Key Announcements:
Announcement 1: Capital Expenditure and Investments to Increase
The government has proposed to boost capital expenditure by 33%, increasing it to Rs. 10 lakh crores. At Rs. 2.4 lakh crores, the Indian Railways will receive the highest-ever capital outlays in the upcoming fiscal year. The fiscal deficit target for 2023-24 has been fixed at 5.9% of GDP, down from this year’s 6.4%. For the Indian states, the fiscal deficit has been fixed at 3.5% of GSDP (gross state domestic product); 0.5% will be tied exclusively to the power sector.
Rs. 9,000 crores will be further injected to provide revamped credit guarantee schemes to medium, small, and micro enterprises (MSMEs). This proposal includes a reduction of 1% in the cost of credit along with the collateral-free credit limit increasing to Rs. 2 crores.
- Impact:
Higher investments in primary sectors, especially agriculture and fishery, education and upskilling, green power and energy security, infrastructure development, digitalization, and adoption of new technologies such as artificial intelligence (AI), will create tailwinds for India’s short- and medium-term economic growth and drive economic resilience amid increasing recessionary pressures across the globe.
Announcement 2: Income Tax Rebates and Revision of Tax Slabs
The rebate limit of income payers has been increased from Rs. 5 lakhs to Rs. 7 lakhs under the new tax regime. The new tax slabs will be Rs. 0-3 lakhs, Rs. 3-6 lakhs, Rs. 6-9 lakhs, Rs. 9-12 lakhs, Rs. 12-15 lakhs, and above Rs. 15 lakhs with corresponding income tax rates of Nil, 5%, 10%, 15%, 20%, and 30%. For example, an individual with an annual income of Rs. 9 lakhs will pay Rs. 45,000 annually in direct taxes, down from Rs. 60,000. These revised tax slabs will be applicable under the new tax regime.
Revenue foregone due to the tax slab revision is pegged in the range of Rs. 37,000-38,000 crores in direct taxes and Rs. 1,000 crores in indirect taxes. With an additional mobilization of approximately Rs. 3,000 crores, the government’s total revenue forgone will be about Rs. 35,000 crores annually.
- Impact:
The change in the tax slabs and resultant fall in direct income taxes needed to be paid by Indian taxpayers will provide much-needed relief to the middle and salaried class. First, the contraction amid the pandemic and its high health costs borne by families across the nation, followed by war-induced inflation, have maintained downward pressure on the pockets of the Indian salaried class. Income tax relief will keep the domestic demand climate buoyant as the middle class enjoys higher spending power.
Overall Impact: Positive
Overall Analysis:
The FY 2023-24 budget allocation will help ensure that Indian economic growth remains robust and resilient in the face of a marked global growth slowdown. With a 33% capital expenditure increase compared to FY 2022-23, the current budget remains capex-focused, helping to generate a strong multiplier effect across the economy and push up private investments. Revisions of income tax slabs and continued support for MSMEs and startups will be crucial to boost spending power and encourage domestic demand-led resilience. Cross-sector growth and development will be boosted by policies addressing digitalization in the education sector, the proposed National Data Governance Policy, the establishment of an Agriculture Accelerator Fund for rural agri-startups, economic development in tribal areas, infrastructure investments to increase regional connectivity, urban infrastructure planning for building sustainable cities, and a tourism focus to boost domestic and international tourism.
Top 3 Expected Growth Drivers for 2023-24 (Optional):
- Income tax relief, given the change in tax slabs, will be a key driver of domestic growth as the middle- and salaried-class population helps maintain the momentum of domestic demand amid downbeat global demand and consumption sentiment.
- The revamp of the credit guarantee scheme and skilling and recruitment support to MSMEs will increase their competitiveness and efficiency while spurring employment opportunities.
- The tourism sector will benefit from buoyant consumer spending expectations in India and enjoy the upsides of policy support announced for bolstering domestic and international tourism.
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