The last full Budget, before India goes to poll in 2024, will be announced by the Finance Minister Nirmala Sitharaman on Wednesday. Dalal Street is expecting the FM to expand the PLI scheme, give a boost to capex and rural spending while cutting down on food and fertiliser subsidy bill. She is expected to tinker with tax slabs and reward tax payers. Investors, however, do not want any changes to long-term capital gains tax and wish the FM to continue with the path of fiscal prudence. Borrowings are expected to be checked, so that interest rates in the system do not rise, analysts said.
On a broader basis, the Street is expecting 5 things from FM Sitharaman: Fiscal consolidation, expansion of PLI schemes, boost to rural economy and capex, slight tinkering to taxes and a flattish divestment target.
Fiscal prudence
HDFC Securities said the Budget will be growth-oriented with a focus on capex, manufacturing, infrastructure, and rural economy while keeping fiscal deficit and inflation in check. It noted that the Centre is likely to over-achieve its receipts in FY23, allowing it to meet higher-than-budgeted spending, without breaching its fiscal deficit targets.
“The Centre wants to achieve a deficit of 4.5 per cent by FY26. To reach there, it must reduce the same to 5.6-5.8 per cent of GDP in FY24 versus 6.4 per cent in FY23," it said.
PLI scheme
Quantum Securities noted that the government has rolled out PLI scheme, with an outlay of Rs 2,00,000 crore in the past few years, covering as many as 14 sectors, including automobiles and automobiles components, white goods, pharma, textiles, food products, high efficiency solar PV modules, advance chemistry cell and speciality steel. In the forthcoming budget, the government is likely to extend fiscal incentives to other sectors like toys, bicycles, leather and footwear to cover more high-employment sectors, it said.
Tax structure
Since purchasing power of the middle class has been eroded by global inflation and constant revisions in the repo rates, Quantum Securities expects some changes in the income tax structure. It noted that tax rates have not been revised since FY18. Thus, in order to provide more purchasing power to the middle and upper middle class, it expects increase in the threshold limit for the lowest tax rate. In order to boost savings and investments, the limit under Section 80C, 80D and related sections might also get revised, it said, If the holding period on equity investments is increased or LTCG rate is increased, it can have a negative impact on markets, Quantum Securities said.
Capex Boost, rural schemes
Nirmal Bang Institutional Equities expects the focus on capex to stay and is factoring in 15 per cent growth in FY24. It believes railways and roads will be the largest beneficiaries of incremental government capex.
"We also expect incentives oriented towards the affordable housing sector. Ahead of general elections in 2024 and given the recent rural distress, we expect higher allocation towards various rural schemes, with focus on rural infrastructure development. In the FY23 supplementary demand for grants, spending under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and other rural asset creation programmes has already been increased by Rs 45,000 crore and the same is likely to increase further. This will partially offset lower fertiliser subsidies and some moderation in food subsidies," it said.
Divestment target
Emkay Global said divestment is likely to be kept at Rs 65,000 crore amid the strategic sale of core and non-core assets. That, it said, would still be ambitious, as there will likely be limited windfall gains from stake sales of the government’s large holdings, which are mainly concentrated in commodity companies and utilities. Other brokerages see a lower divestment target.
It noted that divestment proceeds for FY23 have been meager so far, at just Rs 28,400, which is 44 per cent of the Rs 65,000 crore target. It noted that the LIC IPO accounted for Rs 21,000 crore of the amount raised, highlighting the lack of progress on other divestment targets, with plans for BPCL having been shelved. Centre has also opted to wait for realising ‘upside value’ from IDBI Bank.
"We expect divestment to only amount to Rs 33,600 crore, falling below the budget estimate by 48 per cent (0.1 per cent of GDP),” Emkay Global said.