The market awaited the Union Budget 2023 with an air of optimism, staying in the green and remaining on an upward trend through the majority of the Finance Minister’s budget speech. Towards the end, however, some volatility was experienced.
In general, the budget seems to have garnered a positive reaction, after pushing the accelerator on capex, putting the brakes on India’s fiscal deficit, and steering the economy towards growth.
Budget 2023 gives several reasons for major investors to place funds in the Indian market, while also urging the middle class towards wealth creation. Here’s how the Union Budget 2023 can give fresh impetus to investors.
Massive capex push to spur economy
If realised well, the Union Budget 2023 will provide a shot in the arm to job creation and sustaining economic growth. The effective capital expenditure of the Centre is budgeted at ₹13.7 Lakh Crore, which is 4.5% of GDP, the Finance Minister revealed.
Capex is government funds that are funnelled towards the creation of long-term assets. The Capex boost will spur investments, and Budget 2023 is keen that states step on the accelerator as well.
By continuing the 50-year interest-free loan to state governments for one more year, the FM is looking to spur investment in infrastructure. This includes an increased outlay of ₹1.3 Lakh Crore.
Lowering fiscal deficit to attract investors
India’s fiscal deficit seems to be on the path to consolidation. In the Union Budget speech, the Finance Minister estimated the fiscal deficit to be 5.9% of the GDP for 2023-24. She further revealed her intention to get the fiscal deficit below 4.5% of GDP by 2025-26.
This cautious approach will assuage foreign investors, and experts suggest that debt mutual funds could experience an up-tick in the months ahead.
Relaxation in income tax slabs to offer a boost to the middle class
The Budget 2023 income tax reforms were among the most awaited. At present, there are two tax regimes and till the announcement of the Union Budget, taxpayers with incomes up to ₹5 Lakh did not have to pay income tax under both.
Now, those under the new tax regime benefit from a larger rebate, allowing for incomes up to ₹7 Lakh to go tax-free. Additionally, there six income tax slabs of the new tax regimes have been reduced to five.
The overall impact is such that if your annual income is ₹9 lakh, your tax liability is ₹45,000, which amounts to 5% of your income. How will all of this play out in the context of the middle class making investments?
On the one hand, Section 80C and the old tax regime seem to have been sidelined. So, ELSS funds may become less attractive.
On the other hand, those under the new regime may save more funds and opt for instruments that are market-linked, not necessarily linked to 80C benefits.
Keeping LTCG the same adds stability to market
One of the Budget 2023 expectations was that the Securities Transaction Tax (STT) would be eliminated, as Long-Term Capital Gains (LTCG) is also in force. This did not materialise, but in terms of LTCG neither was any damage done.
There was an underlying fear that LTCG would be raised, and this would be detrimental for the market. However, LTCG was not increased. The immediate response of the market to Budget 2023 seems to indicate this sense of relief.
Simplified KYC to promote digital investing
To promote access to financial products, the budget proposes a less consuming KYC process. It will be simplified so as to follow a risk-based rather than a one-size-fits-all approach.
Further, financial sector regulators will be asked to create a strategic KYC system that can keep up with the requirements of Digital India.
This is a step in the positive direction, considering that it opens the door to middle and low-income groups, which could urge them to invest their savings in mutual funds and stocks.
Better literacy leads to better financial decisions
Only a very tiny percentage of Indians, about 2–3% as per some statistics, invests in the stock market. However, the positive is that young people, ages 18 and above, are taking to market-linked products.
There is a direct link between literacy and informed personal finance decisions. The budget, thus proposed measures that set in motion a change in the attitude towards investing.
A National Digital Library for children and adolescents will be set up, and states will also build local physical libraries. To encourage financial literacy, financial regulators and related organisations will be asked to provide age-appropriate reading material to these libraries.
Affordable housing, better railways lead to stronger economy
The Union Budget increased the outlay for the Pradhan Mantri Awas Yojana by 66%, taking it to a total of ₹79,000 Crores. Research indicates that you spend as much as 4–5 times less on sectors like healthcare and social services when you invest in affordable housing.
Access to cheaper homes boosts disposable income, which the middle class can channelize towards wealth building via investments. The budget for PMAY will aid the realty sector and strengthen the economy by the creation of a host of job opportunities.
Similarly, in the Union Budget, the railways bagged a record capital outlay of ₹2.4 Lakh Crore. Better transport networks lead to less time wastage, improved exports, and a positive cycle of economic growth.
The Budget 2023 highlights include other decisions like tax sops for MSMEs, fewer compliances for ease of doing business, and reduction in high-income surcharge. As we look towards a positive market sentiment, the Budget has set the ball rolling for a more inclusive and empowered economy.
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