While the union budget for 2024 was comprehensive, covering multiple aspects, it still invoked all kinds of emotions from various parties from different sectoral backgrounds. That said, it struck a balance between capital expenditure, fiscal prudence, and social welfare.
The Government continued to prioritise spending on essential infrastructure while managing expenditures on social welfare schemes. The projected central fiscal deficit is 4.9% in FY25 (Budgeted Estimates), reflecting the Government’s commitment to fiscal prudence. This is lower than the interim budget’s projection of 5.1%. The Government aimed to achieve this through an increase in direct taxes, an increase in indirect taxes, and an upward revision of non-tax revenues.
The increase in non-tax revenues is driven by an additional Rs 1.3 trillion surplus transfer from the Reserve Bank of India. This has also aided in spending for lower-income demographics.
Within spending, the capital expenditure allocation mirrors the interim budget which includes roads and highways (Rs 2.7 trillion), railways (Rs 2.5 trillion), and loans to states for capital expenditure (Rs 1.7 trillion). But revenue spending, targeting lower-income groups, including rural populations, agriculture, and MSMEs, has risen. The budget also includes some schemes for employment and skill development in manufacturing and other sectors. A new credit guarantee scheme to support labour-intensive MSMEs was also introduced.
While a few tax rationalisation measures have dampened the investors’ sentiment, the impact on the equity market is not expected to be significant. As such, during the budget day, the equity market had a knee-jerk reaction, declining little more than 2% on account of increasing securities transaction tax (STT) and capital gains tax. However, the market soon recovered as the budget’s effect on capital gains tax is not anticipated to have a lasting negative impact on investments.
Earnings, rather than the budget’s provisions, are expected to be the primary driver in the equity markets. The focus is on consumption over capital expenditure.
View on the Budget – ARUN SUBRAHMANYAM
What is your take on the budget?
FY25 Union Budget continued to follow the path of fiscal consolidation. Major proposals of the budget:
- Lowering of fiscal deficit targets
- Rationalisation of capital gains tax across asset classes, albeit raising taxes on equities
- Direct benefit schemes aimed at job creation.
Lower fiscal deficit should eventually help India’s credit rating, and reduce pressure on interest rates. A sharper increase in short-term capital gain taxes is likely to restrain speculation, and possibly reduce volatility. Overall, budget impact is neutral to marginally positive for the market.
How will you rate the budget, for favouring companies, capex, fiscal, and individuals, between 1 and 10?
Key positives are :
- Maintenance of capex growth plan at 16% Reduction of fiscal deficit targets from 5.1% to 4.9% for FY25, and further to 4.5% in FY26
- Direct benefit transfer for new employees as well as low-end employees, which will increase jobs and boost consumption
- Rationalisation of taxes on capital gains with one rate of 12.5% across several asset class will lessen compliance burden
The key negative is an increase in capital gains tax on equities.
List out the sectors/themes that could benefit from this budget
Rural Consumption
Rural consumption benefits from cash benefit schemes which is essentially targeting low-end unskilled jobs.
Private Capex
Private capex to pick up due to:
- Softening of interest rates
- Decline in hiring costs for entry-level workers
- Increased disincentive on distribution of profits to shareholders e.g buy-back.
What was the one key budget expectation that was not fulfilled?
Expectations to increase PSU divestment, taking advantage of rich valuations in the market to increase capex and support to lower-end of income strata. More could have been done to push consumption.
One announcement that stood out the most for you
An announcement on cash benefits for new jobs and low-end jobs that could yield about
Rs15,000, benefits to about 29 million youth is the most stand-out announcement for us.