Budget 2023: A Bahubali that hit 3 targets with one shot, says Nilesh Shah, Kotak Mahindra MF

Finance minister Nirmala Sitharaman has delivered a Bahubali Budget, hitting three targets at a time.

She has provided Rs 10 lakh crore for capital expenditure in FY24, which is 33 percent higher than last year, and almost four times the allocation in FY16.

This will go a long way in sustaining the growth momentum of the economy. At the same time, relief has been provided for the most vulnerable sections by extending the free grains scheme for all Antyodaya and priority households for the next one year.

Significantly, the increase in allocation for housing under the PMAY (Pradhan Mantri Awas Yojana) scheme and the Jal Jeevan mission should also improve the quality of life of the weaker sections.

Also read | No big-bang announcements, incremental changes are biggest strengths of Budget 2023

No excessive populism

The government has refrained from excessive populism in the last, full pre-election budget. The focus is on spending for getting the specific impact rather than spreading the money.

The revenue estimates are conservative and should be achievable. Revenue expenditure has been kept under check at Rs 35 lakh crore by lowering subsidies for food, fertilisers and oil by 28 percent.

The fiscal deficit is estimated at 5.9 percent for FY24, against 6.4 percent for FY23. The government has also reiterated its commitment to achieving a fiscal deficit target of 4.5 percent in FY26. This would reduce the risk of high inflation, going forward.

The finance minister has maintained the direction of previous budgets in this budget and has focused on strengthening all the pillars of long-term growth.

Investment in infrastructure should reduce costs and make Indian businesses more competitive. A sharp increase in outlay for incentives under the production-linked incentive (PLI) schemes should continue a strong growth push to manufacturing.

For enhancing the ease-of-doing business, more than 39,000 compliances have been reduced and more than 3,400 legal provisions have been decriminalised.

Increased allocation for quality school education in remote areas and training of teachers should provide a high skilled workforce.

Also read | Budget 2023’s infra gift to mutual funds: The mid- and small- cap stocks that infrastructure MFs love to hold

Electronics manufacturing, centres of excellence

We can expect growth in manufacturing across sectors to remain strong in the medium term. The government has continued to support electronics manufacturing by extending the relief in customs duty on the import of certain parts and inputs, like camera lens.

Also, the concessional duty on lithium-ion cells for batteries will be continued for another year to boost the manufacturing of electric vehicles (EVs).

The government has an eye on laying the ground for the future, and it has allocated Rs 35,000 crore for capital investments towards energy transition, which includes the National Green Hydrogen Mission.

‘Make AI in India and Make AI work for India’ envisages setting up three centres of excellence. An allocation of Rs 3,000 crore has been made for making semiconductor fabs. This investment would add new sectors to the economy, which would be very significant in the future.

In an attempt to simplify personal taxation and improve compliance, tax slabs under the new tax regime have been reduced and the rebate limit increased to Rs 7 lakh from Rs 5 lakh. Also, the highest tax bracket surcharge has been reduced from 37 percent to 25 percent in the new regime.

Altogether, tax rationalisation would provide an additional Rs 35,000 crore in the hands of the taxpayer. The government has resisted the urge of killing the golden goose and has not changed the LTCG (Long-term capital gain) tax rates for equity investments.

Also read | Budget 2023: MF investors should bet on sectoral, thematic funds that have turned attractive

Exit tax missing

One miss in the budget has been the absence of an exit tax. US citizens, with assets of more than $2 million, have to pay tax on unrealised gains on their assets before surrendering their citizenship.

Seventeen lakh Indians have given up their citizenships in the last eight years. Exit tax could have been levied to deter Indians from leaving and reducing tax avoidance.

Though the budget is growth-oriented, it cannot drive markets on its own. Market rally depends a lot on valuation and capital flows. India is trading at a significant premium to peers even after the recent correction. It is unlikely that foreign portfolio investors (FPIs) would increase allocation towards India in the near term.

Investors would have to be a little patient to make significant returns from the current levels.