Scheme till March 2023, with an additional amount earmarked for the hospitality and related enterprises.  "Enterprises in the hospitality industry have borne the brunt of the pandemic. The scheme include facilities with a cap on interest and moratorium period and waiver of certain charges. It is expected that this facility will help businesses in the hospitality sector that have been affected by the pandemic to come back to normalcy through access to credit provided by the Scheme," CAM Partner and Chair- Finance and Projects Viswanathan said.

He also called the proposal to facilitate voluntary winding up of companies in less than six months as ambitious and laudable. It reinforces the path taken by the government that digital initiatives can usher better governance and can simplify processes in a timely manner without compromising on the necessary safeguards. It is expected that the process engineering will ensure that voluntary winding up is completed in a short time frame, he added.

Santosh Janakiram, Partner and Head - Projects at CAM, lauded the announcement on highway expansion and hill connectivity framework. He said these are important steps to increase connectivity, improve logistics and to monetise existing operational roads. 

"The new railway connectivity and logistics framework as part of Gatishatki will also go a long way in improving connectivity together with the road proposals in the budget. The master plan for expressways could be the icing on the cake for this sector. Whilst we await working out the details, the very announcement on this account is cause for optimism," Janakiram said.

CAM Partner Ajay Sawhney called the announcement on formulating battery swapping policy and interoperability standards as an important one for the electric vehicle sector. "Introduction of battery swapping policy will help in resolving, amongst others, the problem of space requirement for establishing charging infrastructure in metro cities. The development of interoperability standards is also a crucial move which will help in bringing uniformity in the deployment and utilisation of batteries in EV vehicles, removing the consumer anxiety over replacement of batteries, and bolstering the penetration of EVs in the market."

FM Sitharaman also announced capping of surcharge on long term capital gains on unlisted equity to 15 per cent, akin to long term capital gains arising on sale of listed equity shares. 

"Currently, angel investors (individuals) are subject to a surcharge of 37 per cent on capital gains from sale of equity shares exceeding Rs 5 crore. With the proposed amendment capping the surcharge to 15 per cent, the effective capital gains tax rate for resident investors may get reduced up to about 2-4.5 per cent. This proposal is likely to attract more long-term investment in start-ups and help push India in further in the direction of 'Atma Nirbhar Bharat'," said Kunal S Savani, Partner Tax and PCP at CAM.

Besides, FM also announced that 68 per cent of the capital procurement budget will be reserved for the domestic industry as against 58 per cent announced in Budget 2021-22. This "will provide further impetus to existing players and encourage others to enter the sector. That said the government needs to ensure that access to state of the art defence equipment (meeting global standards) continues to be made available to our Armed Forces," Anuj Prasad, Partner and Head Aerospace and Defence at CAM said.

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