India ramps up spending, cuts deficit in last budget ahead of 2024 vote
India’s government will raise its capital expenditure by 33 per cent to Rs 10 trillion ($122.29 billion) in the next fiscal year, the finance minister said on Wednesday (1), as Prime Minister Narendra Modi tries to create jobs ahead of a general election.
Since taking office in 2014, Modi has ramped up capital spending including on roads and energy, while wooing investors through lower tax rates and labour reforms, and offering subsidies to poor households to clinch their political support. Here’s what experts said about the budget:
B GOPKUMAR, MD AND CEO, AXIS SECURITIES
“An extremely well-balanced budget focused on growth driven by capital expenditure while giving an adequate push to rural welfare and agriculture.
“Government borrowing is well-calibrated, and it is a significant positive. The fiscal deficit target of 5.9 per cent indicates a considerable degree of prudence. On top of this, relief to the middle class on the income tax front is the cherry on the cake.”
“At this point, it is difficult to find any shortcomings. The budget has delivered on all the expectations very well. In the short term, we expect the markets to move higher on the back of pro-growth measures announced in the budget and less fear of the government crowding out private investments due to fiscal prudence shown by the government.”
UMESH KUMAR MEHTA, CIO, SAMCO MUTUAL FUND
“The budget when dissected in three realms of Agriculture, Manufacturing and Services sector, it can be seen that it has done maximum for Agriculture and least for Services sector and specially for financial sector, as the budget’s inclination towards New Income Tax regime will reduce incentive to invest in financial products (including MFs’ ELSS, insurance premium etc). Or, for that matter, even the decade-old housing sector incentives for interest payments will be the least preferred option.”
“This budget, therefore, has rewritten the rules for financilisation of savings in India, which will induce expenditures rather incentivise savings. However, the fiscal deficit under control, no big disinvestment targets, no bigger borrowings and thrust on govt capex will keep the bulls happy on the stock markets.”
“India budget 2023 has offered a multi-dimensional view. The 3 Cs which stand out are – Capex increase – consumption boost – capital gains tax status quo. Mindful of the fact that there is hardly any space for fiscal expansion, FY24 fiscal deficit is pegged at 5.9 per cent and expected to see progressive reduction by FY 2026. Clearly a bull’s-eye budget satisfying most strata of the society and, of course, a thumbs-up from the market as well.”
SRIKANTH SUBRAMANIAN, CEO, KOTAK CHERRY
“The Union Budget was pragmatic, considering that the government has a tight rope between managing fiscal deficit and giving some relief to residents from high inflation. Higher capex spend, roadmap to reduce fiscal deficit and boosting consumption will provide a major leg-up to the economy, especially at a time when global growth has been hit hard by slowdown and recessionary fears. Finally, the overhauling of the income tax structure should add more money into the hands of the middle-class taxpayers. That would give a boost to consumption and increased allocation towards several investment options. Overall, it would leave more people with extra money in their hands and a smile on their faces.”
“As expected, the budget is heavy on capex, which is needed to ensure the cyclical recovery continues. Infrastructure, along with the agriculture push, will help the rural economy improve by boosting employment and incomes.
“Allocation to affordable housing… will help the housing market retain momentum. Incentives for local production in the form of lower duties will also be helpful.”
“Overall, this budget push on capex will ensure that the private capex greenshoots really sustain, help inclusive growth and make the economy become more resilient in light of the global slowdown.
“Both equity and bond markets have reacted positively to the budget, as the thrust to maintain cyclical recovery and largely maintain fiscal prudence has helped lift sentiments.”
CHRISTIAN DE GUZMAN, SENIOR VICE PRESIDENT, MOODY’S INVESTORS SERVICE, SINGAPORE
“The narrower deficit forecast in the government budget for 2023-24 underscores the government’s commitment to longer-term fiscal sustainability and supports the economy amid high inflation and a challenging global environment.
“Although changes to the tax regime will forego some tax revenue, the budget predicts largely buoyant revenue on the back of strong nominal GDP growth and gains from the tax administration. This will help mitigate pressures on debt affordability from increasing debt servicing costs associated with rising interest rates.
“At the same time, the budget’s continued emphasis on capital expenditure suggests an ongoing improvement in the quality of spending.
“Although the gradual fiscal consolidation trend remains intact and will help to stabilize the government’s debt burden relative to nominal GDP, the high debt burden and weak debt affordability remain key constraints that offset India’s fundamental strengths, including its high growth potential and deep domestic capital markets.”
VISHAL KAPOOR, CEO, IDFC ASSET MANAGEMENT, MUMBAI
“The Union budget FY24 presents a very well-considered and credible picture that prioritizes growth through its increased focus on capital expenditure while keeping the goal of fiscal consolidation on track.
“It offers stability for markets by not making any significant changes in the structure of capital gains taxes. Additionally, the budget has provided significant direct tax benefits to individuals which will help increase disposable income and support spending.
