Prime Minister Narendra Modi said at the Economic Survey 2024 conference on July 22, 2024, “This Budget will set the direction of the next five years of the current government and will lay a strong foundation for the dream of Viksit Bharat by 2047”.
Between the interim Budget of February 2024 and July 2024, the actual 2023-24 fiscal outturn was 5.6 percent of GDP – tighter than the 5.8 percent the interim Budget had envisaged. Consequently, the central consolidation last year was meaningful at 0.8 percent of GDP. A lower-than-planned central deficit of last year meant authorities did not spend money they had already borrowed. So, the government’s cash balances coming into this fiscal were commensurately higher and could be used to cut this year’s borrowing, and as expected the fiscal number was pegged at 4.9 percent, lower than expected.
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Second, tax collections have also surprised on the upside. Gross tax collection grew 13.5 percent on a nominal GDP, of which 9.5 percent was led by personal income taxes. Thus, the government has continued its path of exemption and rebate-free tax regime by further widening the slabs by Rs 1 lakh, leaving some cash in the hands of the investors. Apart from this, the government has not announced anything big on increasing consumption in the country, which is disappointing.
Third, and perhaps more significantly, the RBI dividend that was transferred to the government, at almost 0.7 percent of GDP, was more than twice the level that had been budgeted in February 2024.
Thus, the finance minister decided to focus on Mission Viksit Bharat by focusing on GYAN: ‘Garib’ (poor), ‘Yuva’ (youth), ‘Annadata’ (farmer), and ‘Nari’ (women), rolling out many schemes to help youth and women.
Among the various schemes, the employment & skilling initiative stood out where the government announced Rs 1.48 lakh crore for education, employment and skill. It will introduce five schemes to provide employment and benefit 4.1 crore youth with an outlay of Rs 2 lakh crore.
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In the last few years, the government’s focus has been firmly on manufacturing and PLI schemes and we saw a credit guarantee scheme for MSMEs, a new assessment model for MSME credit, credit support to MSMEs during the stress period and an increase in Mudra loan limit for those entrepreneurs who have repaid earlier ones on time in this Budget. This augurs well for Mission Atmanirbhar Bharat.
Tax changes
Investments are for the long term and not for speculations, the growing Future & Options segment did draw the attention of the government as it increased the Securities Transaction Tax (STT) from 0.01 percent to 0.02 percent.
It has also smartly simplified the capital gains tax, however, this is a big negative, with the low penetration of mutual funds and stock investment, increasing taxes on long-term capital gains is discouraging. Raising taxes can have an unwanted impact.
(Short-Term Capital Gains tax to 20 percent from 15 percent, Long-Term Capital Gains tax to 12.5 percent from 10 percent).
The indexation benefit for the sale of real estate has now been withdrawn and replaced with a capital gains tax, this would have some negative impact on investors looking at real estate as an investment vehicle, and investors could look at REITs and InvITs or even mutual funds for long-term investing.
Changes for mutual funds
The much-needed clarification on Fund of Funds has arrived. FOFs making investments of more than 65 percent in domestic equities will be treated at par with other mutual fund schemes as far as tax treatment is concerned. This has removed an anomaly.
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Earlier in the year during the Vibrant Gujarat – GIFT City event in January we had made a plea to the finance minister along with the IFSC regulator to bring the fund tax structures at par with domestic fund structures to make products in GIFT lucrative for investors. This has been heard and the Finance Bill has made those changes. Launching ETFs and MFs in GIFT would now attract investor attention.
Overall, the Union Budget focused on getting the right balance between fiscal prudence and growth.
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