The Union Budget ahead of elections is always an event for financial markets, which fear that the finance minister may choose to go for populist announcements, and fiscal prudence may take a back seat. However, the Budget 2023 presented by Nirmala Sitharaman has been a landmark one which remained prudent but also paved the path for strong economic growth in the near future. And there are reasons to believe that this ‘Panchamrit’ Budget, though appears a non-event in terms of the absence of big-bang announcements, will go a long way as a propeller of India’s growth story. Let us understand five key enablers of the Union Budget 2023:
Increased focus on capital creation
Capital expenditure, a key variable tracked in a growth economy, is proposed at 3.3 per cent of the Gross Domestic Product, or at Rs 10 lakh crore. Just to put it in context, this is three times what was allocated for capital expenditure in FY2019-2020. The Indian government’s policy response to the economic slowdown caused by the Covid-19 pandemic was centred on public expenditure. And this year’s 33 percent increase indicates better times ahead for infrastructure, capital goods, Railways and defence sectors in India.
Increased focus on a housing recovery
Housing is an allied sector of core infrastructure in India. It also is a key employment generator. The Budget proposes higher allocation towards affordable housing compared to the last couple of years. This will be a big positive for housing finance companies, and other companies that directly or indirectly benefit from the expected boom phase in real estate.
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Potential booster to consumption across the pyramid
Though the capital expenditure focus works in favour of economic growth, another driver of growth – domestic consumption cannot be ignored, especially in India which is a consumer-centric economy. The finance minister opted to offer some tax relief to all segments of individuals. It is clear that those who opt for a new personal tax regime will see a lower tax burden. This leaves more money in the hands of households.
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Rebates offered under the new tax regime ensured that income up to Rs 7 lakh became tax-free. Also, the reduction in the surcharge for individuals in the highest tax slab has brought down the effective rate of tax. These measures leave more money in the hands of individuals or consumers.
Increased allocation for agricultural and allied sectors along with a focus on tourism development can work in favour of the rural economy and boost rural consumption. Overall, this should help the consumer sectors.
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India goes green
While all the economic growth and development plans look good, India cannot afford to lose sight of its environmental goals. The government has shown its commitment on this front as well. Green Hydrogen Mission with a program outlay of Rs 19,700 crore will help energy transition and Rs 3,5000 crore for priority capital expenditure towards energy transition and net zero by the Ministry of Petroleum & Natural Gas are some steps in the right direction. These should improve the earnings of capital goods companies operating in renewable value-chain.
Fiscal prudence
While all these measures look good and assure us that we are on the path towards sustainable economic growth and development, there is a concern about the fiscal deficit. Despite all these proposed increases in budgetary outlays and the fears of recessionary pressures in many parts of the world, the government expects revenues to be strong. The fiscal deficit is projected at 5.9 per cent of the GDP, which is in line with estimates. The finance minister aims to bring it down below 4.5 per cent of the GDP by the end of FY26.
All in all, this Budget is a remarkable one. The finance minister has managed to walk on a tightrope – on the one hand she has managed to loosen her purse strings but on the other, she has ensured that populism does not take over and break the growth momentum.
The focus on economic value creation for all stakeholders is a welcome move and will incentivise the private sector to increase capital expenditure as well. At a time when most parts of the world are struggling to cope with fears of recession, the finance minister has used the Budget 2023 to accelerate our growth story.
As the macroeconomic situation evolves along the policy response across the world, there may be bouts of volatility. However, investors should be focused on earnings growth. As various beneficiary sectors report better earnings growth and the trickle-down effect works in favour of the Indian economy, investors should take a measured approach to investing.
Staggered investments in well-managed equity portfolios can be rewarding over a three-to-five-year period.
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