The Budget 2023, presented on the foundation of India@100, continues to focus on long-term reforms and sound policies. India’s rising global prominence has been the focal point underpinned by marquee achievements in the field of digitisation, Covid-19 vaccination and India’s proactive role in achieving climate-related goals.
This year’s Budget has been a notable example of the government’s objective to uplift the middle-class population. The much-expected relief in the personal income-tax regime by increasing the exemption limit and reducing the highest effective tax rate to 39 per cent only, from 47.7 per cent, is a huge positive for the capital markets.
The government continued with its focus on fiscal consolidation and reiterated its commitment to bring down fiscal deficit to 4.5 per cent of GDP by FY26. The fiscal deficit has been maintained at 6.4 per cent of GDP in FY23 as against 6.7 per cent of GDP in FY22. For FY24, the fiscal consolidation is likely at 50 basis points, thereby reducing the deficit to 5.9 per cent of GDP.
Achieving the FY26 target is definitely a tall task, but can be attained if tax receipts continue to be as buoyant as the previous two years. Moreover, India’s expected tax buoyancy has been raised to 1x in FY24E from 0.8x in FY23, although this is still below 1.1x in the pre-Covid period (five-year average).
The government has budgeted capex to grow sharply by 35 per cent year-on-year in FY24E as against an expected rise of 16 per cent y-o-y in FY23. All three major areas of capex — defence, railways and roads, and highways — are expected to see higher growth next year.
From a capital markets perspective, the Budget turned out to be a balanced one with no major disappointments.
The Budget had a strong focus on capex and infrastructure development as well as giving more money in the hands of the middle-class and improving agri income and job creation through skill development for the weaker section. The new increased tax rebate would benefit the salaried class and help in boosting consumption.
On the capex front, the Budget has increased capital expenditure by a massive 33 per cent y-o-y to ₹10-lakh crore (3.3 per cent of GDP). The Budget has proposed a record allocation of ₹2.4-lakh crore for Railways, focused on development of 50 additional airport facilities, planned investments of ₹10,000 crore per year in urban infrastructure and identified 100 critical transport projects. This would attract large investment benefiting infra, and cementing railways, road and defence sectors.
With continued focus on providing housing to poor, allocation under Pradhan Mantri Awas Yojana was increased by 66 per cent y-o-y to ₹79,000 crore; this will further boost real estate and related sectors.
The Budget also focused on boosting tourism, enhancing digital infra, hydrogen and green energy development. The proposed outlay of ₹35,000 crore for energy transition investment and ₹2,070 crore for renewable energy plant in Ladakh are some of the proposed green energy projects. The proposition to setup data centers and enhance digital infra for farmers were among the few key announcements under digital infra boost. The Budget also proposed on completely scrapping old government vehicles, which would boost CV sector demand, going ahead.
To further boost MSME sector and revive post-Covid slowdown, the Budget also revamped CGTMSE with the infusion of ₹90,000 crore, which will enable additional collateral-free guarantee credit of ₹2-lakh crore. Overall, the Budget reaffirmed continuity in policy decision-making, with a strong focus on capex and infra-led spending for sustainable long-term growth, and transparency in numbers with no disappointments. The optimism as far as continued higher tax collections and faster capex is concerned will be something to look forward to.
The author is MD & CEO, Motilal Oswal Financial Services Ltd