Union Budget 2023: A quick overview for investors

Feb 02, 2023
The Union Budget of India is the annual (and most extensive) report of the country’s finances. It contains the government’s revenue and expenditure for a particular fiscal year (April 1 to March 31), a statement of next year’s tax and tariff provisions, and a projection of the receipts and disbursements in the next fiscal year.

Since Independence, India has seen 74 annual Budgets, 14 interim Budgets and 4 special (mini) Budgets.

Overall, Union Budget 2023 has been a balanced budget with focus on the social sector and measures to boost economic growth. The budget categorized various measures into 7 key areas:

  1. Inclusive Development
  2. Reaching the Last Mile
  3. Infrastructure and Investment
  4. Unleashing the Potential
  5. Green Growth
  6. Youth Power
  7. Financial Sector

What investors should note

The maximum deposit limit for Senior Citizen Savings Scheme (SCSS) will be enhanced from Rs 15 lakh to Rs 30 lakh.

The maximum deposit limit for Monthly Income Account Scheme will be enhanced from Rs 4.5 lakh to Rs 9 lakh for single account holders and from Rs 9 lakh to Rs 15 lakh for joint account holders.

There is a strong focus and thrust on the new tax regime. Encouragement for new tax regime with basic exemption limit increased to Rs 7 lakh and a rationalization of tax slabs from present six to five. The government is clearly trying to drive more tax payers to the new tax regime for which additional benefits have been provided. In fact, the new tax regime is now the default option for tax payers, although they have the choice to opt for the old tax regime.

No changes to deductions or exemptions have been proposed for the old tax regime. Given the focus on the new tax regime, it seems unlikely that in the near future, any additional benefits / exemptions will be provided to tax payers opting for the old tax regime. The old tax regime encouraged savings and investments via instruments such as the Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), insurance, and so on. In the new tax regime, most exemptions are removed and it’s up to the tax payer on how they deploy their money.

No changes to capital gains tax norms, with reference to short-term capital gains (STCG) and long-term capital gains (LTCG).

The markets

The fiscal deficit is estimated to be 5.9% of GDP. The government would continue on the path of fiscal consolidation, reaching a fiscal deficit below 4.5%by 2025-26 with a fairly steady decline over the period. Market borrowings are in line with expectations which was a positive for bond markets. Given the rise in interest rates over the past 12 to 15 months and the well defined fiscal consolidation path, debt looks quite attractive.

The Budget is a long term positive for markets given the focus on capex, infrastructure development, and creating jobs and building skill sets for the underprivileged.

Domestic markets seem to be attractively valued and pricing in some of these positives.

International markets which have underperformed over the past couple of years look more attractive – such as Europe and other emerging markets such as China.

Watch and Listen to Dhaval Kapadia's views here.

Dhaval Kapadia is Director and Portfolio Specialist at Morningstar Investment Management Group.

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Shivani Sen
Feb 5 2023 11:57 AM
Good Overview
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