How Has Budget Impacted The Market In The Past 10 Years?

The Union Budget has a profound influence on the Indian economy, interest rates, and stock markets. The Finance Minister’s allocation of resources and investment decisions play a crucial role in shaping the fiscal deficit and defining the growth chart for the entire financial year while impacting the money supply and the overall interest rate in the country. An increase in interest rates often translates to increased capital costs for industries, diminished profits, and subsequently, a dip in stock prices.

Stock markets are very sensitive to budgetary announcements. The allocation of funds to different sectors, changes in taxation policies, and fiscal measures can trigger substantial movements in stock prices.

Government-initiated budgetary decisions significantly influence public expenditure. For instance, an upward adjustment in direct taxes can shrink disposable income, leading to a decreased demand for goods, affecting consumer spending and, consequently, corporate earnings. This diminished demand, in turn, triggers a reduction in production, thereby impacting overall economic growth. Likewise, a surge in indirect taxes can also elevate prices and reduce demand. The subsequent decline in demand adversely affects the profit margins of companies, leading to a slowdown in production and growth. 

Non-plan expenditures too, such as subsidies and defence allocations, play a role in shaping the economic landscape. The allocation of limited government resources to non-productive purposes can have implications for overall economic productivity and growth.

Although historical performance is no guarantee for its future behaviour, it still gives us relevant data points for market trend analysis. With this approach in mind, let us see how the budget has impacted the Indian markets in each year of the last decade. 

Budget 2013:

As was the prevalent practice back then, the Union Budget for the year was presented on February 28. The Finance Minister, P. Chidambaram proposed a rise in taxes for affluent individuals and companies. The budget suggested a 10% surcharge for individuals earning an annual income exceeding Rs 1 crore, while companies with annual revenues surpassing Rs 10 crore also faced a similar surcharge. The market responded with a negative trend, witnessing a 1.52% decline in Sensex on that particular day.

Budget 2014:

In 2014, a new government took office under the leadership of Prime Minister Narendra Modi and Finance Minister Arun Jaitley presented the Union Budget. This budget introduced the proposal for Smart Cities in India, new IITs, IIMs, and AIIMS, and an increase in FDI cap in the insurance and defence sectors. Although the minister raised the investment and exemption limits for individual taxpayers, the retrospective tax law remained unchanged. The Indian stock market experienced a slight selloff on the budget day, leading to a 0.28% decline in the Sensex.

Budget 2015:

The Union Budget of this year aimed to restrict the fiscal deficit to 3.9% for the fiscal year 2015-16. The budget focused on stimulating investments while maintaining a commitment to fiscal discipline. The Wealth Tax was removed from the tax regime and the rich tax surcharge for those earning over 1 crore was increased to 12% (from the erstwhile 10%). Health insurance contribution exemptions and tax benefits on NPS were also increased. Investors responded positively, with the Sensex closing 0.48% higher on the day.

Budget 2016:

Presented on February 29, a leap year, the budget by the finance minister included significant announcements like the goal of doubling farmers’ income in five years. The rich tax surcharge was increased once again to 15% of the taxable income in the slab. This budget was the first time the government asked for public suggestions and opinions through online polls. Despite adhering to a fiscal deficit target of 3.5%, the budget failed to enthuse the market, resulting in a 0.66% decline in the Sensex on the budget day.

Budget 2017:

In a departure from years old tradition, the presentation of the budget was moved to February 1 in 2017. Other breaks from the prevalent norms were the integration of the Railway budget with the Union budget and the elimination of the classification of plan and non-plan expenditure. The finance minister outlined several initiatives for farmers, youth, and the underprivileged. With a commitment to fiscal responsibility and a proposed fiscal deficit of 3%, the market responded positively, and the Sensex witnessed a substantial 1.76% gain on the day, marking the highest increase on budget day since 2010.

Budget 2018:

Recognising the rapid rise of entrepreneurship and startups in India, the budget of 2018 introduced significant proposals for MSMEs, employment generation, and infrastructure. It was also notable for being the first budget since the formal adoption of GST that was introduced in 2017. The budget also introduced the National Health Protection Scheme (Ayushman Bharat). With the reintroduction of Long-Term Capital Gains (LTCG) tax, and a target of a fiscal deficit of 3.3% of the GDP, the Sensex experienced a marginal decline of 0.16% on the day.

