By Hiren Ved, Director & Chief Investment Officer at Alchemy Capital Management

At first glance, the budget seemed populist, but it is not! Yes, there is a big push to try and fire up employment but incentivising the private sector to hire more and tackle the big challenge of unemployment given that we need to create 7-8 million new jobs annually. Think of it as a PLI (production linked incentive) for employment generation. How this will be operationalised on the ground is to be seen, but the intent is in the right direction.

The moot question in the minds of investors was – what the government will do with the additional Rs 1.4 lakh crore (Rs 1.4 trillion) of resources that it has due to higher RBI dividend and better tax collections? Will it be more populist, or will it increase the allocation for capex and fiscal consolidation? The Finance Minister’s decision to allocate nearly 70 percent of this surplus to reduce the fiscal deficit, and 30 percent to increased transfers to states, while maintaining capex at Rs 11 lakh crore, is prudent. This somewhat anticipated allocation of Rs 0.4 lakh crore to the two states - Bihar and Andhra, both very important allies in the NDA government - can also be construed as an infrastructure stimulus, as this amount will be spent on building infrastructure in these states including power, roads, irrigation, and education.

By aggressively bringing down the fiscal deficit to 4.9 percent for FY25 and showing a glide path to 4.5 percent by FY26, is a signal to global rating agencies to upgrade India’s sovereign rating. This strategic move will help in bringing down the cost of capital in India on a long-term structural basis and bring down long term interest rates in the country.

From a capital markets perspective, the increase in STCG (Short Term Capital Gains) and LTCG (Long Term Capital Gains) on listed equities was a slight dampener. But one can take comfort from the fact that this was part of a larger design to simplify the capital gains tax on all asset classes – equites both listed and unlisted, debt, gold and real estate. The capital markets will take this in its stride, as it always has, and investors will move on. Given that there was an overwhelming feeling that some regulatory and tax interventions would be taken to curb the excessive speculative fervour in the Futures and Options market, the increase in STT (Securities Transaction Tax) is welcome. There could be more follow up measures like increasing lot sizes and rationalising the expiry days, but once that is done the hanging sword on regulatory interventions would be out of the way, in our view.

The budget also introduced several forward thinking and strategic measures aimed at sustainable growth, followed by initiatives with emphasis on R&D and leveraging DPI (Digital Public Infrastructure) in agriculture. For instance, initiatives such as digital soil health cards, precision farming tools and blockchain-based supply chain management systems. These technologies can significantly enhance crop yields, reduce wastage, and improve long-term productivity and efficiency of the agricultural supply chain. This is a strategic shift from traditional MSP (Minimum Support Price) hikes, thereby reducing market distortions & fiscal burdens.

Custom duties on several products have been reduced to make Indian manufacturing sector more competitive, notable being a steep reduction in gold and silver with a view to both, discourage smuggling activities that thrive on the arbitrage created by high import taxes. Further, this will not only bring more trade into the formal economy but also seek to enhance the competitiveness of the domestic jewellery sector, making it more attractive for both local consumption and export markets.

The reduction in MNC tax rates from 40 percent to 35 percent is to encourage greater investments in India, though that’s not the only reason why MNCs would come to India.

On the whole, the budget is well-balanced and disciplined for the Indian economy and should continue to foster growth with more inclusivity… well, until the next budget!

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