With the country due for General Elections this summer, all eyes are set on the Union Budget which will take place on 1st Feb’24 at 11:00 am.
But an election year’s Union Budget is a little different than those of non-election years. This year’s budget is an ‘Interim Budget’. It is a short-term plan for the outgoing government to manage the finances till the new government comes in power.
Post elections, the new government will get a chance to present a comprehensive budget (usually held in June) for the rest of the year.
In the Interim Budget, the government is not allowed to table the Economic Survey. This survey is basically a document that provides a detailed analysis of the country’s economic performance, trends, and prospects.
Although, there are no prescribed guidelines for the Interim Budget, it is traditionally expected that the outgoing government will not make major announcements (so that they cannot influence voters significantly before election).
Having said that, each government will look to pass policies which can either attract voters or make life difficult for the new government. A couple of ‘honourable mentions’ here:
In 2014, the then Finance Minister, P Chidambaram of UPA II, tried to improve the credibility of his government. India’s Fiscal Deficit* was on the higher side in FY14, so he pushed some expenses to the next year to show better Fiscal Deficit for FY14. He was accused of bringing down the deficit by slashing capital expenditure (infra spending) without reducing subsidies.
(* Fiscal Deficit refers to the difference between the Outgoings (Expenses) vis-à-vis the Incomings (Receipts). Fiscal Deficit is always depicted as a percentage of the GDP. The lower the Fiscal Deficit, the better it is.)
More recently in 2019, Piyush Goyal, the then FM of the NDA government, tweaked the tax structure giving relief to small taxpayers. But the major card played by the FM was the introduction of the PM-KISAN scheme. This entailed a Rs. 6,000 per annum support to every small and marginal farmer costing the government Rs. 75,000 Cr. annually. This led the interim budget to be termed as ‘populist’.
With the BJP Government strong favourites to come back to power a third time, it seems unlikely that they would come out with a ‘populist’ budget. But of course, in politics nothing can be ruled out.
So, what are the main expectations in this Interim Budget?
- Fiscal Deficit for FY25 to be in the range of 5.2-5.4% of the GDP (the FY24 estimate is ~5.8% whereas the target is to reach 4.5% by FY26)
- FY25 Nominal GDP growth* would be in the range of 11%-11.5% (FY24 Nominal GDP growth is estimated at ~9%)
- Continued focus on Capex/Infra spending although not as strong as FY24
- Focus on strengthening the agriculture and manufacturing sectors
- Increase in standard deduction & changes in tax slabs for individuals
(* Nominal GDP growth includes the impact of price rise i.e. inflation and impact of volume growth. Real GDP growth on the other hand includes only the impact of volume growth.)
While each industry has their set of demands in the budget season, as an Alternate Investment platform, even we have a wish.
Right now, there exists a significant tax arbitrage between Equity & Debt investments. While Equities get taxed at 10%/15% for Long/Short-term Gains, income from debt instruments like Bonds, FDs and Debt Mutual Funds are taxed at their slab rate. This disparity leads investors to neglect risk management and chase post-tax returns.
With the probability of this demand being met quite low this year, I do hope this change is made sometime in the near future.
To sum, the Interim Budget isn’t usually a big event and is unlikely to impact your investments either way.
But we can have a slight hope that there maybe something to rejoice afterwards.
Till the next time,
Vijay
CEO – InCred Money
