Budget 2024 Primer – 10 questions people ask about the Union Budget

8 Jan 2024 , 02:15 AM

Why to ask questions on the Union Budget?

It is said that the Budget may look like a document that is heavy on data, but it is actually a wish list for most people. The legendary Nani Palkhivala once said, “India is the only country where the budget is an annual event.” That is true and there is a reason to it. India has always been and will continue to be a welfare state. With GDP per capita of just $2,500 annually, India ranks much below even the countries in Eastern Europe and Latin America. The people, obviously, do expect the government to stand up and support them. To their credit, the Indian government has never failed its people. 

Be it the COVID pandemic or the global financial crisis; the government was always there. In addition, the government has intervened to bring inflation in check and to ensure that farmers get a good price or that the burden on the middle class is not too high. That is the reason, people expect a lot from the budget. How can the common man on the street make sense out of the Union Budget. That can be done by asking these 10 questions.

1. What is the one big theme of this Union Budget?

This is important to understand which direction the government is headed. For instance, in 1991 the tone of the budget was totally reformist. The government made bold changes and India is still getting the benefits of these measures. The budget in 2000 by Yashwant Sinha was about making Indian business globally competitive. Contrary to fears, the IT sector has since grown by leaps and bounds. The 2018 budget was purely a farmers budget and took on itself the onus to set MSP (minimum selling price) at 1.5 times the average cost. Year 2021 budget was a post-COVID budget, so it relied heavily on spending to bring back growth even taking the fiscal deficit to above 9%. People must ask what the theme is all about.

2. Will I end up paying more tax on my income or less?

This is something people ask all the time. The 1997 Budget was the first time that personal taxes were cut sharply and in the 2023 Union Budget, the government simplified the shift to the new  tax regime. This substantially reduces the tax burden on most people by cutting tax rates and doing away with exemptions. Of course, we expect tax cuts each year, which is not feasible, since the government also needs revenues for its welfare programs.

3. Are there are any sops for the household budget?

Of course, tax concessions boost your spending power and help the household budget. What people look out for is whether the goods & services tax (GST) on many items of mass consumption is reduced so that they become more affordable to the people at large. This is something the government frequently does to counter the impact of inflation. Investors also look for other sops like increase in standard deduction limit, spike in the exemption limits etc. Anything that helps the household budget is a value addition to know.

4. How much was collected via disinvestments and what is the target?

The overall government accounts may be quite complex. However, there are somethings that are quite simple to understand. In the last few years, the government has aggressively used the route of disinvestment of PSUs to raise money. Now, this is a two-way street. Should the government be selling its companies at all? The general reasoning is that the government should only remain in very strategic sectors and others should be left to the private sector. The disinvestment revenues were high when the LIC IPO came out, but subsequently, it has been undershooting targets.

5. Has the government made efforts to control the fiscal deficit?

Does the level of fiscal deficit really matter to the common man? Actually, it does. The fiscal deficit is the budget gap, which has to be funded through borrowings. When the government is under debt, it is the people who are under debt. India saw its fiscal deficit surge to 9.6% in the 2020 budget, in the aftermath of the pandemic. However, since then it has reduced the deficit to 5.9% of GDP in FY24. Over the next 2 years, the fiscal deficit slated to reduce further to 4.5%. When the fiscal deficit is low, it means you are leaving less of a debt burden for your children.

6. Should I go for a home loan after the budget?

To be fair, your home loan decision must be based on your need to buy a house. However, it is the budget that gives sops to the budget. Currently, interest paid on home loans is exempt from total taxable income to the tune of Rs2 lakhs per annum. There have been persistent demands to raise this limit as the current limits don’t gel with the cost of housing even in second tier cities; leave alone the metros. There have been demands to raise this limit, but the government has not been too forthcoming towards this idea, although it has offered some additional benefits for low cost housing. If the government raises the limit, it can make buying a home a lot more tax efficient from your perspective.

7. Will the equity markets gain from this budget?

Today, there are very few people who are not active in equity markets. For instance, when people see the equity markets giving 20% returns in a year, there is a lot of follow-on buying that happens at higher levels. Investors don’t just participate through the equity markets. They also participate indirectly through equity mutual fund and Unit Linked Insurance Plans (ULIPs). The equity markets have been demanding scrapping or at least reduction in the rate of STT (securities transaction tax). This would substantially reduce the burden of investors who are trading regularly the equity market. Also, dividends were tax-free in the past, but now they are taxed at the peak rate. Such a change would be important for the people who rely on regular income from their investments. This will enhance their post-tax yield.

8. Will the mutual funds gain from the budget?

Today, Indian investors and especially the millennial investors have taken to mutual funds in a big way. With over 15 crore folios, mutual fund investments have surely arrived in India. One only needs to see the growth of SIPs or systematic investment plans in India. From collecting about Rs3,500 crore per month in 2017, the mutual fund SIPs are contributing Rs17,000 crore per month to flows. The mutual funds have also been asking for tax sops at par with equities, including the scrapping of STT and doing away with dividend tax. Also, the ELSS is currently limited to equity only. Investors want to allow this benefit for debt also.

9. How much is the government spending on health and education?

It is said that the government outlay on health and education is not just an expenditure but an investment in future generations. India spends much less on education and health as a percentage of GDP compared to other Asian economies. However, it must be said that the outlays have gone up sharply in the last few years, with programs like health cover for all, easy access to insurance etc. India needs to gradually raise this ratio of spending on health and education as a share of GDP. This is the long term investment that the government makes on intangible wealth creation.

10. Has the government raised its capex spending?

In the last budget, the government kept its revenue spending intact but raised its capital spending by 30% over the previous year and 50% over the year prior to that. That is a huge shift and much of the money is used for mega infrastructure projects and for rekindling the capital investment cycle in India. If the core sector growth and GDP growth are picking up today, it is largely because of the capex spending of the government. It is said that capex spending by the government has a multiplier effect on the GDP growth. On the one hand, it also impels the private sector to invest in capex and also the benefits to growth happens at multiple levels, when the government invests heavily in infrastructure outlays.

When the Union Budget 2024-25 in announced on February 01, 2024, don’t just ask the limited question of what is in it for me? The above 10 questions are a guide on how you should look at the budget and what expectations you should set for the budget. After all, the Union Budget is not just about pandering to populist themes and keeping people happy in the short run. It is about investing in building skills and the ability to grow at a sustained high rate in the coming years.