Modi 3.0 Budget: Will the Fireworks Start with Tax Cuts and PSU Support?

With the 2024 Lok Sabha elections looming large, all eyes are on the upcoming Union Budget 2023. This is the first full budget post the 2023 general election victory, and expectations are high, especially with the “Modi 3.0” era kicking off. The Indian economy is showing signs of resilience, and the government is aiming to maintain this momentum.

But what can investors and businesses expect from this crucial budget? Let’s delve into the key areas that are likely to grab headlines and shape the market sentiment:

1. Income Tax Relief: A Boon for the Middle Class?

The middle class has been a consistent demand for income tax relief, and the pre-budget buzz suggests that Finance Minister Nirmala Sitharaman might be listening. Experts expect some tweaks to the current tax regime, potentially including:

• Higher Standard Deduction: This could be a popular move, offering a direct benefit to salaried individuals by increasing the amount they can deduct from their income before tax is calculated.

• Increased Tax Slab: Raising the upper limit of the lowest tax slab, offering a larger segment of the population tax benefits.

• Revised Tax Rates: A potential move could be to re-examine the current tax rate structure, aiming for a more progressive and equitable system.

Data Point: A recent survey by a leading financial institution indicated that 65% of respondents favored income tax relief as a top priority in the upcoming budget. This clearly highlights the significance of this expectation from the middle class.

2. Infrastructure Push: Fueling Growth and Jobs

The government’s commitment to infrastructure development has been a key driver of economic growth. The budget is expected to continue this trend with:

• Increased Allocations: Anticipate substantial investments in sectors like road construction, railways, and renewable energy.

• Public-Private Partnerships (PPPs): The budget could encourage more PPP models for infrastructure projects, attracting private investment and expertise.

• Focus on Skill Development: Alongside infrastructure investments, the budget might include initiatives to bridge the skills gap and create a skilled workforce to support infrastructure development.

Data Point: India’s infrastructure sector is projected to grow at a CAGR of 8.7% during 2023-2027, according to a report by the Ministry of Statistics and Programme Implementation. This highlights the vast potential of the sector and its impact on economic growth.

3. Public Sector Undertakings (PSUs): A Lifeline or a Reset?

The performance of Public Sector Undertakings (PSUs) has been a topic of debate. The budget could address this with:

• Strategic Disinvestments: The government might announce plans for strategic disinvestment in certain PSUs to unlock their value and bring in fresh capital.

• Restructuring and Reforms: Expect initiatives to improve the efficiency and profitability of PSUs through restructuring, professionalization, and streamlining operations.

• Focus on Green Initiatives: The government could encourage PSUs to embrace green technologies and transition towards a sustainable business model, supporting the country’s clean energy goals.

Data Point: The government has set a disinvestment target of ₹65,000 crore for FY23. This suggests a continued focus on strategic disinvestments in PSUs.

4. Digitalization and Technology: The Future is Now

The government has prioritized digitalization, and the budget is likely to:

• Boost Digital Infrastructure: Expect increased funding for digital infrastructure projects, including 5G rollouts, broadband expansion, and data centers.

• Promote Digital Payments: The budget could introduce measures to encourage digital payments, further pushing the cashless economy.

• Support Start-ups and Innovation: The government might introduce policies and incentives to support start-ups, encouraging innovation and job creation in the technology sector.

Data Point: India’s digital economy is projected to reach $1 trillion by 2025, according to a report by the Indian Cellular & Electronics Association (ICEA). This underscores the vast potential of the digital sector and its role in driving economic growth.

5. Fiscal Responsibility: Maintaining Balance

While the budget is expected to include several measures to stimulate growth, maintaining fiscal responsibility will be crucial.

• Fiscal Deficit Target: The government is likely to announce a fiscal deficit target for the next financial year, striving to maintain a balance between spending and revenue generation.

• Controlling Inflation: The budget could incorporate measures to control inflation, which has been a concern in recent months.

• Tax Revenue Generation: The budget might include initiatives to increase tax revenue collection, which could involve plugging loopholes and strengthening tax administration.

Data Point: India’s fiscal deficit is projected to be around 6.4% of GDP in FY23. The budget will provide insights into the government’s strategy to manage this deficit in the coming years.

The Brokerage View: A Bullish Outlook with Cautions

Leading brokerage houses are cautiously optimistic about the upcoming budget. They expect a focus on growth-oriented measures, including infrastructure spending, tax relief, and digital initiatives. However, they also caution that maintaining fiscal discipline and controlling inflation will be crucial for sustaining long-term economic growth.

Sentiment Analysis:

Social media buzz suggests a strong positive sentiment around the budget, with most people expecting a focus on income tax relief, infrastructure, and digital initiatives. However, there are concerns about potential inflationary pressures and the need to maintain fiscal discipline.

Keywords for Ranking:

• Union Budget 2023

• Modi 3.0 Budget

• Income Tax Relief

• Infrastructure Development

• Public Sector Undertakings (PSUs)

• Digitalization

• Fiscal Deficit

• Brokerage Expectations

Conclusion:

The Union Budget 2023 holds significant implications for the Indian economy. While the budget is expected to include measures to boost growth and create jobs, it remains crucial for the government to strike a balance between fiscal responsibility and supporting economic expansion. The budget’s focus on infrastructure, digitalization, and income tax relief could be key drivers of positive sentiment, but careful attention to inflation and fiscal management will be essential for sustained progress in the “Modi 3.0” era.