Analysis of Union Budget

February 2023
Public
Quick Takeaways
Union Budget announced on 1 Feb 2023 was devoid of any big negatives – barring for few specific sectors.

It was continuation of the past. Government stuck to its script of being fiscally prudent.

No major populist steps were announced. Budget tried to achieve a fine balance between growth of manufacturing,
services, consumption, long term vision and yet being prudent
• Fiscal containment was clearly in focus, with fiscal deficit being targeted at 5.9% for FY24 from 6.4% in FY23.
Government has reiterated its path to fiscal deficit of 4.5% by FY26
• Another focus was capex, which central government increasing spend by 33% to Rs 10 lakh cr.
• Within infra, higher focus was visible in Railway spend
• Also, impetus was towards climate change, renewables, Micro, Small and Medium Enterprises (MSME), new startups,
tourism and a lot of stress towards simplification of KYC norms.
• From markets standpoint, the net market borrowing at INR11.8 lakh cr for FY24 is broadly in line with expectations,
which should allay the concerns in the bond market

Overall, a Budget with a focus on long-term

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Source: Budget Documents, ASK IM Research Public

Union Budget at a Glance
Rs trillion Actual Revised Budget
Remarks
Particulars FY22A FY23R FY24B % YoY
Gross Tax Revenues 27.1 30.4 33.6 10.4% Largely inline with NGDP growth of 10.5%
Corporation Tax 7.1 8.4 9.2 10.5%
Income Tax 7.0 8.2 9.0 10.5%
GST, Custom, Excise, Service Tax 12.9 13.9 15.3 10.4%
Net Tax Revenue (Centre) 18.0 20.9 23.3 11.7%
Non-Tax Revenue 3.7 2.6 3.0 15.2% License fees + spectrum usage charges + 5G spectrum charges
Dividends & Profits 1.6 0.8 0.9 8.4%
Revenue Receipts 21.7 23.5 26.3 12.1%
Capital Receipts 17.8 18.4 18.0 -2.0%
Net Borrowings 8.9 11.1 11.0 -0.3% Largely stable fiscal deficit leading to flattish borrowings
Small Savings 5.5 4.4 4.7 7.4%
Disinvestments 0.1 0.6 0.6 1.7%
TOTAL RECEIPTS 39.5 41.9 44.4 5.9%
Major Expenditure Lines

Source: Budget Documents, ASK IM Research

Interest Payments 8.1 9.4 10.8 14.8% Due to higher borrowings in recent years
Defence Expenditure 3.7 4.1 4.3 5.7%
Subsidies (Food+Fuel+Fertilizer) 4.5 5.2 3.7 -28.2% Substantial reduction across the three buckets
Pensions 2.0 2.4 2.3 -4.3%
Rural Development 2.3 2.4 2.4 -2.1%
Transfer to States 2.7 2.7 3.2 19.8% Higher transfer to states for inducing incremental capex
Transport 3.3 3.9 5.2 32.4%
Others 11.4 11.7 13.0 11.6%
TOTAL EXPENDITURE 37.9 41.9 45.0 7.5%
Revenue Account 32.0 34.6 35.0 1.2%
Capital Account 5.9 7.3 10.0 37.4% Outlay increase on Rail (up 51%), Roads & Bridges (up 24%)

Fiscal Deficit 15.85 17.55 17.87 2% Driven by both better tax collections & lower expenditure
as % of Nominal GDP 6.7% 6.4% 5.9% 3
Revenue Deficit 10.31 11.11 8.70 -22% Flattish revenue expenditure vs 12% growth in revenue receipts
as % of Nominal GDP 4.4% 4.1% 2.9% Public
Financial Services: Negative Impact on Insurance
Budget Announcements:
• Personal income tax under new tax regime made more attractive
• Income tax slabs have been revised
• Standard deduction benefits extended to salaried class and pensioners
• Tax benefits for non-ULIP policies
• Non-ULIP policies with premium exceeding Rs5 lakh will not receive tax benefit upon maturity (not death)

Implication of measures announced:

• The revised tax slabs under the new tax regime makes it more attractive (vis-à-vis old regime) for individuals
entering the workforce. Hence, to that extent, the growth opportunity for life insurance companies will get
impacted.
• The proposed removal of tax benefits on non-ULIP policies with premium of +Rs5 lakh is likely to impact non-par
products the most as these products attracted higher ticket premiums. Non-par products have been a major
contributor to growth for private life insurance companies and hence the tax proposal will hamper the demand of
non-par products.

Source: Budget Documents, ASK IM Research Public

Capital Expenditure: Enhanced Outlay
Focus of the Budget is infrastructure and capex, and that too in a fiscally prudent manner. The overall vision is to prepare
the economy for India@100 from India@75, while staying on the earlier committed fiscal glide path. The idea seems to be
to support & incentivize supply-side capacity creation for sustainable growth over a longer period of time.

Key areas of focus include:

• Infrastructure: Capital investment outlay up 33% YoY to ₹10trn (3.3% of GDP and almost 3x the outlay for FY20).
Revised outlay for FY23 stands at ₹7.4trn.

