By Radhika Gupta
The Budget 2023 by finance minister Nirmala Sitharaman is an indication that India is truly on its path to achieving its India @100 vision. This cannot happen without financial empowerment.
FM Sitharaman laid out seven priorities (‘saptarishi guiding Indias Amrit kaal) in the Budget speech. Financial sector being one of them along with inclusive development, reaching last mile and infrastructure and investment suggest a financial revolution is in the making that will include the middle-class and rural India.
So far as macros are concerned, equity and bond markets heaved a sigh of relief with the government’s fiscal prudence even as general elections are just a year away.
Growth with fiscal consolidation continues to be the key theme. The government announced the capital expenditure at 3.3% of GDP (the highest ever at Rs 10 lakh crore) while being committed to the long-term fiscal deficit target of 4.5% of the GDP by FY26. This is a welcome move. The fiscal deficit is estimated at 5.9% of the GDP for FY24, well below the 6.4% budgeted for FY23.
A lower fiscal deficit ensures the money will be available for private borrowings. Meanwhile, the highest-ever budget outlay for capital expenditure, which is 33% higher than `7 trillion announced last year, will facilitate capital creation in the economy. The government has also increased capital allocation for Pradhan Mantri Aawas Yojna by 66% to Rs 790 billion.
It has the potential to foster and aid real-estate sector recovery in India over time. A budget outlay of Rs 2.4 trillion for the Railways is commendable. Coming back to the stock market, no news on equity taxation was good news. Dalal Street feared changes in long-term capital gains tax. No announcement on this front brought cheers to the markets.
The stability of tax regime is the need of the hour. The bond market appreciated sovereign market borrowings being in line with expectations at Rs 5.43 trillion for the next year.
The government’s focus on simplifying the KYC process and adopting a risk-based instead of one size fits all approach will help the mutual fund industry onboard investors easily. Another positive is a one- stop solution for reconciliation and updating of the identity and address of individuals maintained by various government agencies, regulators and regulated entities.
The DigiLocker service and and Aadhaar will act as a foundation to facilitate this welcome change. The government has ensured there is more disposable income in people’s hands that drives the consumption in the economy. The highest effective tax rate has been reduced from 42.7%to 39%.
The government has also revised tax slabs under the new tax regime. There will be no tax on income up to Rs 7 lakh. An important takeaway out of announcements on personal taxation is it seems the government is all set to bid adieu to the old tax regime that comes with numerous tax deductions and exemptions.
By reducing the tax rates only in new tax regime and introducing standard deduction of Rs 50,000 suggest it wants to allure citizens to opt for the new tax regime. It clearly suggests India is moving to financial and regulated assets. Tax arbitrage in investment-linked insurance schemes and market-linked debentures will be gone.
The MF industry will be the immediate beneficiary. These changes, along with a simplified KYC regime, and a thrust on financial literacy will act as continued catalysts in the MF industry’s journey towards Rs 100 trillion in the coming years. The MF industry has already hit an AUM of ~40 trillion as on December 2022.
(The writer is MD & CEO, Edelweiss MF)