Capex surge, income tax sops while sticking to fiscal prudence
Financial Express Mumbai|February 02, 2023
IN ITS LAST full Budget before the general elections a little over a year away, the Narendra Modi 2.0 government displayed courage by eschewing populism and kept on top of macroeconomic stability, in the face of external headwinds.
KG NARENDRANATH
Capex surge, income tax sops while sticking to fiscal prudence

Finance minister Nirmala Sitharaman clung to the ideas of high-quality fiscal correction and a durable, investment-led, "green" growth with a decisive thrust on digital infrastructure, as she presented the Budget for FY24 in Parliament on Wednesday.

The Budget, therefore, lacked any meaningful consumption booster. Despite a rejig of the exemption-free personal income tax regime, its adoption by large sections of taxpayers is still doubtful. A cut in the highest surcharge on income tax may provide a modicum of support to consumption, which is seen to be very weak, in the second half of this fiscal, if not beyond.

The fiscal deficit target for the next fiscal has been set at 5.9% of GDP, against 6.4% in FY23. The minister also reaffirmed her resolve to bring down the gap to below 4.5% by FY26. The deficit target for next year is contingent on an assumed tax buoyancy of 1, higher than 0.8 this  year. This looks difficult, given the likely slowdown in economic growth.

A gross market borrowing of 15.43 trillion is planned for FY24, compared with the revised estimate of 14.21 trillion for FY23. This being less than expected will cool the bond markets the benchmark 10-year G-sec yield eased to 7.28% on Wednesday from 7.34% on Tuesday. BSE benchmark Sensex closed 0.27% higher on Wednesday after it trimmed most of the intra-day gains. During the day, it had climbed 2%.

Moody's Investors Service said despite the Budget's fiscal consolidation effort, "high debt burden and weak debt affordability remain key constraints that offset India's fundamental strengths". Interest payments are projected to be a worrisome 46.3% of the Centre's net tax receipts in FY24, though lower than 48.3% in the pandemic-hit FY21.

The proposed fiscal consolidation is indeed superior, as it involves a sharper cut in the revenue deficit from an upwardly revised 4.1% this fiscal to 2.9% next fiscal.

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