Impact of Budget 2021–22 on Infrastucture and Oil &Gas Industries
Impact on Infrastructure Sector:
This year saw a massive push for infrastructure in the budget, with many key announcements being made. Some of the key proposals are as follows:
1) Capex allocation for FY 2022 has increased by 26% over fiscal 2021 RE to 5.54 lakh crore. This will lead to higher dependency on Government spending, which is expected to rise to 46% in fiscal 2022. This move is also expected to provide stability and transparency in capex allocation and spending. However, including the Internal and Extra Budgetary Resources (IEBR), the capex allocation is up by only 5%.
2) The budgeted infrastructure allocation for nine core sectors — civil aviation, new and renewable energy, power, railway, roads, shipping, rural development, urban development and water resources went up by almost 15% over fiscal 2021 RE.
3) Modes to finance infrastructure development, such as a DFI (development finance institute), zero-coupon bonds by infrastructure debt funds (IDFs) and debt financing of investment trusts and real estate investment trusts. The implementation of these policies is the key for their success.
4) Setting up a National Monetization Pipeline
Clearly, the Government’s intention was clear when it came to infrastructure. An increased capex and leveraging the multiplier effect of investing in all of the 9 core infra sectors (such as Railways, Infrastructure etc.) bodes well for industries as a whole. Hence, one could have observed a 6% jump in S&P BSE India Infrastructure Index. When the Finance Minister announced the National Infrastructure Pipeline in the last year’s budget with an ambitious expected outlay of more than Rs 100 lakh crore, it baffled many. However, this year, the announcement of setting up a Development Finance Institute (DFI) with an initial capital of Rs 20000 crore has struck the right chord with the market. However, since the Government spending is expected to increase, one needs to wait and see how this might affect the deficit.
Looking at the stock market, this announcement is seen as a step in the right direction according to many as they believe it would lead to higher road awarding and construction. This in turn would benefit the cement manufacturers. These major investments in roads and highways, housing and construction could greatly benefit the cement companies, especially those in South and East India as major constructions are planned in these regions. Hence many investment houses and analysts remain bullish on infra and cement stocks.
This move to launch a DFI, and allowing IDFs to issue zero-coupon bonds will also act as a stimulus to the bond market and benefit market participants. The legislation for setting up a DFI will allow private sector players to form DFIs as well. Furthermore, rationalizing the rules for international investors to invest in infrastructure projects in India through the AIF, InvIT and IDF routes is also seen as a big plus for the development of capital markets. However, the aggressive push for spending and borrowing saw a negative reaction in the debt market. The benchmark bond yield surged as much as 17 basis points, bringing down the prices.
Impact on OIL AND GAS Industry:
Some of the key points announced for this sector in the budget are as follows:
1) The Pradhan Mantri Ujjwala Yojana to be extended to cover 1 crore more beneficiaries. These additional LPG connections can help the government achieve 100% penetration
2) Agricultural Infrastructure and Development Cess (AIDC) of Rs 2.5 and Rs 4 per litre on Petrol and Diesel respectively.
3) Gas pipeline to be launched in Jammu and Kashmir
4) Bharat Petroleum Corporation Limited (BPCL) will be privatized in fiscal 2022
5) City gas distribution networks to be expanded to 100 additional districts over the next three years.
Oil and Gas sector was affected significantly due to the onset of COVID — 19 pandemic. Global crude demand fell by almost 30%
The proposed AIDC Cess of Rs 2.5 and Rs 4 will have no impact on the retail selling price of Petrol or Diesel. The reason for this being a decrease in both the basic excise and additional excise duty of both Petrol and Diesel.
One can also see that the government has budgeted Rs 14073 crore for petroleum- related subsidies. It also expected that the private participation in the refining and marketing sector will increase as a result of privatization of BPCL. This can help the Government meet its divestment targets it had set in the previous budget and help it get revenues. This could mean that the government intervention in this sector is likely to go down as well thereby leading to a more dynamic market and lesser politics when it comes to pricing.
Another key point here is the extension of gas grid, which augurs well for companies such as Petronet LNG, IGL and MGL. The proposal of extending gas grid from 16200 km to 27000 km got the shares of Castrol India, Gujarat State Petronet, HPCL and BPCL surge on the budget day.
Overall, the budget was clearly growth oriented and had set the right tone for an “Aatmanirbhar Bharat”. However, how the government will ensure a right mix of growth and spending remains to be seen in the times to come.
By Manish Yadavalli
Class of ’22 | Indian Institute Of Management Tiruchirappalli
