The exigencies of coalition politics were evident in the Union Budget 2024. However, it goes to the credit of the NDA 3.0 and the finance minister Nirmala Sitaraman that fiscal prudence was not compromised on the altar of political compulsions.
Fiscal consolidation
The overarching theme of the Budget is fiscal consolidation. The focus is on growth with financial stability and job generation. The reduction in the fiscal deficit target for FY 25 from 5.1 percent in the interim Budget to 4.9 percent in this full budget reflects the Government’s focus on fiscal consolidation, which is important for improving the credit rating of the Indian economy. Fiscal consolidation is also necessary to enable the RBI to cut rates and provide further stimulus to growth.
During the last three years, India has been the fastest growing large economy in the world with average growth rate well above 7 percent. The Budget proposals can support the growth momentum in the economy to achieve around 7 percent growth in FY25, too. It is important to appreciate the fact that sustained high growth is an essential requirement for addressing the economic challenges that the nation faces. Therefore, this Budget is on the right track.
In her opening remarks the finance minister emphasized that the government is committed to promoting the welfare of the poor, women, youth and farmers and that the government’s initiatives will be targeted at them. The finance minister also identified nine areas for next generation reforms for achieving ‘Viksit Bharat’ by 2047.
Abolition of the Angel Tax is big boost to Startups
The decision to abolish Angel tax, which has been a long-pending demand, is a good step and will give a big boost to the fast-growing startup ecosystem in India.
Taxation of capital gains
From the stock market perspective there are many tax increases. Short Term Capital Gains tax has been raised from 15 percent to 20 percent. LTCGs tax has been raised marginally from 10 percent to 12.5 percent while simultaneously raising the exemption for LTCGs from Rs 1 lakh to 1.25 lakhs. A higher tax on F&O transactions was expected and the intention of this tax move is to curb the excessive speculation in the market by retail traders.
In the post-Budget discussion, the finance secretary emphasized that the 12.5 percent LTCGs tax is unlikely to be revised up next year as many feared. He reiterated that the move is to rationalize long-term capital gains from all assets.
An important proposal is the removal of indexation benefit on sale of property. The long-term capital gain tax on sale of property has been reduced from 20 percent to 12.5 percent, but the tax incidence on those selling old/ancestral property will go up sharply due to this removal of indexation benefit. Relatively speaking, equity as an asset class will become more attractive. This is important.
Cut in import duties will curb smuggling
The import duties on gold and silver have been cut from 15 percent to 6 percent. This will reduce the price of gold, and more importantly, will significantly reduce gold smuggling.
High capex can sustain growth
The capital expenditure of Rs 11.11 lakh crores (3.4 percent of GDP) can sustain the growth momentum in the economy. The Government has been doing the heavy lifting in capex post Covid. There is growth momentum in the economy, but if the growth rate is to move up, private capex has to pick up smartly. Despite green shoots, this is not happening at the desired pace.
Innovative program for skill enhancement and job growth
A path breaking announcement in the Budget is the internship program for one crore youth over five years in 500 top companies. The Government’s view is that the issue of employability, which employers have been complaining about, can be addressed through this program. The government will pay the apprenticeship for the trainees at Rs 5000 per month and a onetime assistance of Rs 6000. Companies will have to incur the cost of training and 10 percent of internship from their CSR funds. If this program works out well, it can be a game changer for employability and job generation.
To conclude, the Union Budget 2024 is a well-balanced document which can take the India Growth Story forward. For investors, this is the important message from the Budget.
