Finance Minister Nirmala Sitharaman is set to present the first budget of the Modi 3.0 government, amid increasing demands for tax relief and job creation. This budget is expected to focus on infrastructure development in line with Prime Minister Narendra Modi’s Viksit Bharat 2047 Vision, while maintaining fiscal prudence.
Finance Minister Nirmala Sitharaman is poised to make history by presenting her seventh consecutive budget, a record previously held by Morarji Desai, who presented six budgets. Posing with a tablet wrapped in a ‘bahi khata’-styled pouch carrying the budget documents before leaving for Parliament, she sparked anticipation for potential tax relief measures aimed at boosting middle-class consumption. Experts, however, suggest that the budget will balance populist measures with a strong economic growth strategy rather than focusing solely on populism.
Overall, the budget is anticipated to blend populism with prudent fiscal policies, aiming for both short-term relief and long-term growth. Highlights of the budget are expected to include income tax relief, infrastructure development, job creation, and boosting farmers’ income. While some populist measures may be included, experts believe the government will prioritize fiscal discipline, significantly impacting the economy and citizens’ lives.
A major focus could be on revamping the production-linked incentive (PLI) scheme to include more employment-generating sectors. The government plans to tweak the scheme to encompass labor-intensive and MSME-linked enterprises. The total PLI incentive is projected to rise from Rs 2,002 crore in FY23 to Rs 14,167.1 crore in FY25. New PLI schemes for textiles, leather, footwear, toys, and other sectors may be introduced to boost job creation and exports.
Stock market investors are hoping for potential incremental changes to the capital gains tax in the upcoming budget, aiming to simplify the complex tax structure. While significant rate changes are unlikely, experts suggest rationalization measures to build investor confidence. The government may standardize holding periods and potentially cap capital gains tax rates to ensure stability and attract investments.
The budget is expected to address key aspects of the new income tax regime. High anticipation surrounds potential rationalization of tax slabs, particularly for those with incomes between Rs 15-20 lakh. There is also speculation about increasing the exemption limit from Rs 3 lakh to Rs 5 lakh and raising the standard deduction from Rs 50,000 to Rs 1,00,000. These changes aim to make the new income tax regime more taxpayer-friendly. While the new regime may see changes like rationalized tax slabs and increased exemptions, the old regime is expected to remain unchanged, with the government focusing on improving the new tax regime to benefit high-income earners.
With an expected boost in capital expenditure and policy continuity, key sectors like defense, infrastructure, and PSUs are poised to benefit significantly. Investors anticipate increased allocations, policy support, and potential reductions in Securities Transaction Tax (STT). The budget is also expected to extend the successful Production Linked Incentive (PLI) schemes and announce new infrastructure projects.
A boost in consumption is expected to benefit sectors like consumer goods, real estate, and automobiles, with increased allocations for rural schemes and affordable housing. Key players such as Hindustan Unilever, Dixon Technologies, and Tata Motors could see gains. However, any changes in capital gains tax or reductions in EV subsidies might negatively impact equity markets and benefit hybrid vehicle manufacturers like Maruti Suzuki.
Budget 2024 may feature a slight reduction in the fiscal deficit target, potentially bringing it to 5% of GDP or lower, according to media reports. This adjustment reflects the government’s effort to manage finances amid coalition demands. A lower deficit could benefit India’s bond market, with benchmark yields nearing a two-year low.
The Economic Survey 2023-24 has projected India’s growth at 6.5% to 7% for the fiscal year, lower than previous estimates and last year’s 8.2%. Chief Economic Adviser V. Anantha Nageswaran cites geopolitical risks and cheaper imports as potential challenges, despite the economy’s resilience. The survey highlighted the need for both private and public sector support to sustain growth and manage inflation effectively.
Domestic markets are likely to remain under pressure today as investors remain cautiously optimistic, with high expectations for tax relief and potential changes to capital gains taxation. While there is cautious optimism for measures to boost consumption and infrastructure, any disappointment, especially regarding capital gains tax, could lead to a market correction. Going forward, the momentum of the stock market will depend on Finance Minister Nirmala Sitharaman’s budget announcements.
