The government has raised capital expenditure, shown fiscal prudence and declared the new personal income tax regime as default. The Union Budget 2023-24 can be summarised in three big takeaways. In essence Finance Minister Nirmala Sitharaman has stuck to the broader growth strategy that she unveiled in 2019-20.
The big picture of the Budget is its focus on growth through higher productive capital spending, and simultaneously sticking to fiscal prudence, which in the near to medium term will mean lower interest rates for the private sector, encouraging them to invest.The capital investment outlay for next year is 33 per cent higher than what is estimated for 2022-23.
What is innovative in the Budget is a sharp nudge to taxpayers to move to the new tax regime. By bringing in some relief in terms of standard deduction to those opting for the new tax regime, she has incentivized individuals in the middle-income category. Further, she has raised the tax threshold to Rs 7 lakh a year from Rs 5 lakh a year. This will again prod those in the lower tax bracket to switch. Further, lowering of the surcharge on the super-rich (those earning Rs 5 crore or more a year) such that the effective tax rate is lowered from 42.7 per cent to 39 per cent, will immediately incentivise the super-rich to shift to the new tax regime.
The one number that matters most in the Budget and is keenly watched by all FIIs and foreign investors is the fiscal deficit – the excess of expenditure over receipts. Sitharaman has not stuck to the target this year at 6.4 per cent of the GDP, she has also estimated it at 5.9 per cent for 2023-24 (less than 6 per cent; a reduction of 0.5 percentage points from 2022-23’s deficit estimate). When the government borrows less, the interest rates are lower. This will encourage the private sector to borrow – since costs will be lower, and as is said in economic terms, crowds in the private sector.
