Union Budget Review | An all-caring Budget sans populism
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The eminent jurist and taxation expert Nani Palkhiwala divided finance ministers into two categories- tinkerers and structuralists. Tinkerers are those who tinker with policies every now and then. Structuralists are those who implement structural reforms that produce far reaching positive and profound consequences in the economy. The great Budget presented by Manmohan Singh in 1991 was a structuralist budget. That Budget initiated the much needed liberalisation of the Indian economy and catapulted the Indian economy into a higher trajectory of growth, which after three decades has made India the fifth largest economy in the world. Nirmala Sitharaman’s 2023 Budget is a classic structuralist Budget.
Global economy is in a serious slowdown in 2023. If this slowdown is not to impact India’s growth, we need bold steps. And, this is exactly what the finance minister Nirmala Sitharaman has delivered through her Budget proposals.
India is the fastest growing large economy in the world now with a GDP growth rate of around 7 percent in FY23. In spite of the ongoing global slowdown, India will continue to be the fastest growing large economy in the world in FY 24, too, as per data from the IMF.
Fiscal prudence, not populism
Financial stability is imperative for sustained growth. To achieve macroeconomic stability, fiscal deficit and current account deficits should be under control. The fiscal deficit target of 6.4 percent of GDP for FY23 has been achieved and for FY24 the target has been set at 5.9 percent and the fiscal consolidation glide path sets the fiscal deficit target below 4.5 percent for FY26. This fiscal consolidation will instil a lot of confidence in investors about the India Growth Story.
Massive capex to push growth
To sustain the growth rate in India, it is imperative to increase the capital expenditure. Private capex, though improving, has not really taken off. Therefore, the government has been doing the heavy lifting in capex. The finance minister has given a big boost to capex by raising the capital expenditure in the Budget by 33 percentage to Rs 10 lakh crores from 7.5 lakh crores in FY23. This massive capex will crowd-in private investment and help achieve the GDP growth target of around 6.5 percent for FY24.
Railways have received a massive outlay of Rs 2.4 lakh crores. Allocation for National Highways has been raised to Rs 2,71 lakh crores. 50 new airports are planned to be set up.
Tax relief for the middle class
Tax relief for the middle class will increase the disposable income and boost consumption. From FY24 onwards, there will be a big shift of tax payers to the new ‘no exemption tax regime’ which provide substantial benefit to the middle class. Under the new no-exemption tax regime, there won’t be any tax liability for those earning up to Rs 7.5 lakh income a year. This means, even if you earn 3.5 times the per capita income in India (Rs 1.97 lakhs), you don’t pay income tax. This is good tax relief.
Free food grains scheme to continue for one more year
The PM Garib Kalyan Anna Yojana under which five kilograms of food grains are given free to 80 crore people is proposed to be continued. This entails big food subsidy, but has ensured food security in India.
Senior citizen and women-friendly
The maximum deposit limit for senior citizens under the Senior Citizen’s Savings Scheme is proposed to be raised from the present Rs 15 lakhs to Rs 30 lakhs. The limit for Post Office Monthly Income Scheme has also been doubled. The FM has introduced a new Mahila Samman Savings Certificate Scheme which will give a fixed interest return of 7.5 percent for a limited period of 2 years.
Big outlay for PM Awas Yogana and Lal Jeevan Mission
One of the best welfare programs in recent times has been the PM Awas Yojana. 2.1 crore houses have been constructed and handed over to the homeless. To achieve the target of housing for all, the outlay for the scheme has been raised by 66 percent to Rs 79000 crore. The Jal Jeevan Mission for rural drinking water will get an allocation of Rs 70000 crores.
No hike in LTCG tax is a big relief for the stock market
From the market perspective, the biggest relief is that the much feared hike in the long-term capital gains (LTCG) tax did not materialise. The hyper volatility in the stock market on the Budget day was more due to the crash in Adani stocks. From the market perspective, this is an excellent budget that has delivered on all counts.
Fortunately, economics has dominated over politics in this Budget. As the finance minister said in her Budget speech, “India is on the right path and headed for a bright future.”
(The writer is the chief investment strategist at Geojit Financial Services)