India FY20-21 Union Budget

Commentary by India Avenue India Avenue Investment Management (IAIM) – a boutique investment company focused on providing investment solutions for clients in Australia and New Zealand who seek exposure to India’s growth potential through its capital markets. The India Avenue Equity Fund is managed by the team at IAIM and has a bias towards companies which are experiencing strong growth through rising local demand.

The Government of India (GoI) is currently stuck in a dilemma between managing a challenging economic environment (slow growth, rising inflation and weak tax revenues) whilst maintaining fiscal prudence. Hence it was of little surprise to us that whilst the budget continued with its infrastructure push, simplification of the personal tax regime for middle income taxpayers and improvising ease of doing business, to a large extent their hands were tied.

This is evident from the fact that the Budget off balance sheet funding has grown 8% over FY20. Having said that, we expect that spending will likely pick up significantly in FY21 (April 2020-March 2021). Below are some of the key aspects of this year’s budget.

Fiscal Deficit

GoI raised the FY20 fiscal deficit target to 3.8% of GDP from 3.3% set earlier. The fiscal deficit target for FY21 was set at 3.5% of GDP.


GoI raised the divestment target to INR 2.1tn (USD 29bn), more than double the previous year’s target of INR 1.05tn (USD 15.2bn). Privatisation examples include a few big ticket SOE’s like Bharat Petroleum Corporation Limited and a stake sale via an IPO of India’s largest life insurance player, Life Insurance Corporation of India.


A 100% tax break was offered for sovereign wealth funds for investment in infrastructure. A reduced tax rate of 15% for new power generation investment. Removal of dividend distribution tax at the hands of the company and charging it in the hands of shareholders at their individual rates (particularly beneficial to foreign companies as they are subject to a withholding tax of merely 5-10%).


The GoI continues to emphasise infrastructure as its key development focus. Key areas include building 100 more airports by 2024, development of 9,000kms of economic corridors, 2,000kms of coastal roads connecting ports and 2,000 kms of strategic highways.

Measures to attract foreign capital

Proposal to increase foreign portfolio investor limits in corporate bonds from 9% to 15%. Tax exemptions for Sovereign Wealth Funds fulfilling certain conditions, for dividends, interest and long-term capital gains arising from a debt or equity investment made in India.

Our View

The slowing economy and the Government’s current constraints to spend its way out of the slowdown remains a concern. This had led to a large dichotomy in returns with investors seeking “safety” in Large cap names. Names outside the top-15 have fallen significantly and priced in this concern over the last 2 years whilst India’s mega caps reach all time high prices and valuations. We emphasise that India is a not simply a beta story, as the country rapidly changes, typical of an emerging market country. India today will look markedly different in 5 years’ time and astute investors need to be ahead of the curve to fully participate in India’s ascent to the 3rd largest economy by 2025.


Commentary by India Avenue Investment Management (IAIM)

Author: Stephen Manallack

Former President, Australia India Business Council, Victoria and Author, You Can Communicate; Riding the Elephant; Soft Skills for a Flat World (published by Tata McGraw-Hill INDIA); Communicating Your Personal Brand. Director, EastWest Academy Pty Ltd and Trainer/Speaker/Mentor in Leadership, Communication and Cross Cultural Communication. Passionate campaigner for closer western relations with India. Stephen Manallack is a specialist on “Doing Business with India” and advisor/trainer on “Cross-Cultural Understanding”. He is a Director of EastWest Academy Pty Ltd which provides strategic advice and counsel regarding business relations with India. A regular speaker in India on leadership and global communication, his most recent speaking tour included a speech to students of the elite Indian university, Amity University, in Noida. He also spoke at a major Federation of Indian Chambers of Commerce and Industry (FICCI) global summit, the PR Consultants Association of India in Delhi, the Symbiosis University in Pune and Cross-Cultural Training for Sundaram Business Services in Chennai. He has visited India on business missions on 10 occasions and led three major trade missions there. He provides cross-cultural training – Asia and the west.

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