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Systematix Research Report
Amid concerns of growth slowdown fiscal strategy of the Union Budget remains conservative. It hopes for a revival in consumption demand, and an eventual pickup in private investments aided by a continued step-up in government capex thereby translating into a sustained growth cycle.
We think this hypothesis may be optimistic. Realistically speaking, given the persistent fragility in the household sector there is a significant probability of governments having to step-up fiscal support later in FY24; the intended fiscal consolidation may remain elusive.
On the face of it, the budget appears to be addressing our thoughts pertaining to employment generation, as it focuses on sectors like health, education, tourism, and formalisation in the agri sector services. In addition, is the simplification of the income tax structure, with enhanced income tax slabs for the lower income bracket.
Firstly, the assumption on nominal GDP of 10.5% YoY is optimistic, given- the high base effect of 15.4% growth in FY23 and pre-Covid average of 10.9% (FY15-19), sharp deceleration in commodity price inflation, and the deceleration in corporate sales growth, estimated at 8.5% in Q4 FY23E.
Secondly, the projected gross tax collections growth of 11.5% in FY24BE implies an optimistic tax elasticity of 1.1 times (growth in tax collection/growth in nominal gross domestic product).
Our estimates show that the medium-term tax elasticity is 0.9 times, structurally lower than the 2007-08 peak of 1.6 times. The peak level of GST and indirect tax incidence and weak demand conditions in the lower income brackets will likely make it difficult to gain further buoyancy from indirect taxes.
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More Research Reports On Budget 2023 Reviews, Highlights, Impacts
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Budget 2023 Review - Accelerating Capex To Retool Economy: ICICI Direct
Budget 2023 Impact On Personal Tax, Automobiles, Railway And More: IDBI Capital Analysis
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