Overview on Union Budget

Our Thoughts on the Budget

“Budget was very credible as the numbers presented did not throw up any
negative surprises. It shows a clear focus on increasing capital expenditure
which shows commitment to drive the future growth. Also, focus on farm
economy will lift rural growth. The steps taken to rationalize taxes for individuals
and high tax payers is in the right direction and will boost consumption which in
my opinion is the need of the hour for the next round of growth. The budget also
addressed the ease of doing operation further by giving importance to simplify
processes including the current regulatory framework is once again in the right
direction to drive new India. Mutual funds would benefit from the change in
taxation on insurance companies and change in capital gains limit to buy real
estate would augur well for debt funds. Overall, I would rate this budget 10/10.”

- Mr. A Balasubramanian (MD & CEO) Aditya Birla Sun Life AMC
Our Thoughts on the Budget

“The Union Budget has a dual focus on growth and fiscal consolidation.
The fiscal calculation is based on a nominal GDP growth projection of
10.5% which is credible. At the same time, the fiscal deficit target at
5.9% is largely in line with our estimates while the borrowing amount
is slightly below our expectations. The proposed capital expenditure at
INR 10 lakh crore is at a record high. In addition, there were no
negative surprises on the capital gains front. In fact, there was some
relief for taxpayers which should support consumption. Overall, the
budget is aimed at pro-investment and consumption.”

- Mr. Mahesh Patil (CIO) Aditya Birla Sun Life AMC

Key Highlights
How is the money allocated

Rupee Comes Rupee Goes

Income Tax Other Expenditure
Borrowing & Other 15% 8% Interest Payment
Liabilities 20%
34%
Pensions
4%
Union Excise Duties States' share of
7% taxes and duties
Centrally 18%
Sponsored
Schemes
Corporation Tax 9%
Non Tax Receipts
15%
6%
Finance
Subsidies 7%
Commission &
other transfers
Non-Debt Capital GST & Other Taxes Defence 8% 9%
Receipts 17%
2%
Central Sector Schemes 17%
Custom
4%

Source: Union Budget Documents FY24

Budget Key Highlights

GDP growth for FY24 is estimated at 6.4% and 7.2% for FY23.
Nominal growth has been assumed at 10.5% y-y and tax-GDP ratio at 11.1%.

Fiscal Deficit is estimated to reduce to 5.9% in FY24 (6.4% in FY23) and to go below
4.5% by FY25.

Capex to GDP ratio at 3.3% is the highest since FY04. Increased Capital Investment
Outlay by 33.3% to INR10 trillion.

Highest Capital Outlay drawn for Railways of INR 2.4 trillion.

Budget Key Highlights

INR 20 trillion targeted for Agriculture credit.

PM Awas Yojana outlay increased to INR 79 billion (against earlier INR 48 billion).

Gross borrowing of INR 15.43 trillion & net market borrowing of INR 11.81 trillion.

Rebate on income tax increased to INR 7 lakhs under the new tax regime (from INR 5 lakhs)
 Fiscal Math

Particulars FY22 FY23 RE FY24BE

Gross Market Borrowings (INR bn) 9,684 14,210 15,430
Market borrowing to Fiscal
as % of GDP 4.1% 5.2% 5.1%
deficit ratio stood at ~68%
which is broadly in sync with
Net Market Borrowings (INR bn) 7,041 11,082 11,809 past trends
as % of GDP 3.0% 4.1% 3.9%

Nominal GDP Growth 19.5 15.4 10.5 Government is committed

towards the path of fiscal
Fiscal Deficit 6.7% 6.4% 5.9% prudence.

