Today, Union Finance Minister Nirmala Sitharaman will present the first Budget of the third consecutive Narendra Modi-led government. The Union Budget 2024 is anticipated to outline a comprehensive roadmap for transforming India into 'Viksit Bharat' by 2047.
This will be the first major economic document under the Modi 3.0 administration. Yesterday, Sitharaman tabled the pre-Budget Economic Survey in Lok Sabha, setting a conservative growth forecast of 6.5 to 7 percent for the current fiscal year.
As per previous reports from The Indian Express, the government is leaning towards rationalizing the current income tax structure. The Budget is likely to introduce tax rate cuts for lower-income brackets to increase disposable income, thereby stimulating higher consumption. Government officials have indicated that these changes aim to alleviate the financial burden on lower earners and boost the overall economy.
Apart from potential changes in income taxes, the Union Budget 2024 is expected to highlight the government’s renewed emphasis on job creation and capital expenditure (capex). Over the past few years, the government has been pushing to increase capital expenditure.
The interim Budget's updated forecasts, however, show that this year's capex goals were not reached. An RBI bulletin suggested that the corporate sector must take a more proactive role in capital expenditure to ease the government’s load.
Historically, the Indian stock market has shown mixed reactions on budget day. According to data from the past decade, the Indian market closed negatively in eight out of ten sessions on budget announcement day, February 1.
This year, on February 1, 2024, the Indian stock market experienced heightened volatility. The BSE Sensex dropped by 106.81 points, or 0.15%, ending the day at 71,645.30, while the NSE Nifty declined by 28.25 points, or 0.13%, closing at 21,697.45.
In comparison, last year on the same day, the market exhibited mixed results. While the Nifty closed at 17,616.30, down 46 points, the Sensex finished 158 points higher at 59,708.08 points. This marked the first time since 2018 that Indian indices moved less than one percent on budget day; in 2018, the market ended nearly unchanged with a slight decline of 0.1 percent.
Notably, the market surged by more than 4 percent on budget day in two out of the last nine sessions. In particular, on budget day in 2021, the market increased by 4.7 percent, and on the same day in 2001, it increased by more than 4 percent.
The market trends surrounding budget announcements have been varied. In 2023, both the pre-budget and post-budget months experienced declines of more than 2 percent. Similarly, in 2022, the Nifty dropped by 3 percent in February (post-budget) and decreased by 0.1 percent in January (pre-budget).
In 2021, the market witnessed a 3.5 percent decline in the month leading up to the budget but increased by about 2 percent in the month following the budget.
The market fell in the pre-budget and post-budget months of 2020 during the pandemic, by 1.8 percent and 3 percent, respectively
The market last saw positive growth during the pre-budget month in 2018, with a 5.6 percent increase. Before 2018, the two years with the biggest increases in a pre-budget month were 2000 and 2002, both of which saw increases of 11%. Conversely, the most significant market surge in the post-budget months occurred in 2016, with a 10.75 percent increase.
On Monday, July 22, ahead of the Union Budget 2024, the Indian stock market benchmarks ended in the red. While the Sensex dipped by 103 points, or 0.13 percent, to close at 80,502.08, the Nifty 50 fell by 22 points, or 0.09 percent, to close at 24,509.25. In contrast, despite the caution over the impending Budget, the mid- and small-cap categories exhibited robust gains.
The Union Budget 2024 is expected to focus on several critical areas:
1. Economic Growth: The government aims to set the foundation for sustained economic growth, targeting a 6.5 to 7 percent growth rate for the current fiscal year. This conservative forecast considers both domestic performance and the impact of global developments.
2. Income Tax Rationalization: Potential tax rate cuts for lower-income brackets aim to increase disposable income and drive higher consumption. This measure is part of a broader strategy to boost the overall economy.
3. Capital Expenditure: The Budget will likely emphasize capital expenditure to stimulate job creation and economic growth. While previous targets were not met, there is a renewed focus on encouraging the corporate sector to increase their capex contributions.
4. Technological Advancements: The Budget may also address the impact of artificial intelligence (AI) on employment, particularly in the services sector. The government is expected to explore measures to mitigate potential job losses due to AI advancements.
5. Trade and Logistics: Amidst global geopolitical tensions, the Budget will likely focus on improving logistics and investing in product quality to maintain and expand India's market share in global trade.
As Finance Minister Nirmala Sitharaman presents the Union Budget 2024, the focus will be on laying a robust foundation for India's economic future. By addressing key areas such as income tax rationalization, capital expenditure, and technological advancements, the government aims to set India on a path to becoming 'Viksit Bharat' by 2047. The stock market's reaction to the Budget will be closely watched, as investors assess the impact of the new economic policies on India's growth trajectory.