 "Sujan Hazra, Head of Research, Anand Rathi Securities")
Despite the widespread speculation about major changes in taxation, the interim budget did not introduce such modifications.
This outcome aligns with our projection of a pragmatic vote-on-account budget, which steadfastly focuses on fiscal consolidation and public investment.
This approach not only reinforces fiscal discipline but also nurtures growth orientation within the framework of financial stability.
This approach not only reinforces fiscal discipline but also nurtures growth orientation within the framework of financial stability.
Promising fiscal metrics and forward-looking targets
The fiscal figures presented in the budget are particularly encouraging. Reducing the fiscal deficit to 5.8 per cent of GDP for the current year, from the initially budgeted 5.9 per cent and setting a goal of 5.1 per cent for the next financial year, represent significant strides towards fiscal prudence.
The objective to maintain net borrowing below Rs 12 trillion is pragmatic and advantageous. This goal entails a slight reduction in net market borrowing for the next financial year compared to the current year.
Given the robust tax buoyancy witnessed in recent years and the government's modest expenditure plans, it is conceivable that the actual fiscal outcomes next year may surpass the budget's projections, similar to this year's performance.
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Sustained focus on investment and enhanced public investment outlay
In the last five years, there has been a marked shift in the government's focus towards boosting public investment, especially in infrastructure sectors.
Contrary to some expectations of a pivot towards enhancing rural consumption in light of the impending general elections, the budget has continued its emphasis on investment, increasing public investment outlay by 11 per cent to Rs 11.1 trillion.
The proportion of capital expenditure in the government budget has seen a near 10-percentage-point increase over the past decade, now constituting approximately 22 per cent of total expenditure.
This significant investment is likely to have a substantial multiplier effect on overall economic growth and could effectively counterbalance any temporary slowdown in corporate capital expenditure.
Targeted measures for enhancing employment opportunities
The budget strategically aims to bolster employment, leveraging the multiplier effect of public investment in infrastructure.
It also focuses on labour-intensive sectors such as allied agricultural activities, logistics, tourism, mass housing, and grassroots-level promotion of green energy.
Furthermore, various initiatives aimed at improving the education and skill formation system are poised to narrow the gap between the skills available and those required by the industry.
Innovative R&D funding: A transformative initiative
A standout aspect of the budget is the allocation of a Rs 1 trillion long-term (50-year) fund at a minimal or zero interest rate, earmarked specifically for research and development.
This visionary initiative has the potential to catalyze significant innovation in India, bolstering prospects in emergent sectors and playing a pivotal role in realizing India’s ambition to become a developed nation by 2047.
Positive outcomes for markets and key economic sectors
The budget's strategic direction, combined with the integration of Indian bonds into the global bond fund index, indicates likely reductions in bond yields, benefitting both bond and equity markets.
Moreover, the expected reduction in the discounting rate due to a decline in India's risk-free rate suggests that Indian equities may outperform their major global counterparts in 2024.
Specific budget announcements are poised to particularly benefit public sector banks, as well as companies in the infrastructure, tourism, and logistics sectors.
The emphasis on housing development is expected to significantly advantage the cement and building materials industries.
Overall Assessment: A balanced, growth-focused and prudent budget
In summary, this budget exemplifies a balanced approach, prioritizing growth and financial stability through strategic investment and support for innovation, all while maintaining a firm grip on fiscal prudence.
This well-calculated focus on prudent fiscal management and growth stimulation, devoid of excessive pre-election fanfare, aligns seamlessly with the prevailing economic landscape.
Disclaimer: Sujan Hajra is Chief Economist and Executive Director, Anand Rathi Shares and Stock Brokers. Views expressed are his own.
