The Union Budget 2023 clearly maintained its fiscal consolidation path, targeting a fiscal deficit of 5.9% in FY24, while laying strong emphasis on capital spending. Despite being the last Budget before the general election next year, the finance minister has stayed away from the temptation to add populist measures and continued the walk on the path of sustainable economic growth through spending across the infra ecosystem.
The Budget stays visionary with the long-term picture in mind, thus focusing on macros along with micros. All-inclusive growth, support for fintechs, financial inclusion, last mile connectivity, digital ecosystem, and green energy. This is a big takeaway for the equity markets as it can further broad base the growth momentum in the economy and accelerate the capex cycle.
This apart, no change in the capital market-related taxes was announced which will be well taken positively by the market participants and the investment community. The highlight of the Budget was the steep expansion in the capex target for FY24 by 33% to `10 trillion (3.3% of GDP) from Rs 7.5 trillion in FY23. Secondly, the fiscal deficit target for FY24 has been fixed at 5.9%, about 50 bps lower than the FY23 target of 6.4%.
To finance the fiscal deficit in FY24, the gross market borrowings are estimated at `15.4 trillion which is lower than the market expectation of 16 trillion. To give relief to the large chunk of taxpayers, and also for better adoption of the new tax regime, the FM gave a rebate on income earned up to `7 lakh, up from `5 lakh earlier under the new tax regime. A big push has been given for infrastructure development with the highest allocation increase towards railways at `2.4 trillion.
Hundred critical transport infrastructure projects, for the last and first-mile connectivity for ports, coal, steel, fertiliser, and foodgrains sectors have been taken up on priority. The allocation for PM Awas Yojana has been increased by 66% to `79,000 crore which would be positive for realty, building material, cement, paints, and housing finance companies.To achieve energy transition and net zero objectives, a total outlay of `35,000 crore has been announced, which includes `19,700 crore National Green Hydrogen Mission, targeting a reduction in dependence on fossil fuel imports. The government will also provide viability gap funding for 4,000 MWh battery energy storage systems. The auto sector would benefit from the replacement of old government vehicles.
The insurance sector got hit as income earned from all new policies issued from April 23, with a premium above `5 lakh will be brought under tax purview. To sum up, the Budget remains focused on long-term economic growth through capex and sops to boost consumption for the middle-income group. This would support strong corporate earnings with positive bias for sectors such as infra, housing, cement, cap goods, auto, and tourism. Despite upcoming state elections, the government did not deliver a populist budget and tried to maintain fiscal prudence.