Budget 2019:

Finance Minister Nirmala Sitharaman presented her first budget in 2019, retaining several major announcements made in the interim budget earlier in the year by acting finance minister Piyush Goyal. The fiscal deficit target was declared to be 3.94% of GDP. Farmers and daily wagerers were the primary intended beneficiaries of this election year budget. The Sensex closed down by 0.99%, contrasting with the 0.59% increase witnessed on the day of the interim budget presentation on February 1.

Budget 2020:

On February 1, the finance minister presented the budget amid high expectations due to a slowing economy. It was the longest budget speech till date. Power, energy, healthcare, and education sectors received substantial allocations in this budget. However, the proposals left investors disappointed, resulting in a significant market sell-off. The Sensex fell by 2.43% on the day, marking the most substantial decline on budget day in the last 11 years.

Budget 2021:

Amid Covid-19 related lockdowns and health-related concerns, the 2021 budget saw a 137% rise in the healthcare and wellbeing sector including vaccines and the PM Aatma Nirbhar Swasth Bharat Yojana. The Voluntary Vehicle Scrapping policy was also introduced aimed at a cleaner and greener India. Although there was a slowdown in most of the global economies, the 2021 budget met with a favourable response and the BSE Sensex gained around 5%.

Budget 2022:

The fiscal deficit target was revised and was reported to be 6.9% in the budget of 2022. The healthcare sector was again at the benefitting end of this budget with a 13% increase from previous year’s allocation. The market rose that day and the Nifty index saw a marginal jump of 1.4% from its previous closing. However, this was short-lived as it dropped close to 4.5% in the subsequent month, one of its worst monthly performances in a decade.

Budget 2023:

In the budget of 2023, seven key priorities were declared across various goals and segments. The aim was to keep the fiscal deficit at 5.9% at the central level. A new tax regime was introduced with increased rebate limits for individual taxpayers, including the extension of standard deduction benefits for salaried people and pensioners as well. 

Following the announcement of the 2023 budget, the Indian stock markets exhibited significant volatility. The BSE Sensex experienced a notable surge of over 1100 points during the day, only to decline by 1% by the day’s end. Despite the fluctuations, it ultimately concluded the day with a marginal gain. The NSE Nifty 500 ended the session in the negative zone, though. 

Budget 2024:

The upcoming budget that will be announced on February 1, 2024 is going to be an interim one due to the Lok Sabha elections in a few months. While no major policy announcements are expected – since it is an interim budget – people are still looking forward to it with optimism. Stay tuned to our page for all the key updates and highlights of budget 2024, once it is announced. 

Must read – Budget 2024: Budget highlights and it’s impact

Frequently Asked Questions

How do budgetary decisions impact stock prices?

Stock prices are sensitive to budgetary announcements. Changes in taxation, sectoral allocations, and fiscal measures can lead to significant movements in stock markets.

How does the annual budget influence interest rates in the economy?

The annual budget, through its fiscal policies and government borrowing, can impact interest rates. Higher government borrowing may lead to increased demand for funds, potentially driving interest rates higher

What role does the fiscal deficit play in economic stability?

The fiscal deficit reflects the gap between government spending and revenue. A high fiscal deficit can indicate increased government borrowing, potentially affecting economic stability and leading to repercussions in interest rates.

How do changes in direct taxes affect the stock market?

Alterations in direct taxes can impact disposable income, consumer spending, and corporate earnings. These changes may influence investor sentiment and contribute to movements in stock prices. 

How do fiscal policies address economic growth concerns?

Fiscal policies, as outlined in the budget, can include measures to stimulate or control economic growth. Changes in public expenditure, taxation, and subsidies are instruments that influence economic activities.

What is the significance of non-plan expenditures in the budget?

Non-plan expenditures, including subsidies and defence allocations, are crucial components. They can impact resource allocation, economic productivity, and the overall composition of government spending.

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