Source: Union Budget Documents FY24 RE-Revised Estimates BE- Budget Estimates
Tax Related Announcements

Taxable Income (INR) Old Tax Regime Taxable Income (INR) New Tax Regime
0 – 2.5 lakh 0% 0 – 3 lakh 0%
2.5 lakh – 5 lakh 5% 3 lakh – 6 lakh 5%
5 lakh – 10 lakh 20% 6 lakh – 9 lakh 10%
9 lakh – 12 lakh 15%
Above 10 lakh 30%
12 lakh – 15 lakh 20%
Above 15 lakh 30%
• No tax up to INR 7 lakhs in the New Tax regime for individual taxpayers.
• Push towards New Tax Regime as it will be now default option (individuals may still opt for old regime if its beneficial)
• Standard Deduction of INR 50,000 will now be applicable for New Tax Regime.
• As the slab changes benefit is only for New Tax Regime, incentive is on Consumption over Savings.
• Surcharge for Income above 5Cr also reduced from 37% to 25%. This reduces the maximum income tax rate from
42.7% to 39%. Source: Union Budget Documents FY24
 Equity Market Outlook

• The Union Budget had very few surprises as government tried to balance the need of fiscal consolidation while
pushing for capex-led growth.
• Push towards infrastructure, manufacturing, agriculture, and tax rationalization is consistent with the direction
chosen over the last few years. This continues to be positive for Agriculture related and Manufacturing related
industries.
• Expenditure side, the expected reduction in subsidy bills from INR 5.6tn to INR 4tn provided the government with
space to allocate to spend in other sectors of the economy.
• Fiscal deficit for FY24 at 5.9% of GDP, was broadly in line with our estimate, entailing a 0.5% reduction in deficit
compared to FY23.
Government continues to simplify the Income tax regime for individuals. The number of slabs has been reduced & tax
rates have been lowered. Government wants to tax all forms of savings and ensure a more uniform taxation system.
 Equity Market Outlook

• Overall, a high Capex outlay is generally positive for Infrastructure, Cap Goods, Metals, Cement and Banks.
• Outlay for PM AWAS Yojana increased 66% yoy to INR 790 bn which is positive for Construction companies.
• Some relief for taxpayers who move to the new tax regime which may aid consumption.
• Strong push to the transportation sector, with its share in total expenditure increasing to 11.5% in FY24 from 9.3% in
FY23.
• Scrappage of old polluting government vehicles should be positive for the Auto sector.
• Tourism & Hotels industry should benefit from focus on promoting tourism.

Overall, the Union Budget has balanced growth and fiscal consolidation. It is realistic in
assumptions, transparent and prioritizes macro stability.
Impact on Sectors

Action Impact
Capex increased by 33% yoy to INR 10 trillion, Outlay for PM AWAS Yojana High Capex outlay is generally positive for
increased 66% yoy to Rs 790 bn Infrastructure, Cap Goods, Metals, Cement
Construction cos and Banks.
Removal of tax benefit for non-ULIP policies with annual premiums more This can be negative for insurance
than INR 5 lakh. Emphasis on new tax regime for individual taxpayer may companies
leads to lower sales for insurance products
Some relief for taxpayers who move to the new tax regime which should Positive for Consumer Staples, Consumer
aid consumption. Discretionary, Tourism, Auto Sector
Scrappage of old polluting government vehicles Positive for Auto Sector

Focus on promoting tourism Positive for Tourism

 Fixed Income Outlook

• The Budget is neutral to somewhat positive for the bond markets. Gross borrowing is at the lower end of market
estimates, although in line with our estimates, which was the prime reason for the rally in the market.
• The focus on capex and continuation of fiscal deficit roadmap will give comfort to RBI from the fiscal policy front and
adds to our confidence that 6.5% is likely to be the terminal rate.
• While the gross borrowing number remains high in absolute terms, they are at lower end of market estimates and as a
% of GDP, gross borrowing will decline marginally from 5.2% to 5.1% of GDP.
• Another factor in the demand-supply balance would be the possibility to see RBI OMOs later in the year which should
support demand for government bonds.
We expect the yield curve to remain flat given the pull & push of tighter liquidity conditions, broadly stable inflation
around 5.25%, risk on BOP front and elevated supply. In such scenario accrual strategies should perform well. Thus, we
would suggest continuing to stick to 1-3 year duration as better risk adjusted place to be in.
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fact of Indian Budget. For a detailed study, please refer to the official documents of Budget 2024

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