A “Magic”al Delivery!

Greetings from Team Carnelian!! Hope you and your near ones are doing good.

Good things + Continuity = Compounding

The FM has delivered a “MAGIC”al push, by continuing all the good things with focus on more of the same and without disrupting anything. The MAGIC push is

M - Manufacturing push towards Atamnirbhar Bharat

A - Aggressive reforms mindset across

G - Growth focus over fiscal

I - Infrastructure focus

C - Capex, Continuity & Credibility

The Honourable Finance Minister started the budget quoting “we are marking Azadi ka Amrit Mahotsav, and have entered into Amrit Kaal, the 25-year-long leadup to India@100.”

It really requires courage to deliver a non-populist budget on the eve of upcoming state elections. Our honorable FM has once again delivered a “MAGIC”al Budget 2022 and has surprised skeptics, who were expecting a populist budget. She has continued all the positive measures announced in the previous budget (Carpe Diem) as well as filled the missing gaps.

A 35% increase in capex while running a higher fiscal deficit for the 3rd consecutive year requires both courage, conviction & long-term thinking. The good part is that a higher fiscal deficit is attributed mainly towards capex instead of opex, and we all know that the impact of capex lasts over a very long time while the impact of opex is short lived.

This budget has once again put a lot of emphasis on fixing structural issues instead of taking short term measures and continues focus on making India Atma Nirbhar:

1. Large allocation to capex (highest ever @ INR 7.5 lakh crores!): Capital Expenditure as a % of GDP has been on a constant rise and what is important is, this is the government’s capex. Private Sector will only accelerate the investment cycle further – with deleveraged balance sheet and higher capacity utilisation. Additionally, higher capex will also kick start the credit growth.

2. Rejig of customs duty to further boost domestic manufacturing: The Budget has a gradual phase out of concessional tariff rates offered for capital goods and project imports further propelling Make in India. The Union Budget 2022-23 has proposed a 7.5% tariff on all such products and services.

3. Extension of Credit facilitation for MSME by Rs 500bn amounting to Rs 5tn till Mar 2023 will also aid smaller companies to participate in their own way, especially those coming out of difficulties faced on account of Covid.

4. Continuity of tax reforms – India continues to be the lowest tax jurisdiction for manufacturing. Further the FM has extended the benefit of lower taxation at 15% to new manufacturing units by one more year till 2024.

5. Digital Thrust - India is one of the first few large nations to start official and regulated digital currency while taxing the unregulated one. The Government continues its initiatives across sectors keeping digital at core with setting up of digital banks, inclusion of post offices in core banking system, national digital health eco system, one nation one registration software for registration anywhere, digitization of land records etc.

Many other initiatives also like earmarking 68% of the defense capital procurement for the domestic industry, assigning infra status to data centers, digitizing rural India, Additional allocation for boosting housing, setting up universities in GIFT IFSC etc. are progressive.

If we see the cumulative effect of all the above measures, it clearly shows the Government’s commitment towards enabling manufacturing in India moving from 15% of GDP to 25% of GDP (from USD 450bn to USD 1tn) in next 5 years – one of the key pillars for which we have curated a portfolio under The Carnelian Shift Strategy.

There will be a much higher second and third order impact like higher job creation, higher spending thus creating a snowball kind of impact fueling growth. This continues to reimpose our faith in India’s journey towards USD 5tn economy.

To summarise, Budget 2022 is very progressive, growth oriented and balanced. It places growth in priority over fiscal consolidation. Budgets estimates are conservative and has restored credibility to it. Comprehensive plan on integrated infrastructure keeping digital at core is heartening.

We are in one of the most interesting wealth creation journeys over the next few decades driven by a combination of enabling government, risk taking entrepreneurs, skill set advantage & conducive global environment. We continue to believe in our thesis of once in life time SHIFT towards manufacturing in India and digital revolution from India.