UNION BUDGET 2023-24
UNION BUDGET 2023-24
Capex and Consolidation
While over the past few years, the relative
importance of the Union Budget from a financial
market standpoint has gone down (as various
policy decisions and initiatives are taken outside
the Budget), this year’s Budget held special
significance as it was the last full-fledged Budget
under Modi 2.0 term before the next year’s general
elections. Markets were expecting the Budget to
focus on a) Capex – which can have a positive
multiplier effect and boost overall employment b)
Rural recovery - the rural sentiments/consumption
has been marred by high inflation. The Budget
announcements were broadly in line with
expectations.
This year's Budget continued the growth impetus
that the last Budget had laid, by focusing on
‘quality’ expenditure and increase in Capex by 33%
YoY. The government, by doing the initial heavy
lifting for investments and creating a virtuous
environment for growth, expects the private sector
to eventually join the growth capex.
One of the other key expectations from the Budget
which was met was ‘consolidation’- FY23 fiscal
deficit was unchanged (vs budgeted) at 6.4% of
GDP, and a 50bps consolidation budgeted to 5.9%
for FY24BE. Slight risk of a larger deficit cannot be
ruled out, especially if GDP growth moderation is
more acute than currently estimated.
FY24 Budget proposals are based on seven
priorities, namely
a) Inclusive Development
b) Reaching the last mile
c) Infrastructure and Investment
d) Unleashing the potential
e) Green Growth
f) Youth power
g) Financial Sector
01 FEBRUARY 2023
KEY HIGHLIGHTS
Capex
• INR 10tn allocation for Capex – a 33%
increase vs the FY23BE (3.3% of the GDP and
almost three times the outlay in FY20).
• Railways: Highest ever capital outlay of
INR2.4tn for Railways.
• Continuation of 50-year interest free loan to
State Government to incentivise
infrastructure investment.
• Housing: The allocation towards PMAY
housing increased by 66% to INR790bn.
• Fifty additional airports, heliports, water
aerodromes and advance landing grounds to
improve regional connectivity.
• Provision of INR350bn for capital investments
towards energy transition and net zero
objectives, and energy security.
Tax measures
• Increase in the income tax rebate limit from
INR 5 lakhs currently to INR 7 lakhs in the new
tax regime. Therefore, persons with an
income of up to INR 7 lakhs would not be
required to pay income tax.
• The slabs under the new personal income tax
regime too have been reduced from six to
five.
o For the INR 0-3 lakhs bracket, the income
tax liability is zero.
o For the INR 3- 6 lakh bracket (previously
INR 2.5-5 lakh), the taxation rate has been
fixed at 5%.
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UNION BUDGET 2023-24
o For the INR 6-9 lakh category (previously
INR 5-7.5 lakh), the taxation rate stands at
10%.
o For the INR 9-12 lakh category (previously
INR 7.5-10 lakh), the taxation rate is 15%.
o For the INR 12-15 lakh category (previously
INR 10-12.5 lakh), the taxation rate stands
at 20%.
o Income levels beyond INR 15 lakh would be
taxed at 30%. The additional category of
25% taxation on INR 12.5-15 lakh has been
removed.
• The standard deduction benefit has been
extended to the new regime as well for the
salaried class as well as pensioners.
• To ensure that tax concessions reach their
targeted audience, the government has
capped deduction from capital gains on
investment in residential house under
Sections 54 and 54F to INR100mn. The
intention is to deter tax exemption for
extremely high-value transactions in the
residential space.
• The highest surcharge rate has been reduced
from 37% to 25% in the new tax regime. This
would result in the reduction of the maximum
tax rate to 39% from nearly 43% now.
• The limit of INR0.3mn for tax exemption on
leave encashment on retirement of non-
government salaried employees has been
increased to INR2.5mn.
• The rate of TCS for foreign remittances under
LRS (excluding education and medical
01 FEBRUARY 2023
treatment) has been increased from 5% to
20%.
• For new high value life insurance policies (>
INR0.5mn aggregate premium), proceeds are
now taxable (For ULIPs, this was already at
