– Mr Makarand Joshi.
Key Takeaways and Analysis as follows:
Aggressive Fiscal Consolidation:
The market expected the fiscal deficit to be maintained at the most at 5.1% in view of the need to have a populist budget considering coalition compulsions. However, the FM announced a significant lower number at 4.9% of GDP. The improvement of 20 basis points over interim budget, primarily due to a higher than expected dividend transfer from the RBI, exceeded market expectations. This also reinforced the government’s commitment to achieving a fiscal deficit target of 4.5% by FY25-26.
Simplification of the Tax Structure:
The Capital Gain Tax Structure has been now simplified to broadly 2 tenures (1 Year and 2 Year) and 2 rates (Specified financial assets and other financial & non-financial assets). The standardization of tax rate on capital gain both short term and long-term is expected to help in rationalization and simplification of tax structure. The increase of exemption limit of capital gains on certain financial assets from Rs. 1 lakh to Rs. 1.25 lakh will benefit lower and middle-income classes. Also, increased STT of derivative products such as options and futures may discourage speculative derivative trading.
Focus on Job Creation:
There has been criticism over the government’s performance in the area of employment generation. The budget has tried to address it through slew of announcements in this area. The budget announced a package of 5 schemes and various other initiatives. The package aims to facilitate employment, skilling, and other opportunities for 4.1 crore youth over a 5-year period with a central outlay of Rs. 2 lakh crores. Additionally, employment-linked incentives for both employers and employees will likely address concerns surrounding employment and job creation.
Addressing Rural Sector Distress:
The rural sector has been under stress, with subdued wage growth and higher food inflation levels. The targeted spending of Rs. 2.66 lakh crores for rural development, including rural infrastructure, along with the provision of Rs. 1.52 lakh crores for agriculture and allied sectors, will likely boost economic activities in rural areas and create avenues for rural employment.
Continued focus on Infrastructure:
The proposed capital expenditure of Rs. 11.11 lakh crore indicated continuation of its focus on Infrastructure sector. Considering the need to cater to the various areas namely agriculture, employment, and subsidies to various groups and pandering to allies demand, the budget has managed to balance the Capital Expenditure and Revenue Expenditure within the budget.
Managing politically important alliance states of the coalition:
The budget tried to accommodate the demands of its coalition partners through special announcement of financial assistance, schemes and project to the states of Bihar and Andhra Pradesh. The announcement underscored the new political reality in the third term of the government.
Mr Makarand Joshi,
Assistant Vice President,
A K Capital Services Ltd.
