The FM started the speech by reinforcing the India growth story, highlighting how India grew at 7% last fiscal, and the Indian economy has increased in size from being 10th to 5th largest in the last nine years. She soon shifted her focus on the welfare agenda by announcing that the centre would spend ₹2 lakh cr on free food grains for all priority households.
The big announcements were a 33% increase in Capex, which was beyond estimates. Another significant announcement typical for the election year was increasing tax exemption up to 7 lac per year from 5 lac per year in the next tax regime and further rationalising taxes.
The FM broke up her focus into seven key areas:
- Inclusive developments,
- Reaching the last mile,
- Infrastructure and investment,
- Unleashing the potential,
- Green growth,
- Youth power and finances.
Budget impact on stock market
- The budget has received a big welcome from the market and the public.
- The tax relief has been welcomed as a big welcome sentiment move, cheering the broader markets, but the larger benefit for the taxpayers is debatable.
- The infrastructure push would boost India’s goal to become the manufacturing hub for the world and enhance the ease of doing business.
- Capital goods, cement, railways, infrastructure, and railways sectors are topping the charts with this move.
- The travel sector is booming due to the travel SOPs, and other industries like seeds, agro chemicals are also booming.
- The theme of fiscal prudence was also pushed, which calms the market's nerves.
- PSU banks continue to lag, and energy has lagged.
First big announcement - Capex
Big announcements were - an increase in total capital investment outlay by 33% to 10 lac crore, making effective capex 13.7 lac crore, forming 4.5% of GDP. This is far above our expectations of 3.5% and should boost the infrastructure, capital foods, logistics and railways. Railway outlay was highest ever at 2.4 lac crore. Critical projects for urban development and transport enhancements were announced. Nifty Infra jumped on this news. She also included Artificial Intelligence and Data Governance in her Infrastructure development announcements.
The 50-year, interest-free loan to states for capex purposes has now been increased to ₹1.3 lakh crore, 30 per cent more than what was allocated for 2022-23.
Equity indices welcomed the infrastructure spending announcements. But bond yields climbed two basis points to 7.38% since the FM announced the hike in capex outlay.
With a bumper increase in capex, PM Awaas Yajna's outlay and a hike in Railway capex the Modi government, in its last Budget, has targeted job creation and infra development over populism.
Second big announcement - Personal income tax
In an announcement typical for the pre-election budget - in the new tax regime, she increased the tax exemption up to 7 lac per year from 5 lac per year. She has reformed the rates of taxation with 0 tax up to 3lacs and reformatting of the overall personal tax regime She reduced the tax surcharge rate to 25% from 37%. She estimated an outlay of 35000 crores due to this.
The broader benefit to the middle-class income taxpayer is debatable as in the new regime the 80C benefits are lower. The largest taxpayers will see the benefits of this move.
Ease of doing business
More than 39,000 compliances have been reduced to enhance the ease of doing business, and over 3,400 legal provisions have been decriminalised. The Union Government has smartly used settlement schemes, often open-ended, to garner additional revenues and resolve long pending tax and contractual disputes.
Maintaining the focus on green energy, the FM announced ₹35,000 crores in priority capital for energy transition, among other incentives for the sustainable sector.
For the MSME Sector, the government enabled credit guarantee for MSMEs by allocating 9000 crores to it. This will enable an additional collateral-free credit guarantee of ₹2 lakh crore rupees, which will lower the cost of credit by 1 per cent.
She discussed a comprehensive review of existing regulations for the financial sector and focused on including private sector contributions to regulatory reviews. No capitalisation of the banking sector was announced, or capital tax structure changes were announced. The NSE PSU Bank index is under pressure, down 0.74 percent even as the Nifty Bank Index is up 1.2 per cent.
A National Data Governance Policy will be brought out to unleash Innovation and research by Startups and Academia. This will enable access to anonymised data.
She estimated the fiscal deficit target for FY24 to be 5.9%, and she reinforced her focus on reducing the fiscal deficit to below 4.5% of GDP by 2025-26. The FY23 fiscal deficit target was retained at 6.5%. The FY24 fiscal disinvestment target remained at 61,000 crore.
New industry support
Custom duty support for mobile phone manufacturing components, televisions, electrical chimneys and the chemicals industry, especially ethanol blending, was announced. Custom-duty SOPs for synthetic metals were also announced. NCCD for cigarettes was increased to 16%.
Corporate tax reliefs
Indirect tax proposals aimed to promote exports, boost domestic manufacturing, enhance domestic value addition, and encourage green energy and mobility. She said that a simplified tax structure reduces compliance burden and improves tax administration. She also extended the tax-exemption benefit duration for startups.
Sonam Srivastava is the smallcase manager & Founder of Wright Research.