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Budget 2021 | FM paves path for $5-trillion economy, ignore India at your own risk

Updated: Jan 10, 2022

The Budget is strategic, wise, and visionary to turn India into a $5 trillion economy and a message to the world that India no longer plays by the handed over handbook, says Swati Khemani of Carnelian Capital.

Finance Minister Nirmala Sitharaman delivered a splendid Budget on February 1, akin to what the Indian cricket team achieved in Australia, silencing critics, surprising many and unleashing animal spirits.

Since the time we have been following budgets, rarely have we witnessed one where the FM has addressed all that is required and more. No disappointments.

We have been extremely bullish on India even before the Budget 2021 was laid out (for reasons highlighted in our previous newsletters) but this one makes us even more positive, as it clearly reinforces the government’s intent of doing “whatever it takes” to propel the Indian economy towards $5 trillion by FY25.

We believe the FM has rightfully seized the mega opportunity when the economy is on the cusp of gaining momentum from China+1 and the global digital revolution.

We consider the Union Budget 2021 as a carpe diem event for the Indian economy. The Latin phrase means “seize the day”. Let’s run through the key catalysts announced in the Budget 2021.

Dissecting carpe diem in the context of the Union Budget 2021:

CA - Capex spend & fiscal deficit

R - Relief from tax hikes

P - Privatisation

E - Ease of doing business

D - Developing State Capacity & Capability

I - Infrastructure boost

EM - Enabling manufacturing revolution

CA - Capex spend & fiscal deficit

For the first time, the government has indicated that it is ready to let go of fiscal consolidation over growth. Going for a 6.8 percent fiscal target after a 9.5 percent deficit requires a lot of conviction and courage.

Even wiser, the FM has drawn a huge focus on capex-oriented spending —a massive jump of 35 percent to Rs 5.8 trillon. Several measures have been undertaken to enable capex even in the state budgets, which is a very deep one.

The impact of capex lasts over a long time as it builds capacity, while the impact of opex is short-lived to a year. A higher capex spend will result in a higher second and third-order impact such as improving cost-effectiveness, higher job creation, growth of the various ancillary industry, increasing spending power in the economy.

Higher capex will also result in re-leveraging of the system and aid financial systems credit growth.

R-Relief from tax hike

High fiscal spending without any kind of a tax hike is also a big indication of the government’s mindset of moving to a lower tax regime. The government could have easily taken the COVID-shield to do a tax hike but resisted.

A wise thing to do was igniting the animal spirit which is far more important than getting a small amount through tax hikes. This is a big statement indicating continuity of policy.

India continues to be the lowest tax destination in the world, enticing global investments in a big way. This is a big enabler and the impact of this is hard to quantify but easy to feel.


A very big shift. The FM has used the word “privatisation” and not just divestment. Outlining a policy framework of having only four strategic sectors and privatising the rest is a big departure from the past.

This government was seen as weak in its intent of divestment, given its track record over the last five-six years. This move of focused strategic sale of BPCL, Concor, Air India, and divesting two PSBs and one general insurance indicates the government’s desire to get out of business.

The government also expects the LIC IPO to go through this year. While the immediate goal is raising resources, there is a deep routed intent of removing inefficiencies from the system and re-orient India as a market-oriented economy.

E-Ease of doing business

Several steps simplifying the compliance requirements of business/individuals such as reducing the time limit for re-opening assessments, faceless tribunals, raising the tax audit threshold limit, relaxing norms for startups, investment by NRIs, raising FDI limit in the insurance and many more.

This government has continued work towards using technology and reforms to improve the ease of doing business, which is well reflected this time as well.

D–Developing state capacity & capability

For the long-term sustainable development of a country, building state capacity is essential. This Budget has made several announcements on that count.

A multi-fold increase in the health outlay is a clear commitment towards building the health infrastructure India has long been waiting for.

Outlining the Rail vision 2030, the implementation of the National Education Policy, allocation towards power reforms, the launch of the Development Financial Institution (DFI) to create a lending portfolio of Rs 5 trillion, focus on Developing IFC in the GIFT City, Asset

Reconstruction Company to handle bad assets of the banking system are few examples of building state capacity.

I–Infrastructure super boost

The government’s intent to spend big on infrastructure appeared throughout the Budget. Direct measures are being initiated to boost road (8500 km), railways (100 percent electrification by 2023), new DFCC corridors, urban infra focusing on the Swatch Bharat Mission and metro rails, shipping incentives, power sector reforms are among the few notable ones.

More importantly, the minister has announced a big asset monetisation plan to generate resources, which includes NHAI toll roads, power grid assets, GAIL pipelines, Tier 2 and 3 airports, DFCC, warehousing assets and stadiums.

Infrastructure spending has a multiplier impact on the economy, as it generates demand and builds efficiency.

EM -Enabling manufacturing

Atmanirbhar Bharat is clearly a big focus area for the government that was consistently highlighted by the FM during the Budget. Over the last year, several measures have been taken to grow India’s manufacturing GDP from $450 billion to $ USD 1.25 trillion by 2025.

This Budget has outlined several measures to create and nurture manufacturing capacities and capabilities—PLI outlay of over Rs 1.97 trillion over the next five years and seven textile parks are proposed to be set up over the next three years.

We have spoken about this mega-trend several times over the last six months. The multiplier impact of this is significant as outlined in our previous newsletter.

We believe this budget is strategic, wise, and visionary to propel India into a $ 5 trillion economy and more importantly a statement to the World that India no longer plays by the handbook handed over.

It has her own aspiration, vision, and approach of building a nation that is aspiring to get her ancient leadership status back at a global level.

Ignore India and her markets at your own peril!

At Carnelian, both our strategy viz Carnelian Capital Compounder Strategy and The Shift Strategy are well-positioned to capture this huge opportunity.

Source : Moneycontrol

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