FM loosens purse strings to please all in pre-poll Budget

In its last full Budget ahead of the 2024 general elections, Prime Minister Narendra Modi’s government cut personal income taxes to appease middle class voters and stepped up infrastructure spending to power growth in Asia’s No. 3 economy.

The ₹45-lakh-crore spending plan comes at a time India grapples with high levels of unemployment despite being one of the world’s fastest-growing economies. It is also part of an attempt to boost domestic consumption amid weakness abroad.

The adjustments in the income tax slabs “are likely to boost consumption and savings in the economy, benefiting taxpayers particularly at the lower brackets of the income pyramid”, said Abheek Barua, Chief Economist and Executive Vice President, HDFC Bank.

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The Budget has recognised that the government would have to continue playing the lead role in driving investments in the economy in the face of rising global risks and only a nascent recovery in the private-sector spending cycle, Barua added.

While the Modi government raised its capital investment outlay by 33 per cent to Rs 10 lakh crore for 2023-24 – one of its biggest jumps in infrastructure spending in the past decade – it also paid attention to the need for fiscal discipline in a bid to boost the country’s credit rating.

It cut India’s fiscal deficit target to 5.9 per cent of GDP in 2023-24 from 6.4 per cent in 2022-23. The resultant lower-than-expected market borrowing number is likely to bring some relief for the bond market.

The Budget sparked the sharpest rally in Indian stocks in more than four months but was short-lived as risks tied to Adani Group companies resurfaced to dampen investor sentiment, Bloomberg reported.

Insurance stocks tumbled after Finance Minister Nirmala Sitharaman announced a higher impetus for individuals to shift to the new tax regime, which seeks to do away with tax exemptions and deductions.

“Life insurance stocks witnessed significant selling on demand concerns as the Budget proposals made life insurance schemes less appealing as a tax-saving instrument,” said Cyril Charly, Research analyst at Geojit Financial Services.

Tax relief

The finance minister increased the exemption limit under the new tax regime – which was introduced in 2020 – by Rs 50,000 to Rs 3 lakh. She also proposed to increase tax rebates and rejigged tax slabs to make the new tax regime more attractive.

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People opting for the new tax regime, with annual income up to Rs. 7 lakh, won’t have to pay any tax. Currently, a person with an annual income of up to Rs 5 lakh is not required to pay any tax in the old and new regimes.

Sitharaman said the proposed changes “will provide major relief to all taxpayers in the new regime”.

For instance, an individual with an income of Rs 9 lakh would have to pay tax of only Rs 45,000, 25 per cent less than what he or she is required to pay currently. Similarly, an individual with an income of Rs 15 lakh would be required to pay tax of only Rs 1.5 lakh, 20 per cent less than the existing liability of Rs 1,87,500.

The finance minister announced a steep hike in capital expenditure and the biggest ever outlay for railways. The new capital investment outlay is around 3.3 per cent of GDP, almost three times the figure in 2019-20.

“The budget has ticked all the right boxes and looked at managing market aspirations and realities on the ground continuing with fiscal consolidation while also ensuring that money is spent towards capital creation,” said Sanjay Kumar, Partner, Deloitte India.

Kumar said the fiscal deficit target of 5.9 per cent of GDP along with conservative growth in tax receipts of around 11.7 per cent seemed achievable and in line with market estimates.

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To finance the fiscal deficit, the net market borrowings from dated securities are estimated at Rs. 11.8 lakh crore. The balance financing is expected to come from small savings and other sources. The gross market borrowings are estimated at Rs.15.4 lakh crore.

In Budget Estimates 2023-24, the total receipts other than borrowings and the total expenditure are estimated at Rs 27.2 lakh crore and Rs 45 lakh crore respectively. The net tax receipts are estimated at Rs 23.3 lakh crore.

Sectors such as agriculture, infrastructure, electric vehicles, tourism and green energy were some of the big winners on Budget Day. Defence, jewellers, cigarette makers, oil refiners and foreign carmakers were some of the biggest losers.

While the Budget also unveiled incentives for farmers, tribals and women, it cut the outlay for the rural job scheme and food, fuel and fertiliser subsidies to maintain fiscal discipline targets.

Current financial year

The allocation for the Mahatma Gandhi National Rural Employment Guarantee Act scheme in 2023-24 has been cut to Rs 60,000 crore, which is around 32 per cent lower than the revised estimate of Rs 89,400 crore for the current financial year.

The overall subsidy bill is estimated to come down to Rs 4.03 lakh crore, 28 per cent lower from Rs 5.62 lakh crore in the current fiscal as per the revised estimates.

Opposition parties criticised the government for ignoring the problems of the poor.