INR0.25mn).
• Market Linked Debentures (MLDs) will now
be fully taxed as short-term capital gains.
Other Measures
• The Budget has reduced the outlay under the
MNREGA scheme by ~33% from the revised
estimate of INR894bn for FY23 to INR600bn
for FY24.
• Revamping of the credit guarantee scheme
for MSMEs from 1st April 2023 with an
infusion of INR90bn in the corpus.
• New co-operatives that commence
manufacturing activities till 31st March 2024,
shall get the benefit of a lower tax rate of
15%.
• To unleash innovation and research by start-
ups and academia, a National Data
Governance Policy will be brought out.
• The digital ecosystem for skilling will be
further expanded with the launch of a unified
Skill India Digital platform. To skill youth for
international opportunities, 30 Skill India
International Centres will be set up across
different States.
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UNION BUDGET 2023-24
SECTOR MEASURES AND IMPACT
Sector Budgetary measures
BFSI • Revamped ECLG scheme targeting INR2tn of
collateral free loans to MSME
• Higher capex orientated budget will boost
credit growth
• Income earned from policies (Non ULIP) with
premium above INR0.5mn is taxable
Housing • Higher allocation for PMAY to INR790bn
Infrastructure/Cement • Higher allocation towards capex by 33% to INR
10tn; Including the Grants-in-Aid to States,
the capex is estimated at INR13.7tn (3.3% of
GDP)
• Highest-ever capital outlay of INR2.4tn for
Railways
• Higher allocation for Jal Jeevan Mission by
27% to INR700bn
• 100 transport infrastructure projects would be
taken on priority with investment of INR750bn
• Creating Urban Infrastructure in Tier-2/3 cities
via UIDF
Consumption • NCCD on select cigarettes increased by 16%,
effectively increasing the taxes on cigarettes
by ~1.5%
• Increased outlay on affordable housing
• Lower Customs duty on various products such
as components for TV and mobile camera lens
• Minor changes in the personal income tax
under the new tax regime
Auto • Scrappage of old polluting government
vehicles, including cars and buses
• Custom duty concession on Li-ion
battery manufacturing equipment to be
extended
• Higher allocation for FAME scheme
• Higher capex allocation
Healthcare • Higher allocation to various schemes with a
focus on improving Healthcare Infrastructure
in the country
IT • Continuing focus on long term digital adoption
and building digital public infrastructure
Agri/Fertilisers • Will incentivize States/UTs to promote usage
of alternate fertilisers
Clean Energy • INR350bn allocated for energy
transition
• Viability funding gap for energy storage
projects
01 FEBRUARY 2023
Impact
• Marginally positive for the lending companies
• Positive for Corporate heavy banks and PSU
banks as they will focus on new lending
• Life insurance companies to be negatively
affected, especially Non-Par category
• Marginally positive for Affordable Housing
• Positive for Capital Goods and EPC
companies, especially focusing on the Roads,
Railways and Water management sectors
• Positive for cigarette manufacturers such as
ITC, as this is not a material increase,
especially after a period of 2 years of no tax
increase
• Positive for home improvement segments such
as paints, tiles, sanitaryware, consumer
durables, etc.
• Positive for EMS (Electronic Manufacturing
Services) players
• Would benefit the middle-income consumers,
which can lead to better demand, especially for
low ticket consumption
• Marginally positive for OEMs such as
Maruti, Tata Motors, M&M and Ashok
Leyland
• Positive for companies setting up Li-ion
cell plant such as Exide and Amara Raja
• Positive for EV manufacturers
• Positive for CV players such as Tata Motors
and Ashok Leyland
• Marginally positive for domestic business of
pharma companies and healthcare related
companies (Hospitals & Diagnostics)
• No major impact as majority of the companies
derive a small revenue share (3-5%) from India
• Positive for phosphatic fertilizer manufacturers
• Positive for players such as RIL, NTPC with
their increasing focus on solar/hydrogen
energy
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UNION BUDGET 2023-24 01 FEBRUARY 2023

