Opinion Nilesh Shah writes: Budget 2023 underlines a philosophy of ‘under promise and over deliver’

This budget was the first such exercise post the pandemic. There were worries about changes in the tax regime for capital markets or it being overtly populist. Finance Minister Nirmala Sitharaman has chosen the path of prudence. The headline numbers – growth expectations of revenue and expenditure at around 11 per cent — are credible. The fiscal deficit at 5.9 per cent of GDP of FY 24 appears to be in line with market expectations. So does the Centre’s gross and net borrowing programme. The government has once again underlined its commitment to the fiscal glide path, projecting to bring down the deficit to 4.5 per cent by FY26. Given its recent track record, this glide path is credible and something for bond markets to rejoice.

The budget has been progressive, growth oriented and resisted the urge to go populist. Its focus has been on maintaining the growth momentum with a clear push on infrastructure.

The total receipts of this year have been revised substantially to Rs 23.4 trillion in FY23BE. It seems that the FM believes in the philosophy of “under promise and over deliver”. The nominal GDP growth estimate, at 10.5 per cent in FY24, looks conservative. The total revenue receipt growth assumption at 12 per cent and the gross tax revenue growth of 10 per cent in FY24 also looks realistic on the back of strong GST collections and growth in corporate India’s earnings.

The government continues to maintain its thrust on capex with more than Rs 10 lakh crore budgeted for FY24. To visualise how large capex this is – the Centre’s capex as percent of GDP in decade from 2010-2020 average just 1.7 per cent. This number has now increased to 3.3 per cent.

There is some relief on the personal tax front as well. The tax foregone as a result of the changes announced in this budget would be to the tune of Rs 35,000 crore, Effectively this is a surplus transferred to the consumer. The tax slab for senior citizens has been raised and a special savings scheme has been introduced for women. The government has also removed many tax arbitrage instruments. This includes life insurance policies which had tax concessions and market-linked debentures, effectively an equity product, which was earlier taxed as a fixed-income instrument. The government has also created an incentive for many to move to the new tax system – one with limited exemptions and where assets are invested on their core merit rather than just an avenue for optimising for tax outgo. This reduces the scope of misallocation of capital in the long-term.

There has been continued thrust on the last-mile delivery of public goods – drinking water, cooking fuels, and housing (where the allocation has gone up by 66 per cent). It is also heartening that the budget signals the government’s desire to engage with the tourism sector on a “mission mode” – tourism is a significant economic multiplier on job creation, foreign exchange receipts as well as infrastructure. The government has also announced a Rs 35,000 crore capital subsidy for the transition to clean energy as part of its efforts to reduce the country’s dependence on current fossil fuels.

MSMEs have received support as well. This includes the infusion of an additional Rs 9,000 crore and a revamped credit guarantee scheme that can potentially increase collateral-free guaranteed credit by Rs 2 lakh crore. The government has also announced that 95 per cent of the performance guarantee amounts in contracts of MSMEs that were impacted by the Covid19 pandemic will be returned to these firms.

The markets were apprehensive about changes in the tax structure on capital gains. These fears have been allayed.

The budget has played a fine balancing act and delivered to its core constituencies. It has tried to seize near-term opportunities and is also alive to the need to address long-term priorities.

From an equity market perspective, no negative news is good news. Over the last few months, markets have seen correction and the premium that India commands has contracted vis-a-vis other emerging markets. While the valuations are still punchy, the structural growth levers of India, along with competent management teams of India Inc, imply that corrections will be bought into, especially by longer-term investors.

The author is Managing Director at Kotak Mahindra Asset Management Company. The views and opinion expressed in the column are personal and do not necessarily reflect the opinion of the organisation or the Kotak Group