“Overall, the Union Budget FY24 presents a positive outlook for the economy and will help sustain growth.”
KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU
“On the face of it, it is quite a pragmatic budget with multiple appropriate measures and without dollops of populist measures, heading into elections. The FM tried to invoke a feel-good factor across classes and sectors. The poor, middle class and HNIs have some positive takeaways from the budget.
“Whether the lower tax outgo will spur consumption or inspire savings is a moot point. But either way, it will be positive for the economy. Adherence to fiscal prudence while emphasizing continued focus on capex is what we expected and has been delivered.
“Our pointed expectation on supporting green hydrogen has seen a rather impressive focus. However, we see some significant misses. For one, despite talking about a 25% increase in central government capex, total public capex is budgeted to increase by a mere 4% as the contribution of PSEs diminish drastically.
“Hence, it is unlikely to move the needle much except for direction and sentiment. Not a single mention of the word ‘inflation’ in the speech is somewhat worrying. Also, the budget did not talk about allocation to health and education, which is a worry for future growth prospect as India remains one of the weakest spenders on these areas globally.”
MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL, MUMBAI
“The budget has ensured the fiscal impulse is maximized to improve potential growth, while signalling adherence to medium-term fiscal sustainability. This requires continued financial sector reforms and better resource allocation. The expenditure focus has been on rural, welfare, infrastructure, PLIs (production-linked incentive schemes) and energy transition. Capex spend has picked up significantly to 3.3 per cent of GDP and is almost double pre-pandemic prints. This especially implies a larger fiscal multiplier on employment and growth and will support crowding in of still-lacking private capex.
“The tax benefits have been tweaked to encourage individuals to move towards the new tax regime and to provide relief to middle class, the while maximum marginal rate has also been reduced to 39 per cent from 42.7 per cent to give relief to the highest income strata. While the government is foregoing effective revenue of 350 billion rupees, this could have a consumption multiplier effect albeit at the margin, in the economy that’s seeing fading consumption growth.”
ABHISHEK JAIN, PARTNER, INDIRECT TAX AT KPMG INDIA, NEW DELHI
“The Union budget speech from an indirect tax perspective was customs-centric, with the intention to boost exports, domestic manufacturing/value addition.
“Customs duty rationalization for the green energy sector and exemption extensions to consumer electronics sector are noteworthy takeaways. Specific announcements on further PLI schemes and customs amnesty scheme may have provided further cheer.”
PALLAV PRADYUMN NARANG, PARTNER, CNK RK, NEW DELHI
“The Finance minister has delivered what looks like a blockbuster budget. While additional tax revenues are going to be collected from the rationalization of exemptions under sections 54 and 54F, sops have also been provided to the middle class by way of increase in the taxability threshold and revision of personal tax rates.
“It is also clear now that the government is aiming to move to a simplified exemption-less regime for taxation. The new slab rates should provide much-needed momentum to that endeavour.
“The reduction of the peak rates of surcharge is a most welcome measure and will go a long way in ensuring that highly paid professionals, businesses and AIFs stay within India.
“The increase of threshold limits for presumptive taxation for both professionals and small businesses is also a welcome step that will aid more savings and reduce the cost of compliance.”
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, MUMBAI
“The budget continues to focus on capex spending as the engine of growth while also paying heed to fiscal consolidation. The lower-than-expected borrowing number for FY24 is likely to bring in some relief for the bond market, although the absolute borrowings continue to remain high and are likely to put a floor for bond yields in FY24.
“Moreover, we remain cautious over the government’s ability to finance the fiscal deficit through the increased reliance on small savings despite the new schemes introduced as bank deposit rates rise.
“The consumption boost through income tax slab adjustment is a big positive and bodes well for overall growth and domestic demand in a time when global risks remain high.”
VIVEK KUMAR, ECONOMIST, QUANTECO RESEARCH, MUMBAI
“The 10 lakh crore rupees budget for capex will take the Capex/GDP ratio to 3.3%, a 20-year high. In the backdrop of an anticipated slowdown in global growth, reliance on public capex as a countercyclical policy will help in supporting overall growth. With state finances incrementally getting better, there is hope that this could be supplemented by an uptick in capex by states in FY24. This we believe would help attract private investments as soon as the global growth cycle stabilizes.”
UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
“The Union Budget has adequately focused on the holistic development of the economy with special emphasis on infrastructure, MSME financing needs and affordable housing. The surge in capex spending, if achieved, will assure a significant multiplier effect on the overall medium-term growth prospects of the economy.”
“The budget strikes an excellent balance between the need for growth with the need for inclusion, keeping the de-carbonisation and sustainable growth mandate in mind. The budget keeps in mind the needs of future India while focusing on Artificial Intelligence and machine learning.
“A mammoth 33 per cent increase in capex spending is encouraging although we need to see the fine print to assess the effective allocation. Lower-than-expected market borrowing is also bond market positive. I would surely give a thumbs up for the budget for its balanced focus on growth, inclusion, sustainability and fiscal consolidation.”