BUDGET ARITHMETIC privatisation, the focus on boosting

manufacturing as well as an underlined
emphasis on areas such as startups, modern
• The Union Budget continued its focus on
mobility and clean energy, shows that the FM
growth led by capex, which is projected to grow
has prioritised long-term growth.
by a higher-than-anticipated rate of 33% vs
• As the big event is now over, the stock market
FY23 (BE) to INR 10.01 tn, which is ~3.31% of
will shift its focus on Q3FY23 earnings and
the FY24 (E) GDP. Total expenditure is
global cues. The earnings season so far has
estimated to rise by 7.54% to INR 45.03 tn, with
been a mixed bag and the corporate
the revenue expenditure seen rising ~ 1.25% to
commentaries are indicating that while there
INR 35.02 tn.
are supply side constraints, the demand
• Revenue receipts are expected to rise by
environment has been steady for domestic
12.09% vs FY23 (RE) to INR 26.32 tn, driven by
focused sectors but has been volatile for
tax revenue (net) which is seen rising at 11.69%
external facing sectors.
to INR 23.31 tn. Non-tax revenue is estimated
• India Inc has entered a phase of strong earnings
at INR 30.17 tn, a rise of 15.24% vs FY23 (RE).
momentum since FY2021, led by robust
Capital receipts are estimated to grow at 1.74%
economic recovery, low/stable interest rates
vs FY23 (RE) to INR 18.71 tn, with
and low credit cost, leading to massive PAT
disinvestment receipts seen at INR 51 Tn in
growth for Financials.
FY24, vs the INR 50 Tn in FY23 (RE).
• The Indian equity market has been an ‘outlier’ in
• The fiscal deficit estimate for FY23 has been
2022, as it was up 4.3 % (vs. MSCI World which
retained at 6.4% of GDP and is expected to
was down 19.8%). In 2023, while it is early days,
decline to 5.9% in FY24 (INR 17.87 tn). The
the Indian markets have seen some mean
fiscal deficit is expected to be funded largely by
reversion of previous year gains and been
market loans (~70%) and small-savings funds
relative underperformer (YTD- Jan end: Nifty -
(~26%). Gross borrowing via dated securities is
2.4% vs MSCI World +7.1%)
pegged at INR 15.43 tn - up 8.59% vs
• While the corporate earnings story remains
FY23(RE), while the net borrowing has risen by
intact, Indian equities are running into a few
6.56% to INR 11.81 tn.
headwinds – high valuation premium to EMs,
• The government reiterated its intent to bring
potential slowdown in exports on the back of
down the fiscal deficit below 4.5% by FY26.
global recession/slowdown, and Fixed Income
• Nominal GDP is estimated to rise by 10.4% in
emerging as a viable investment option (Equity
FY24 vs the FY23 (RE), while the real GDP is
– ‘TINA’ factor reversing) - which could result in
estimated to rise by 6.5%.
a pause in the upward market journey.
• While we continue to remain constructive on
EQUITY MARKET STRATEGY the Indian equity markets, driven by
continuation of momentum of the earnings
• The Budget is growth inducing and does the
cycle, we might witness time-correction.
heavy lifting by sharply increasing capital
‘Buying the dips’ and ‘being tactical on the
expenditure. As a relief, despite the state
swing sectors’ (mostly global revival plays vs
elections ahead, the Budget did not have any
defensives), could help generate better returns.
big populist measures, which had some sections
• The current outperformance of large caps vs
of the markets worried. Encouragingly, like last
mid/small caps, and value vs growth, is
year, the Budget estimates are realistic,
expected to continue in H1CY23. This is
believable and transparent.
expected to reverse in H2, once there is clarity
• While there is a bit of disappointment that
on the peak rates (Fed pivot).
there is no direct stimulus to spur consumption
and no major announcement around

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UNION BUDGET 2023-24 01 FEBRUARY 2023

FIXED INCOME MARKET geopolitical tensions straining global supply

chains. The U.S. Fed hiking rates to higher-
STRATEGY than-anticipated levels in its battle against
inflation, could pressure the rupee, warranting
• Amid the backdrop of slowing global growth
action by the RBI.
and weakening domestic demand post the
• The domestic yield curve has shifted upwards
festive season, the Budget has focused on
significantly compared to the year ago levels.
capex driven growth. The much-awaited
Equity market valuations relative to global
borrowing programme of the government for
equity markets as well as the emerging market
FY24 has come broadly in line with
basket in particular look expensive, increasing
expectations, with the net borrowing via dated
the lucrativeness of fixed income in investors’
securities estimated at INR11.8 Tn (6% vs FY23
asset allocation.
BE). The 10-year G-sec, which had shot up to
• Within fixed income, one should look to allocate
7.38% levels, fell sharply to ~7.28% post the
to money market and short-to-medium
Budget speech.
duration funds, with the yield curve being
• The RBI has hiked the repo rate by 225 bps
almost flat. Currently, the 2 to 6 year segment
since May last year to combat a surge in
of the yield curve appears lucrative from a risk-
inflation, which printed above the RBI’s upper
reward perspective, given expectations of
tolerance band for 10 months in a row untill
interest rates peaking over the near term.
October 2022. The rate hikes along with tight
Investors with a horizon of at least 2 to 3 years
liquidity conditions resulted in a bear flattening
can build exposure to duration in a staggered
of the yield curve.
manner.
• Headline retail inflation has since been on the
• On the credit side, spreads on corporate bonds
downward trajectory, aided by declining global
(vs G-secs) could potentially widen on account
commodity prices and food inflation. Wholesale
of corporates turning to the capital markets
inflationary pressures too have slowed down
following a rise in bank lending rates. Hence,
meaningfully. Crude oil prices too have hovered
investors can currently look for opportunities in
much below the RBI’s assumption of USD100
selective credits, and later increase exposure to
per barrel and could result in inflation
credit funds when spreads turn lucrative.
undershooting the RBI’s projections. This bodes
well for the RBI to act in support of growth by
taking a pause later in the year to assess the
lagged impact of its cumulative rate hikes in
this cycle.
• The RBI is expected to hike the repo rate by a
further 25 bps (to 6.50%) in the February MPC
meeting amid concerns over a sticky core
inflation and with an eye on the rupee-dollar
dynamics. We expect shorter term rates to be
high over the near term, supported by tight
liquidity amid improved credit-offtake, as the
RBI takes a pause. The longer end of the curve
may react to the quantum and timing of bond
supply and could warrant support from the RBI
in the form of OMOs. Upside risks to yields
could emerge in the form of an uptick in
inflation owing to China re-opening in a
meaningful way and any potential flare-up in

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UNION BUDGET 2023-24 01 FEBRUARY 2023

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