My thoughts and the way forward
As we know, this time the Government received a weaker-than-expected mandate. Despite that they have been able to continue with capital allocation thrust and fiscal prudence. Overall, the budget was macro driven with some negativity around individual taxpayers and almost no material impact on Corporate India.
Fiscal Math:
- Budget continued the trend set forth in the interim in February 2024.
- The RBI bonanza in terms of record dividend paid to the Government has helped bring the fiscal deficit number down to 4.9% from 5.1% as projected in February 2024.
- The 4.9% deficit number is after increased allocation to states.
Capital Gains and Capital Allocation:
- Budget has allocated (continuation of interim) 11.1 trillion rupees for infrastructure which is roughly 3.5% of GDP and around 30% of this budget’s spending. This signals policy continuity.
- Budget 2024 introduced one more round of capital gains changes across the asset classes including equities, real estate, REITs, InvITts.
- We know that Capital Gains on equities were re-introduced after 14 years in 2018 and last year they streamlined the taxation on fixed income.
- Budget 2024 signals that the government will not shy away from continuing changes to suit it goals when it comes to taxes. While the material impact is not known as yet, the direction of the government is noteworthy.
Policy continuity and Economic Outlook:
There seems to be policy continuity towards fiscal consolidation. The present government has always sided with fiscal consolidation whenever it was able to, and this time it’s no different. This is important as eventually the government alone cannot do the heavy lifting on the growth by spending more and in turn crowd out private investment. Private investment is yet to pick up and the problem this time for private investment is not the supply of capital but rather the demand of consumers and overcapacity in China. Bank balance sheets are good, corporate balance sheets are great. As soon as demand picks up, we shall see private investments happening. After the inclusion of our bonds in the JP Morgan Emerging Bond Index we may see cheap foreign capital flows in the country which will further help the government towards fiscal consolidation and reduce the cost of capital for the private sector.
The government also discussed the revision of the direct tax code. It will be interesting to see if they come up with more rationalization of capital gains of various assets along with elimination of various deductions.
Key Fiscal Metrics (INR trn)
| Particulars | FY24BE | FY24RE(P) | FY25BE | FY25BE(R) |
| Total Expenditure | 48.7 | 47.9 | 51.5 | 52.1 |
| Allocated in Budget | 45.0 | 44.9 | 47.7 | 48.2 |
| Internal and Extra Budgetary resources | 3.7 | 3.0 | 3.9 | 3.9 |
| Revenue Expenditure | 35.0 | 34.9 | 36.5 | 37.1 |
| – Interest payment | 10.8 | 10.6 | 11.9 | 11.6 |
| – Farmers welfare | 3.2 | 3.3 | 3.1 | 3.2 |
| Capital Expenditure (Total) | 13.7 | 12.5 | 15.0 | 15.0 |
| Capital Expenditure (Budget allocation) | 10.0 | 9.5 | 11.1 | 11.1 |
| Total Receipts | 45.1 | 46.1 | 47.6 | 46.8 |
| Revenue Receipts | 26.3 | 27.3 | 30.0 | 31.3 |
| – Dividends & Profits | 0.9 | 1.7 | 1.5 | 2.9 |
| Capital Receipts | 18.8 | 18.9 | 17.6 | 15.5 |
| Sources of tax receipts | ||||
| Corporate tax growth | 11% | 10% | 13% | 12% |
| Personal tax growth | 11% | 25% | 13% | 14% |
| Center GST growth | 12% | 14% | 13% | 11% |
| Non-tax receipts | ||||
| Dividend + Profits | 0.9 | 1.7 | 1.5 | 2.9 |
| Divestment | 0.6 | 0.0 | 0.0 | 0.0 |
| Net debt raise | 17.9 | 16.3 | 16.9 | 16.1 |
