Last Updated on January 31, 2024 by Pratiksha Medhane
Each year in February, the entire country’s eyes excitedly look forward to the proposals and announcements that will be delivered on Budget Day. This year is no different. Although, it is slightly, because the budget will be an interim one. This is in accordance with the standard practice of having an interim budget in the year when Lok Sabha elections are to be held. Interestingly, the Finance Minister, Mrs. Nirmala Sitharaman has mentioned that it will be a vote-for-account. So, what does it mean?
A Vote-on-Account is a provision that allows the government to obtain the Parliament’s approval for essential expenditures for a specific period, typically a few months, until a full-fledged budget can be presented. Usually, after the new government is formed. In the context of an interim budget, it’s essentially a request for permission to withdraw money from the Consolidated Fund of India to meet necessary expenses. This ensures the continuity of government functioning and services until a comprehensive budget is passed. It doesn’t involve a detailed discussion on the budgetary allocations, and the focus is primarily on sustaining essential operations during the interim period.
Having said that, let us break down the key aspects that demand attention and provide you with valuable insights regarding the fiscal decisions that are expected to be a part of the upcoming budget.
Table of Content
Understanding the Revenue Side
A typical Union Budget’s revenue aspect consists of tax revenue, non-tax revenue (like dividends and interests), and disinvestments. To evaluate the feasibility of tax revenue estimates, one needs to evaluate them against nominal GDP figures. Nominal GDP represents the overall value of goods and services produced within a specific timeframe, typically on a quarterly or annual basis. Real GDP, on the other hand, is the adjustment of nominal GDP to account for inflation. Real GDP serves as a metric to gauge the genuine growth of production, eliminating the distorting impacts of inflation.
Tax revenue, typically around 10-11% of nominal GDP, aligns with India’s tax-to-GDP ratio. The nominal GDP growth is anticipated to be around 9% for the new financial year. Income tax, corporate tax, and GST tend to grow uniformly unless there’s a change in rates or compliance expectations. Projections in excise-duty collections offer insights into global oil prices and tax intentions.
Tax Figures Worth Noting
In the last budget, the finance minister had set gross tax revenue at approximately Rs 33.61 lakh crore, implying a tax-GDP ratio of 11.1%. Indirect tax collection was estimated at Rs 15.37 lakh crore, while direct taxes (corporation tax and income tax) were pegged at Rs 18.24 lakh crore.
Disinvestments
Disinvestment is the strategic selling of government assets and is a crucial part of fiscal policy. In FY23, receipts from disinvestment reached Rs 35,293 crore, 54% of the targeted Rs 65,000 crore. The budget aimed for Rs 51,000 crore in FY24, with only Rs 10,051 crore realised so far.
Understanding the Flow of Money
While total expenditure grabs headlines, the split between revenue and capital expenditure is crucial. Revenue expenditure, akin to household essentials, is estimated at Rs 35 lakh crore in FY24. Keep an eye on populist schemes, especially in an election year, as social-sector expenditure increased significantly in FY23.
Capital expenditure, investing in value-generating assets, supports longer-term growth. The government’s capex, allocated Rs 10 lakh crore in BE 2023-24, focuses on infrastructure development to stimulate the economy and create jobs.
The fiscal deficit, the gap between government income and expenditure, is a key metric. The government aims for a fiscal deficit of 5.9% of GDP in FY24. The financing, often through domestic market borrowings, raises questions about demand and transparency. The government’s ability to meet financing needs is pivotal for economic assurance.
What About the Markets?
If you analyse the market trends in the last decade or so, more often than not, the market has shown volatility on the day the budget is announced. Market sentiments can sway quite quickly, and it may be the case this time around. Since it will be an interim budget, most experts believe that it will not contain any major policy updates. That doesn’t stop people from being wishful, though. In fact, some are of the opinion that the government may offer favourable terms for individuals and introduce populist schemes to gain the goodwill of the voters.
What Are the People Looking Forward To?
For years, individual taxpayers have been waiting for a change in tax slabs and a rise in standard deduction or exemptions that are in line with rising inflation. An increase in the monetary benefits of Sec 80C and Sec 80D have been often requested. Sec 80C, in particular, includes a wide variety of tax saving tools such as insurance premiums, pension plans, ELSS investments, etc., but offer a cumulative benefit of only Rs. 1.5 Lakhs per annum.
Must read – Budget 2024: Budget highlights and it’s impact
In Conclusion
Whether the government sticks to the norms of a traditional interim budget or introduces some benefits to appease the voters, we shall soon find out. As far as understanding the intricacies of the budget is concerned, and how it affects you, we will be with you all the while. Keep checking our website for a simplified version of all the key announcements in Budget 2024, and their impact on the economy as well as your personal finances.
Frequently Asked Questions
When will the Union Budget 2024 be presented?
The budget will be presented on February 1, 2024.
Who will present the Union Budget 2024?
As is the tradition, the budget will be presented by the Finance Minister, Mrs. Nirmala Sitharaman. It will be the sixth budget presented by her, in a row.
Why is the upcoming budget an interim one?
Usually, in the year of Lok Sabha elections, an interim budget is presented until the time the new government is formed. This budget is a lighter version of a full-scale Union Budget. Election Commission guidelines restrict the ruling party to make any drastic financial announcements to avoid any unfair swaying of public opinion in their favour.
How does the budget affect the stock market?
Investors closely watch the budget for its impact on sectors, corporate earnings, and overall economic policies. Changes in taxation, infrastructure spending, and economic outlook can influence stock market trends.
Where can I understand the key highlights of the budget?
You can bookmark the link https://www.bajajfinservsecurities.in/blog/. Here, we will capture all the key highlights and present them in a simplified manner, once the budget is presented.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For Research Disclaimers Click Here: https://bit.ly/3Tcsfuc
