UNION BUDGET '23

Union Budget Expectations | Ahead of election year, FM to focus more on infra push, rein in on populist measures

Finance Minister Nirmala Sitharaman will deliver her fifth straight Union Budget on Wednesday. As she spends the day finalising the minute details, expectations are high that the full budget of the Narendra Modi government would stay clear of populist measures and look to shore up investor sentiment.

Though the International Monetary Fund (IMF) has sounded of a global economic slowdown, we remain cautiously optimistic about the Indian economy and the GDP to maintain reasonable growth momentum. India could see growth between 6.5 and 7.1 per cent during FY2022–23 and 5.5–6.1 per cent in the following year.

As in the previous budgets, the flag-bearing economic programmes of the Modi government are likely to get further push. We anticipate a continued focus on production-linked incentives for new sectors and a supply/demand push toward renewable energy and alternative technologies. While Atmanirbhar Bharat Abhiyan (plan to enhance local manufacturing and exports, while managing imports) will continue in the coming year, we might also see infrastructure expansion in defence, railways, ports and roads.

Focus of capex
We expect decent capital expenditure outlay with higher allocation for defence, roads, metro projects, housing and Railways. We believe that Sitharaman’s final full-year budget before an election season will address issues of rising unemployment and look at supporting the poor and middle class. But at the same time, we expect her to stay away from spending way beyond the country’s means as the government seeks to shore up investor sentiment.

As for the capital markets, stock investors expect some relief in securities transaction tax. With trading volumes increasing rapidly and demat accounts almost touching the 11 lakh-crore mark, this number has become big. The ongoing demand for rationalising tax on long-term capital gains tax and dividends is perennial.

Boon for the middle class
The middle class is the backbone of the economy. They’re the main drivers of consumption and economic growth. Hence there needs to be a special focus on them. The government must consider tax benefits to the middle-class consumer, the salaried employees who have paid their taxes honestly always. The finance minister may increase the limit for the highest income tax slab from Rs 10 lakh to Rs 20 lakh and reduce the highest tax rate from 30 to 25 per cent.

Salaried employees may also see a hike in deduction available under section 80C to Rs 2 to Rs 2.5 lakh. We also expect a hike in standard deduction from Rs 50,000 to Rs 1 lakh, which will have a significant impact on their finances and expenses.

In line with the increase in healthcare spending over the past couple of years, the allocation for public healthcare might see a record increase to 2.5% of GDP by 2025. The government may also tap into the public-private partnership model to ramp up primary healthcare infrastructure in the nation.

Schemes for new and emerging sectors
The Union Budget FY2023 will broaden the production-linked incentives (PLI) scheme or introduce the Phased Manufacturing Programme (PMP) for new products and consider the upcoming potential industries, especially with India’s exports aiming to reach $1 trillion by 2025.

Policies that focus on strengthening Farmer Producer Organisations (FPOs) play a crucial role in driving the adoption of best practices. In addition, public-private partnerships are crucial for the adoption of digital technologies in agriculture and its allied sectors. The government can further incentivise and encourage organised players to modernise the sector.

Further, the government can provide low-interest loans, tax incentives, etc., to encourage startups to develop innovative solutions. These agri-tech startups can build a more resilient agricultural ecosystem, improve accessibility for smallholder farmers, and train them in best practices and sustainable solutions in a faster way.

The government should create policies to provide attractive incentives to build facilities, such as micro cold storage to address supply chain issues (lack of proper storage infrastructure, inadequate logistics, high levels of wastage, etc). It should provide financial incentives, training, infrastructure, and marketing facilities to entrepreneurs to set up businesses, such as food processing and milk processing plants. In addition, the government should increase investments to improve infrastructure, including irrigation facilities, logistics, warehousing, and silo storage facilities across states.

In the coming budget, the government should also consider rationalising GST rates on FMCG products and easing compliance rules and processes, particularly in terms of food safety and hygiene standards.

(The writer is the Managing Director of Ahalia Fin Forex)