The stars have truly aligned for India, be it for the economy, markets or cricket. Just as the Indian cricket team were crowned world T20 champions, India remains one of the fastest growing large economies of the world. Corporate profit to GDP is close to an all-time high and it’s been a dream run for equity markets. In this backdrop, the Union Budget FY25 provides the right ingredients for laying the foundation to help propel India to the next decade of growth aligning with the goal of “Viksit Bharat”.
The Union Budget has walked the fine balance between productive expenditure and fiscal consolidation putting to use the additional `1.23 trillion dividend that the government received from RBI this year.
This along with tax buoyancy has helped managed the fiscal balance. The targeted central fiscal deficit for FY25 is set at 4.9% as compared to 5.1% set in the vote on account.
More importantly, the government continues to move ahead on the path of fiscal consolidation seeking to bring down the fiscal deficit to below 4.5% of GDP in FY26 with the guidance to reduce debt to GDP ratio in the future.
The commitment towards investment led growth is visible in the Budget presented today. Between 2014 and 2024, we have built as much infrastructure as much as existed before 2013 since independence. This has created a multiplier effect and has pushed India to become the fifth largest economy and the expectation is that we will likely over take Germany and Japan to become the third largest if the pace of growth sustains.
The Budget highlights expenditure on roads, shipping, water and energy as the areas of priority. The Budget also focuses on strengthening manufacturing growth in India with proposals supporting and improving credit flow to the MSME companies and setting up of industrial parks in 100 cities.
While focusing on investment led growth, there was adequate attention provided to the bottom of the pyramid, rural and the middle class.
The consumption in the mass category and the rural segments is growing but not as fast as it should be. Hence the steps taken to support the bottom of the pyramid should lead to equitable and sustainable growth. Allocation towards rural development and the Pradhan Mantri Aawas Yojna helps put money in the pockets of the consumer.
Some relaxation is also provided on the income tax under the new tax regime and increase in standard deduction.
In terms of taxation, the Budget seeks to enhance compliance, simplicity of structure and bringing more people under the tax net. Tax collections have been robust and that has helped achieve fiscal targets.
While the short term and long term capital gains taxation were increased, no change in the tenure for long term capital gains tax for equities would likely aid longer term investment horizon. The limit of exemption of long term capital gains on certain financial assets has been increased to `1.25 lakh per year.
The Budget focuses on being future ready by investing in education, employment and skilling.
The AI revolution is coming and we need to be prepared to grab a large share of the opportunity. The Budget also lays emphasis on green energy, energy security and transition focusing on environmental sustainability.
Nilesh Shah, managing director of Kotak AMC