• Support to State Governments: 50-year interest free loan to State governments for infra investments; ₹1.3trn to be
spent on projects by FY24.

• Tourism: Promotion of tourism will be taken up on mission mode, with active participation of states, convergence of
government programmes and public-private partnerships.

• Green Growth: implementing many programmes for green fuel, green energy, green farming, green mobility, green
buildings, and green equipment, and policies for efficient use of energy across various economic sectors.

Source: Budget Documents, ASK IM Research Public

Infrastructure: Key Focus Areas...
• Railways: Railways capital outlay- ₹2.4trn provided in FY24 (up 51% YoY) ; 9x of FY14 outlay.

• Roads: Outlay increased by 42% YoY to Rs. 1,15,813 Cr. Continued focus on improving road connectivity

• Airports: 50 additional airports, heliports, aerodromes, other infra to improve regional connectivity

• Last mile connectivity: 100 critical transport infra projects for first/last mile connectivity for ports, coal, steel, food,

fertilizer sectors. Outlay of ₹750bn including ₹150bn from private sector

• Coastal Shipping: To be promoted through Viability Gap Funding, for both passengers and goods

Source: Budget Documents, ASK IM Research Public

 Urban Infrastructure and Housing: Continued spending
• Housing: Outlay Under PM Awas Yojana increased by 66% to 79,590cr for FY24, from 48,000cr in FY23

• Urban Infrastructure Development Fund: Centre will provide a corpus of Rs. 10,000cr per annum,
which will be utilized for creating urban infrastructure in Tier 2 and Tier 3 cities, this will be supervised by
National Housing Bank

• Pradhan Mantri PVTG Development Mission:Outlay of Rs. 15,000cr in next three years for improving
socio-economic conditions of the particularly vulnerable tribal groups (PVTGs). Under this, facilities such as
safe housing, clean drinking water and sanitation, improved access to education, health and nutrition, road
and telecom connectivity, and sustainable livelihood opportunities will be provided to them.

Source: Budget Documents, ASK IM Research Public

 Renewables: Incentivisation and Support
• Transmission: Renewable Energy evacuation of 13GW from Ladakh; to be connected to the national grid, at a cost of
₹207bn, with Centre’s support at ₹83bn (to be executed by Power Grid)

• EV Infrastructure: Outlay under scheme for Faster Adoption and Manufacturing EV’s has been increased by 78% to
Rs 5,172cr.

• Battery energy storage: 4000 MWh to be supported by Viability Gap Funding. Support also for pump storage
projects

• Green Hydrogen Mission: Outlay at ₹197bn, helping in energy transition; production of 5MMT by 2030

• Compressed Bio Gas (CBG): 200 plants at an investment outlay ₹100bn. Will introduce 5% CBG mandate in due
course for all organizations involved in marketing natural and bio gas. For collection of bio-mass and distribution of bio-
manure, appropriate fiscal support will be provided.

Source: Budget Documents, ASK IM Research Public

Manufacturing Sector: Correction in Indirect taxes
Indirect tax benefits for manufacturing of Consumer electronics/kitchen appliances

• To deepen manufacturing of mobile phones and EVs

• Relief in Basic Customs Duty on import of certain parts: camera, lens

• Relief on Lithium ion cells for EV batteries

• To deepen manufacturing of TVs: BCD on open cells, TV panels reduced to 2.5%

• Inverted duty structure rectified for electric chimneys: BCD increased from 7.5% increased to 15% and on
heat coils reduced from 20% to 15%

Source: Budget Documents, ASK IM Research Public

Manufacturing Sector: Extension of exemptions
Extension in Custom Duty Exemption for the below:

• Specified inputs and sub-parts used in manufacture of telecommunication grade Optical Fibre Cable (OFC)
till Mar’25.

• All parts used for manufacturing of LED lights or fixtures including LED lamps till Mar’24.

• All inputs used for manufacturing of LED drivers or MCPCB for LED lights and fixtures or LED lamps till
Mar’24.

• Television equipment, cameras and other equipment for taking films, imported by a foreign film unit or
television team till Mar’24.

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Source: Budget Documents, ASK IM Research Public

Real Estate: Plugging the loopholes
Government is attempting to plug tax loopholes.

• Limiting the roll over benefit claimed under section 54 (deduction available on the long-term capital gain arising from
sale of a residential house if the capital gain is reinvested in a residential house); budget proposed to impose a limit on
the maximum deduction that can be claimed by the assesses to Rs10cr.

• Prevention of double deduction claimed on interest on borrowed capital for acquiring, renewing or reconstructing a
property. Initially, it is claimed in the form of deduction from income from house property under section 24, and then,
while computing capital gains on transfer of such property this same interest also forms a part of cost of acquisition or
cost of improvement under section 48 of the Act.

• REIT: REIT / InVIT income distributed as capital reduction (or repayment of debt) to unitholders proposed to be taxed.
Income distributed in the form of Interest, dividend and rental income continue to enjoy pass through status.

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Source: Budget Documents, ASK IM Research Public

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Source: Budget documents, ASK IM Research, Bloomberg

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