The last full budget before the general election has political overtones, laced as it is with tax rebates, heavy capital expenditure, measures for farmers, senior citizens and a new savings scheme for women.

The government is ready to forego Rs 35,000 crore in tax receipts with reduction in income tax rates for the middle class and the high net-worth individuals (HNIs). The belief is that this will trigger consumption demand and spur private investments.

The capex increase of 33% to Rs 10 trillion, taking it to an all-time high of 3.3% of GDP, is aimed at accelerating growth and creation of jobs. Capex-led growth is expected to crowd in private investment, bring back animal spirits and manage debt levels.

That the budget will have an eye on elections is no big surprise.  Nine Indian states go to the polls this year and the Lok Sabha elections will be held next year. But what is healthy this time is the government’s intent to shrink the fiscal deficit to 5.9% of GDP for FY24, from the revised estimate of 6.4% for FY23. Union Finance Minister Nirmala Sitharaman said the plan is to “continue the path of fiscal consolidation, reaching a fiscal deficit below 4.5% by 2025-26 with a fairly steady decline over the period”.

During the 2023-24 fiscal, the government plans a record borrowing of Rs 15.4 lakh crore from the markets to bridge the revenue gap. This is expected to have a positive impact on the bond market and the debt mutual funds.

“The wriggle room for fiscal adventurism was always limited, so it is a matter of macroeconomic relief that the government has continued to opt for fiscal consolidation, while ramping up public capex, and still playing to the electorate gallery, particularly the middle class,” Nomura economist Aurodeep Nandi wrote in a note.

The government is targeting to get Rs 4.7 lakh inflows from small savings and borrow Rs 50,000 crore additional through one-year treasury bills. 

“The high contribution of small saving scheme might be at risk as banks continue to offer competing deposit returns. Looking ahead, market conditions might be less conducive in FY24 on account of a narrower liquidity balance squeeze on banks as credit growth continues to outpace deposit generation, hurting incremental demand for bonds as well as limited progress on global bond index inclusion plans. This increases the likelihood that the central bank might show its hand via open market operations in the course of the year to contain unexpected volatility,” said DBS Group senior economist Radhika Rao.

Income tax sweetners

The biggest talking point in the budget is the raising of the taxable income limit and the adjustments in income tax slabs.

Under the new tax regime, there will be no tax levied on annual income of up to Rs 7 lakh. “Currently, those with an income of Rs 5 lakh do not pay any income tax and I propose to increase the rebate limit to Rs 7 lakh in the new tax regime,” Union Finance Minister Nirmala Sitharaman said while presenting the Budget 2023-24 on Wednesday.

This is a vast segment of the population. According to government data released in 2020, 73% of tax-filing Indians earn less than Rs5 lakh a year.

Individuals opting the new tax regime will benefit as the number of slabs has come down to five. 

A Rs 50,000 standard deduction is now allowed to taxpayers under the new regime, where assessees cannot claim deductions or exemptions on their investments.

The highest surcharge rate of 37%, which was applicable on those individuals with income above Rs 5 crore, has been brought down to 25%. This means that, with effect from April 1, 2023, all income above Rs 2 crore would be subject to 25% surcharge.

“The budget announced adjustments in income tax slabs that is likely to boost consumption and savings in the economy, benefitting taxpayers particularly at the lower brackets of the income pyramid,” said HDFC Bank chief economist Abheek Barua.

A lot, though, will depend on how many taxpayers decide to shift to the new tax regime as it will deprive them of enjoying 

Special savings scheme for women

In her budget 2023 speech, Sitharaman announced a one-time new small savings scheme for women.

The ‘Mahila Samman Savings Certificate’ will have a two-year tenure up to March 2025 and offer an interest rate of 7.5%.

The maximum deposit amount has been set at Rs 2 lakh. The deposit for the scheme can be made in a woman’s or a girl child’s name. 

"For commemorating Azadi Ka Amrit Mahotsav, a one-time new small savings scheme, Mahila Samman Savings Certificate, will be made available for a two-year period up to March 2025. This will offer deposit facility up to Rs 2 lakh in the name of women or girls for a tenor of 2 years at fixed interest rate of 7.5% with partial withdrawal option, " said Sitharaman.

Scheme for senior citizens

The budget has proposed to double the deposit limit for the Senior Citizen Savings scheme to Rs 30 lakh.

For the quarter ended 31 March 2023, the government had raised the interest rate on this scheme to 8%.

Sitharaman also proposed that the maximum deposit limit for Post Office Monthly Income Account Scheme will be enhanced from Rs 4.5 lakh to Rs 9 lakh for a single account and from Rs 9 lakh to Rs 15 lakh for a joint account.

Cheaper items

Reduction of customs duty on mobile components from 2.5% to nil and on open cell for TV from 5% to 2.5% will make such products cheaper. 

Other products which will turn cheaper are denatured ethyl alcohol, acid grade fluorspar and domestic manufacture of shrimp.

For the Gems & Jewellery sector, the Budget has also made provision of grants to encourage indigenous production of lab grown diamonds (LGD) seeds & machines and to reduce cost of production via abolishing of basic customs duty on imported seeds used for LGD 

For farmers

The budget has earmarked an 11% hike in agriculture credit target to Rs 20 lakh crore for 2023-24, with focus on animal husbandry, dairy and fisheries. This is up from 18 lakh crore in the 2022-23 fiscal.

The FM said the government will set up an Agriculture Accelerator Fund (AAF) to support atartups in rural farming areas. It will also set up 10,000 Bio-Input Resource Centres for creating a national-level distributed micro-fertiliser and pesticide manufacturing network.

Some farmer organisations, however, have criticised the budget for cutting allocations to farm schemes and food subsidy.

For tribals

The Centre will allocate Rs15,000 crores over three years to improve the socio-economic condition of the particularly vulnerable tribal groups of India. 

This is around five times last year’s allocation, and the Narendra Modi-led government would expect it to influence voters in the poll-bound northeastern states such as Meghalaya, Mizoram and Nagaland where a majority of the people belong to a ‘tribal group classification’.