Bharat has been witnessing significant growth and has been advantaged due to various factors; the slowdown in China and their real estate crisis being one amongst them. 2024 is another important year in the history of the country as it goes into elections in the month of April/May. The current government has brought about a multitude of changes with announcements like Demonetization, a centralized GST and new tax regime. However, they have left a lot of open ground to cover when it comes to reforms for regular tax payers, investors and small businesses. The interim budget, which is likely to be a populist pre-election budget will probably address these points. The current market volatility and the overall investor sentiment has remained positive overall, with investors putting in money during market falls and booking profits when the market move up.

The interim budget is scheduled to be presented by finance minister Smt. Nirmala Sitaraman on 1 February 2024. Some areas that the Modi led government is likely to focus on could be – inflation and the resultant impact on the rising food prices, the lack of a more transparent taxation policy with a focus on avoidance of double taxation and rising oil prices, to name a few.

The 2023 budget focused on 7 priorities which aimed to achieve overall growth and development of the nation. It included goals like reaching the last mile by working at the grassroots level, development of infrastructure and the investment landscape, inclusive development and harnessing the power of youth for the country’s development. With their focus on digitization, promoting agricultural activities, cultivation of green millets, promotion of bio-fertilizers, research within the pharma and healthcare sectors and infrastructural development the budget intended to bring about a massive change in India’s priorities.

Here’s how the 2024 interim budget could bring:

Increased focus on capex spending:

The government’s focus on capex spending is likely see a significant increase as we have done over the past. Capex spending exerts a larger and more profound impact on a country’s long-term growth in contrast to revenue expenditure.

The government’s steadfast commitment to capex is reflected in its budgetary priorities. Notably, the share of capex within the total expenditure has undergone a substantial increase, rising from 12.1% in FY21 to 22.2% in the budget estimate for FY24. The top five sectors in which capital expenditure was concentrated in FY23 were crude oil (12%), power (10%), telecom (10%), iron & steel (9%) and retailing (9%).

Among the major sectors, Iron & Steel and Retailing witnessed the strongest growth in FY23 with an expansion of 187.6% YoY and 106.3% YoY respectively. However, investments in crude oil contracted by 15.8% YoY in the same period.

We’re also likely to see the capex spending on states to continue to grow. This is also evidenced by the development that we have witnessed within Tier-2 and Tier-3 cities. With the budgeted state capex also likely to grow, the focus on continued growth and development will become a long-term objective of the government if it comes into power. However, proper utilisation of the capex allocation by the states, is something that the government will have to lay a greater focus on.

Taxes:

Direct taxes:

Taxation has remained one of the largest discussion points for the vast majority of people in the country. Tax revenues have remained positive and stable over the past year. This could lead to the government being able to provide some additional tax benefits/reliefs during this year’s interim budget.

Gross tax revenue collection during H1 FY24 increased by 16.3% compared to last year on account of higher revenue from all major tax heads except excise duty. Net tax revenue has risen by 14.7% during the same period. The overall gross tax collection in the first half of the fiscal year stands at 48.2% of the FY24 budgeted estimate, which is lower than the 50.5% of the budgeted witnessed last year. Overall gross direct tax collection grew in H1 FY24, led by 31.1% growth in income tax collection and 20.2% growth in the corporate tax collection.

Last year, the government introduced a simplified taxation system as well as new tax slabs under the ‘new income tax regime’. Having said that, this year could be different as we edge closer to the elections. There could be an increase in the basic exemption limit under both tax regimes in addition to providing for additional deductions under section 80C. Other benefits could come in the form of a higher House Rent Allowance deduction for people in cities like Bangalore, Hyderabad and Pune.

While expectations around making home loans easier to access and easing of tax burden on homebuyers has been a longtime ask and expectation, the outcome is yet to be witnessed as the budget is unravelled.

Indirect Taxes

Despite global fuel prices shooting up significantly, India is amongst a few countries that has been able to maintain stable fuel prices for over 2 years. Bharat’s prudent excise policy and negotiation on crude oil prices, addition of supply zones, and strategic reserves have had an impact. However, tensions around the Gaza strip continue to dictate increasing oil prices. How much longer the government can sustain at the current pricing levels is a point of contention. Having said that, as we inch closer to the elections, we are likely to see the stability continue for some more time.

Overall, we think that the interim budget will hold the status quo and make a subtle attempt at setting the stage for bigger things to come. As markets undergo a significant correction, it’s a great buying opportunity for people looking to invest in Bharat’s long-term growth story.