Viewpoint | Budget 2021

Bottom-up approach to building economy

A. Balasubramanian, MD & CEO, Aditya Birl Sun Life AMC Ltd.  

The three prominent themes of the Budget this year of Aspirational India, Economic Development and Caring Society give a direction in the way the government envisages economic growth in the country.

The Government of India has taken a bottom-up approach towards building the economy with a strong focus on reviving rural income through various agricultural reforms.

The 16 action points, all aligned to increase farm income, will go a long way in increasing employment opportunities in that segment as well as help in creating avenues of giving more money in the hands of people. This could potentially help boost rural consumption by increasing their purchasing power. There have been some measures announced to enhance employment generation by way of boosting electronic manufacturing, enhanced policies for entrepreneurial ventures and infra-focussed skill development initiatives which can have long-term benefits for the nation.

An increase in bond market investment limit in both government securities and corporate bonds is a welcome move to attract more foreign money into Indian bonds.

This will not only help infrastructure-related bonds get more participation from global investors but also ensure availability of long-term funds to such projects as part of the take-out financing in nature. The effort to deepen the bond market may also help the government get another source of funds to help its borrowing.

This in essence will leave more money in the hands of banks to focus on lending and also bring in the necessary stability in the interest rate.

With respect to maintaining fiscal balance, the Budget has rightly taken the provision of slipping on the fiscal by 50 basis points to boost public spending and revive the economic growth through rural agriculture-related economy, infrastructure development and also health sector-related issues surrounding the economy. It is also a well thought out tax reduction for those who don’t avail any exemption and help them decide between savings and spending.

Middle income earners now can choose to have more money in their hands by availing this new tax regime and spend more or continue to stay with the old tax rate by availing the exemption and increase their long-terms savings pool. Both are good in a way as income tax payers in this segment can choose as it suits each year.

The intent is to simplify the taxation system and as well as encourage better tax compliance through friendlier policies.

The abolition of DDT (dividend distribution tax) is a big benefit for minority shareholders and means more money in their hands for investing or spending.

Dividend Distribution Tax removal also encourages rewarding shareholders more appropriately, leading to long-term value creation for them. It would also improve their return on equity and therefore improved valuation for companies. Of course, in each Budget we all look at what is the missing piece.

One I would assume is the expectation around removal of long-term capital gains towards equity investing and lack of focus in clearing the inventory in the real estate sector, especially in big metro cities, specifically Mumbai and Delhi.

Second, the divestment target of ₹2.1 lakh crore is a big target to achieve in a single year given the fact that this year’s disinvestment target has not been fully met, falling short by ₹50,000 crore against the targeted ₹1.05 lakh crore. Despite this, the overall Budget should be seen as something that addresses the need for growth besides removing pain points in some of the sectors.

Overall, from investors’ point of view, one should look beyond the Budget and repose faith in our economy to create a long-term investment portfolio through the asset allocation model, which remains permanent irrespective of the outcome of Budget.

A. Balasubramanian is MD & CEO, Aditya Birl Sun Life AMC Ltd

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Printable version | Mar 3, 2021 1:24:19 AM |

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