Stratink Budget 2024 Commentary

A Thematic Budget in the Right Direction, But New Realities for Investors

The finance minister avoided an excessively populist Budget, which many had anticipated following the election results earlier this year. Instead of a major immediate stimulus to the economy, the focus has been on long-term growth. The Budget's intellectual framework emphasizes employment and skill development, support for MSMEs, the middle class, and development of future-forward infrastructure. These measures are poised to shore up India's consumption-led growth story.

The Big Positives

1. For the People

• Gareeb (the poor), mahilayein (the women), yuva (the youth), annadata (the farmers) intended beneficiaries.
• Much needed focus on job creation and skilling.
• Boost to savings and consumption through income tax reforms/reductions.
• Urban livability prioritized.
• DPI in the spotlight.

2. Tech and Start-ups Take Precedence

The finance minister has called for Digital Public Infrastructure (DPI) at a population scale in areas such as law and justice, corporate governance, credit, e-commerce, and urban governance, stressing on technology as an Enabler of Productivity and Equality.

Data Governance and Digital Infrastructure

• Enhancing data governance by utilizing sectoral databases established under the Digital India Mission.
• DPI in agriculture, an IT-based system for property records, tax administration, and an integrated tech platform for improved bankruptcy case outcomes in development.

Promoting research and innovation

• Private sector-driven research and innovation stimulus with a financial package of Rs1 lakh crore.
• Space economy impetus with a Rs 1,000 crore venture capital fund for tech innovation and growth of small companies/space-tech start-ups.

Major moves in taxation and reform for E-commerce and start-ups

• Abolition of the Angel Tax to boost supply-side efficiencies in start-up space.
• E-commerce players to benefit from a reduction in TDS from 1% to 0.1%.
• Reduction in corporate tax for foreign companies from 40% to 35%.
• These measures, alongside the simplification of FDI regulations, can boost capital formation and accelerate startup activity.

3. Push for Energy Security and Sustainability

Budget 2024 has actions that have a strong impact on India’s future energy transition and security.

Nuclear and thermal energy

• A pumped storage policy to be introduced to facilitate electricity storage and integration of renewable energy into energy mix.
• R&D of small and modular nuclear reactors and new nuclear energy technologies announced.
• A joint venture between NTPC and BHEL will establish an 800 MW commercial thermal plant using advanced ultra-supercritical technology.
• Roadmap for transitioning 'hard to abate' industries from the 'Perform, Achieve and Trade' mode to the 'Indian Carbon Market' mode to be formulated.
• Energy audit of traditional micro and small industries in 60 clusters, with financial support for transitioning to cleaner energy forms announced.

Critical Mineral Mission

• Critical Mineral Mission announced to increase domestic production, cut cost of acquisition, and reduce dependence on countries including China.
• Includes cuts in customs duty on critical minerals such as lithium, copper, and cobalt (essential for nuclear energy, renewable energy, and other sectors), and overseas acquisition of assets.

4. Impetus for Youth and Women

There has been a much-needed focus on skill development and employment for the youth - a major sore point for the government during the recent elections. Women centric policies will potentially improve India’s standing in terms of women participation in the workforce, further enhancing productivity led growth.

Job-led growth, skill development

• Proposed budget of Rs. 1.48 lakh crore for education, employment, and skilling.
• Package of 5 schemes and initiatives to facilitate employment, skilling and other opportunities for 4.1 crore youth over a 5-year period with a central outlay of Rs 2 lakh crore.
• Schemes directed at youth who are just entering the workforce in the formal economy; paid internships for 1 crore youth.

Investment and infrastructure for women in the workforce

• Allocation of Rs. 3 lakh crore for schemes benefitting women and girls and promoting women-led development
• Support for women to enter and remain in the workforce through hostels/creches etc. through industry partnership.
• Women-specific skilling and market access for women SHGs will show direct impact on consumption patterns in Tier-II Tier-III cities.

5. A Grounded Approach to Urban Livability

With the aim to leverage cities as engines of growth, urban development is one of the 9 priorities defined by the FM in the Budget Speech.

Housing for all

• Rs. 10 lakh crore allocated under PM Awas Yojana to address housing needs of 1 crore urban poor.
• Rental housing with dormitory-type accommodation for industrial workers, facilitated in PPP mode to boost workforce participation in manufacturing and industrial pockets.

City revamp

• A more transit-oriented approach to development planned for 14 large cities.
• Development around public transit corridors for increased efficiency in logistics and supply, while attracting greater investments for manufacturing and industrial sector.
• Creative brownfield redevelopment of existing cities to revamp regions and old neighborhoods with existing urban areas.

Water supply & sanitation

• Bankable projects for water supply, sewage treatment, solid waste management envisaged for 100 large cities in partnership with States and Multilateral Development Banks.
• This will reduce the migration burden on existing hubs and promote sustainable development through treated water for irrigation and filling up tanks in nearby areas.

Too Hard on Investors?

The 2024 budget remains committed to fiscal discipline. The deficit has been reduced to an estimated 4.9% of the GDP for 2025, with further decline expected at 4.5% in 2026. This fiscal prudence, along with the promise of next-generation tax reforms and measures are meant to bolster investor confidence.

Here’s what’s doing the damage though. There had been signals for changes with regards to F&O, as well as Long and Short Term Capital Gains. But these changes, including tax hikes in LTCG, STCG and Security Transaction Tax (STT), haven't gone down well with investors. Besides, few saw the elimination of indexation benefits on property sales coming.

Post-budget market reaction, albeit somewhat knee jerk, was a palpable indicator of investor discontentment. Sensex dropped 1.6% while the Nifty 50 took a 1.8% dive. While this could be a temporary market cool off, it is now to be seen if these moves will have lasting damage on investor confidence.