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Stock markets anticipate a macroeconomic setting that encourages economic growth while not widening the fiscal deficit. The Union Budget handled this tightrope admirably. Budget 2023-24 confirmed the initial advance projection of FY23 GDP at 7%, confirming India's position as the world's fastest-growing big economy. The Union Budget proposed a 20 trillion agricultural credit target for FY24 in order to enhance agricultural growth and farm incomes, while the capex spending has increased by 33% to 10 trillion, or 3.3% of GDP. Efficient capital expenditure is 14.5 trillion, or 4.5% of GDP.
If development is one aspect of the story, budgetary conservatism is the other. The FM stated that the government will maintain its 6.4% budget deficit target in FY23. The fiscal deficit for FY24 has been reduced by 50 basis points to 5.9%, as projected. The budget also includes a route to a 4.5% fiscal deficit by 2025-26. This glide route must increase global investors' and rating agencies' faith in the India story. What is encouraging is that the administration has stated that it will not depart from the ‘spirit of the Fiscal Responsibility and Budget Management (FRBM) Act of 2003’.
More disposable income for investing
The capability and desire to invest is a strong indicator of capital market strength. This is due to increased disposable money. Budget 2023-24 includes numerous projects aimed at increasing the disposable income of Indian taxpayers. The budget has responded to long-standing proposals to increase basic exempt incomes. While the rebate structure remained unchanged, the Budget increased the basic exemption level to 3 lacks, thereby making income up to 7 lacks tax-free. It will continue to be in the nature of a rebate and would be conditional on signing up for the new tax structure.
Budget 2023-24 aimed to make the latest tax regime more appealing by increasing the basic tax-free income. While maximum exemptions will be eliminated, the basic deduction will remain in the new tax structure. It is likely to make the new tax structure more appealing, in addition, to putting more disposable income in people's hands. The Budget also acknowledged higher-income groups' concerns by lowering the top effective tax rate from 42.7% to 39%, bringing it in line with worldwide benchmarks. The proposed tax reforms are anticipated to boost capital market strength.
Sectors that will benefit from the Union Budget 2023-24
The Union Budget announcements benefit many, like:
- The capital spending of $10 trillion and the railway capital allocation of $2.4 trillion are expected to add value to numerous sectors. It includes cement producers, EPC contractors, railway trains, signaling systems, and many more.
- Steel, aluminum, and logistics firms will benefit from a 75,000 crore investment in 100 important transportation infrastructure projects. The ten-thousand-crore investment in urban infrastructure and increased emphasis on affordable homes will boost cement, building, and home finance.
- The government announced plans to establish 100 labs to research 5G applications that will benefit telecom and fiber optic industries. The increase in agricultural loan limit to $20 trillion will benefit Indian enterprises that manufacture seeds, tractors, and farm equipment, among other things.
- Customs tax reductions on acid fluorspar will assist fluorine chemistry players, while the emphasis on organic and micro-farming will support fertilizer and agrochemical industries. Decreased tariffs on shrimp feed will assist shrimp farming enterprises, while lower tariffs on lithium-ion equipment will be beneficial for new-age battery industries.
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