Budget 2023 is all set to be tabled in Parliament later today. All eyes are on Finance Minister Nirmala Sitharaman as she prepares to present her fifth Union Budget and the last full Budget of the Narendra Modi-led government before the 2024 general elections. The Finance Minister’s Budget speech generally begins at 11 AM. It is expected that this year’s Union budget will likely be guided by concerns over slowing economic growth and limited fiscal space that the government is committed to rebuilding in order to help counter a bleak global outlook. FM is likely to announce measures that will enable India to deliver world-beating growth.
10 areas to watch in Budget 2023
Capital Gains Tax: The government is widely expected to bring some changes to ease the long-term capital gains tax. Exemptions on short-term and long-term capital gains tax, incentives for deductions in retirement plans in mutual funds, rationalising holding period for debt securities to be classified as long-term investments are some of the changes expected. Streamlining income classification for trading, a relook at securities transaction tax (STT) and commodities transaction tax (CTT) are some other expectations. The government in this Budget could take steps towards rationalising LTCG on equities to make it homogenous across asset classes including debt and property, said Nuvama Institutional Equities.
Cigarette tax: The government is expected to raise the tax on tobacco and tobacco products in the Budget after leaving it untouched for 2 years. At present, the government levies a National Calamity Contingent Duty (NCCD) on cigarettes. In the Budget for FY21, the NCCD was raised by 2-4 times across cigarette stick sizes, resulting in tax hikes of 9-15%. Note that NCCD accounts for around 10% of the overall tax imposed on cigarettes, and it is likely that the Centre will raise it this year which will lead to a rise in the cost of cigarettes and tobacco products this year.
Income tax: Individuals and the salaried class will keenly watch for what the budget announces on the individual income tax slabs. Quantum Securities expects some changes in the income tax structure. Tax rates have not been revised since FY18. Thus, in order to provide more purchasing power to the middle and upper middle class, it expects an increase in the threshold limit for the lowest tax rate, it noted. However, many market experts do not expect any major tweak in the personal income tax slabs. Some uniformity across asset classes, tax rates, and holding periods is what is widely expected from FM’s Budget 2023 speech.
Section 80 (C) tax deduction: The government may raise the tax deduction limit on investments in savings instruments including bank fixed deposits, insurance premiums, and mutual funds from Rs 1.5 lakh to Rs 2 lakh a year under the “Section 80C” scheme. The move, if implemented, could encourage people to move their extra funds into the banking and the financial system, according to expectations. The deduction limit under Section 80C has been at the current Rs 1.5 lakh since the Modi government’s first Union Budget in 2014.
Capital Expenditure: Budget 2023-24 is expected to provide further boost to capital expenditure, and roads and railways will be among the top priority sectors in terms of allocation. Finance minister Nirmala Sitharaman may unveil big spending plans for crowding in private investment. The government is expected to continue with its plan to ramp up Capex with special focus on states’ spending on capital assets. Road and other infrastructure projects can spur economic activity, boost construction and create jobs. Note that this segment accounts for about 8% of GDP and is the largest creator of direct and indirect employment, employing about 4 crore people.
GDP growth: Government’s GDP growth projections for FY24 will be keenly eyed as the strength in domestic demand will be the key driver of India’s growth trajectory in FY24 amid global headwinds, according to economists. The Economic Survey 2023 has pegged India’s FY24 real GDP growth at 6-6.8%, and Nominal GDP growth at 11%.
Fiscal deficit: This is another key figure that markets and policymakers will eye keenly. Finance minister Nirmala Sitharaman is expected to continue with the fiscal consolidation while continuing to increase capital expenditure, demonstrating the government’s intent to maintain fiscal discipline. Government’s fiscal deficit widened to Rs 9.93 lakh crore in the April-December period, accounting for 59.8% of the full-year target for 2022-23. The fiscal deficit in the first nine months of the last financial year was 50.4% of last year’s target.
Asset Monetisation: Budgetary allocation to infrastructure ministries this year could be linked to the progress and performance that these ministries achieve in the government’s national asset monetisation pipeline. (NMP). In Budget 2023, Finance Minister Nirmala Sitharaman is expected to emphasise on monetization of railway assets to generate more funds for the Indian Railways.
Disinvestment: FM’s disinvestment target for FY24 will be watched as the government has reaffirmed its commitment towards privatisation and strategic disinvestment of Public Sector Enterprises by implementing the new Public Sector Enterprise (PSE) Policy and Asset Monetisation Strategy. In the Union Budget for 2022-23, the government had set a divestment target of Rs 65,000 crore. In the current fiscal, out of the budgeted amount of Rs 65,000 crore, 48% or over Rs 31,000 crore has been collected as of January 18, 2023, according to Economic Survey 2023.
PLI scheme: The government is expected to extend the incentives under the production-linked schemes (PLI) to more sectors. Quantum Securities noted that the government has rolled out PLI scheme, with an outlay of Rs 2,00,000 crore in the past few years, covering as many as 14 sectors, including automobiles and automobiles components, white goods, pharma, textiles, food products, high efficiency solar PV modules, advance chemistry cell and speciality steel. In the forthcoming budget, the government is likely to extend fiscal incentives to other areas like toys, bicycles, leather and footwear to cover more high-employment sectors. The PLI scheme aims to generate 600 million direct and indirect jobs in the 5 years of its existence.