By Nikita Talnikar, Research Analyst, Economic Analytics, Frost & Sullivan
Announcement 1: Capital Expenditure and Investments to Increase
- The government has proposed to boost capital expenditure by 33%, increasing it to Rs.10 lakh crores.
- At Rs.2.4 lakh crores, the Indian Railways will receive the highest ever capital outlays in the upcoming fiscal year.
- Fiscal deficit target for 2023-24 has been fixed at 5.9% of GDP, down from this year’s 6.4%. For the Indian states, fiscal deficit has been fixed at 3.5% of GSDP (Gross State Domestic Product), of which 0.5% will be tied exclusively to the power sector.
- Rs.9,000 crores will be further injected to provide revamped credit guarantee schemes to Medium, Small, and Micro Enterprises (MSMEs) – a proposal, which includes a reduction of 1% in the cost of credit along with the collateral-free credit limit increasing to Rs.2 crores.
Higher investments in primary sectors, especially agriculture and fishery, education and upskilling, green power and energy security, infrastructure development, digitalization, and adoption of new technologies such as artificial intelligence (AI) will create tailwinds for India’s short-and-medium term economic growth and drive economic resilience amidst increasing recessionary pressures across the globe.
Announcement 2: Income Tax Rebates and Revision of Tax Slabs
- The rebate limit of income payers has been increased from Rs.5 lakhs to Rs.7 lakhs under the new tax regime.
- The new tax slabs will be Rs. 0-3 lakhs, Rs.3-6 lakhs, Rs.6-9 lakhs, Rs.9-12 lakhs, Rs.12-15 lakhs, above Rs.15 lakhs with corresponding income tax rates of Nil, 5%, 10%, 15%, 20%, 30%. In effect, for example, an individual with an annual income of Rs.9 lakhs will now be paying Rs.45,000 annually in direct taxes, down from Rs.60,000. These revised tax slabs will be applicable under the new tax regime.
- Revenue foregone as a result of tax slab revision is pegged in the range of Rs.37,000- 38,000 crores in direct taxes and Rs.1,000 crores in indirect taxes. With an additional mobilization of approximately Rs.3,000 crores, the government’s total revenue forgone will be around Rs.35,000 crores annually.
The change in the tax slabs and resultant fall in direct income taxes needed to be paid by Indian taxpayers will provide much-needed relief to the middle and salaried class.
- First, the contraction amidst the pandemic and its high health costs borne by families across the nation, followed by war-induced inflation, have maintained downward pressure on the pockets of the Indian salaried class.
- Relief in income tax will keep domestic demand climate buoyant as the middle class effectively enjoys higher spending power.
- The FY 2023-24 budget allocation will help ensure that Indian economic growth continues to remain robust and resilient in the face of a marked global growth slowdown.
- With a 33% capital expenditure increase compared to FY 2022-23, the current budget continues to remain capex focused, helping to generate a strong multiplier effect across the economy and push up private investments.
- Revisions of income tax slabs and continued support to MSMEs and startups will be crucial in boosting spending power and encouraging domestic demand-led resilience.
- Digitalization in the education sector, the proposed National Data Governance Policy, establishment of an Agriculture Accelerator Fund for rural agri-startups, economic development in tribal areas, infrastructure investments to increase regional connectivity, urban infrastructure planning for building sustainable cities, tourism focus to boost domestic and international tourism – these policies will lend impetus to cross-sector growth and development.
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