Budget with heart at the right place!

Union Finance Minister Nirmala Sitharaman kept her budget speech short (her shortest so far) at 1hr 30 mins this time. Taking a cue from her, shall we keep our note short and cover just a few critical points below.

  1. Indian economy predicted to grow at 9.2% this FY. This comes on a shrunken base of -6.6% last year.

  1. Budget 2022 gives a major push on capital expenditure which should benefit the economy in long run. Creating lots of job opportunities, boost local manufacturing and is a big positive for Infrastructure sector as a whole. Roads, railways, ports, airports, solar, hydro, green energy, 5G auctions, extension of PLI scheme, Defence, Make-in-India manufacturing – all aspects have been squarely touched upon in this budget. This is classical Keynesian theory in play as capital expenditure should lead to job creation which should have a domino effect of consumption spending.

  1. There are no changes announced in Direct Taxation for individuals as the government seems keen to pursue a stable predictable tax regime.

  1. One of the key changes introduced is the tax on Virtual Digital Assets (read cryptos, NFTs etc). Any transfer of such assets will now be taxed at 30%. TDS deduction of 1% has also been introduced on purchase of such assets. Even gifting of such assets has been made taxable and there are no set-offs allowed against the gains or losses made on such assets. This clearly is Govt’s way of checking the ever-expanding crypto mania. But in a way introduction of taxes also legitimates the existence. Finally Government has called them “Assets” !

On a side note, a surcharge on all long-term gains from any asset has been capped at 15% now although more clarity on this point might be gleaned from the fine print in due course of time.

  1. RBI to launch Digital Rupee this year itself – paving the way for Digital Currency based on blockchain technology. This clearly is a push towards a more cashless society and efficiently governed currency.

  1. Divestment Target for FY23 has been set at 65000 Crs. This is a fairly muted number but on second thoughts looks quite achievable for a change. We have a long legacy of setting huge disinvestment numbers and then gladly missing them.

  1. Last and most important, Fiscal Deficit number for this financial year has been revised to 6.9% of GDP and the number for FY23 has been pegged at 6.4%. This seems to be a print which is within the tolerance range of market. However, Bond markets have not shown much liking to expenditure numbers and the yields across the curve for all tenors have shot up by 2-3% (which is huge for a single day). Bond markets are also not happy about the miss on regulatory/tax changes which could have led to inclusion of Indian bonds in the Global Bond Index (clearly getting the much coveted FPI flows in Indian bond market).


The key role of the Government is to push for planned capital expenditure to improve the state of the economy and create more jobs. Clearly, this budget addresses that area significantly. And if the numbers were to be put to actual work – there is no doubt the Indian economy will see a mega infra push.

Budget 2022 has its heart in the right place. We believe it’s a clear positive for Equity markets but a tad negative for bond markets.