The Union Budget was presented against the backdrop of global macro uncertainties. This is the last Budget before the 2024 general elections and it ticked all the boxes. Like an all-rounder, the Budget somehow achieves the difficult task of being a progressive growth-oriented one while keeping the fiscal deficit under control, and does not resort to any big populist measure. Overall, the Budget strikes an excellent balance between growth, inclusion, sustainability and fiscal consolidation.
The key positive in the Budget is the continued thrust on infrastructure, with effective capital expenditure outlay growing to 4.5% of the GDP. There is also an increase in low-cost housing allocation (PMAY) from Rs 48,000 crore (FY23BE) to Rs 79,000 crore (FY24BE). As stated in the Economic Survey, there are signs of improvement in private sector capex. On top of that, the push on public capex is a huge positive. The FM has delivered a Budget which proves 67=10. The Budget continues the tradition of rapid infrastructure growth whereby what was built in 67 years – from 1947 to 2013 – is now being built in 10 years – between 2014 and 2024.
The Budget also focuses on consumption and has rationalised the tax slabs under the new tax regime and increased the rebate limit. The proposed changes in income tax would provide additional disposable income to the tune of Rs 35,000 crore, which is positive from a consumption standpoint.
The one thing that the Budget misses is a gold disclosure scheme. Indians are the largest owners of gold in the world. Bulk of it is lying in ‘tijoris’ and parallel economy. It is, therefore, necessary to unlock the frozen savings to accelerate growth, supported by domestic capital. This tax collection would have been an added bonus.
Overall, what is heartening is the continued move on the path of fiscal consolidation, with a budgeted fiscal deficit of 5.9% in FY24BE. This is positive for bonds. The intent remains on achieving the fiscal deficit of 4.5% of the GDP by 2025-26. The overall fiscal maths largely appears credible with the nominal GDP growth at 10.5% in FY24 and net tax revenue receipts growth at 11.7%. Tax collection target looks realistic on the back of strong GST collections, better tax compliance and earnings growth by corporate India.
With the Budget now behind us, the equity markets from here on would likely be driven by earnings and valuations. India has been an oasis in the global desert with a relatively-stable growth. However, we must remember that while India stands out from the context of growth, relative valuations of Indian equity markets remain elevated, which could lead to near-term volatility, even while the medium-term outlook remains positive.
Author is Managing Director at Kotak Mahindra Asset Management Company
(The views and opinion expressed in the column are personal and do not necessarily reflect the opinion of the organisation or the Kotak Group.)
