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Dolat Capital Report
Budget 2023-24 sets the tone for fulfillment of 3Cs – Capex, Consumption and Credit. On capex front, finance minister Nirmala Sitharaman hiked allocation of capital expenditure by ~33% from Rs 7.5 lakh crore to Rs 10 lakh crore (~$91 billion to ~$122 billion). As capital has a greater multiplier impact versus revenue expenditure, higher allocation in the former segment helps to drive gross domestic product, create employment and boost consumption.
On direct tax proposals, announcements were made to simplify and rationalize various provisions to reduce the compliance burden, promote the entrepreneurial spirit and provide tax relief measures. Tweak in personal income tax by simplifying tax slabs, increase in the rebate limit to seven lakh, reduction in the surcharge for the highest income earners from 37% to 25%, etc. bodes well in terms of increasing disposable income especially for the middle class.
The budget hiked agriculture credit target to 20 lakh crore (~$243 billion) with focus on animal husbandry, dairy and fisheries and also infused Rs 9000 crore (~$1.1 billion) in the credit guarantee scheme for micro, small and medium enterprise.
Fiscal deficit target for FY23 maintained at 6.4% and FY24 deficit target estimated at 5.9%. The government has reiterated its intent of adhering to the path of fiscal consolidation, thereby reaching 4.5% target by 2025-26.
Overall, we like the quality of government spending with effective capital expenditure at 4.5% of GDP and fiscal deficit at 5.9% of GDP for FY24. Lower than expected gross borrowing vs estimates is positive for bonds and higher capital expenditure and tax relief is positive for capex oriented and consumption sectors and stocks.
In the near term, focus remains centered on events like global central bank policy settings versus Federal (due tonight), monetary policy committee policy due on Feb 08, 2023 and earnings.
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