Modi 3.0 Budget - Many Checkboxes, Little Room for Wriggle

This article is authored by Sandip Raichura, CEO - Retail Broking & Distribution and Director at Prabhudas Lilladher.

The Modi 3.0 government faces a tough challenge ahead. The upcoming budget must lay the groundwork for continuing the progress agenda towards Atmanirbhar Bharat with a Rs 11.11 lakh crore capex spend. At the same time, it must address the expectations of its voter base seeking relief from persistent inflation and improved job creation.

In the background, international credit rating agencies are closely monitoring how Finance Minister Nirmala Sitharaman manages to meet the FY26 commitment of targeting a 4.5 per cent fiscal deficit as India progresses towards its Viksit Bharat goal.

The budget is expected to be progressive, with a potential rise in populism. Farmers, the rural and urban poor, and the middle class are likely to be the focus, with an eye on the assembly elections in Maharashtra, Haryana, Jharkhand, Jammu & Kashmir, and Haryana in the coming 6-8 months.

For the common man

Firstly, there is speculation about the introduction of a new tax slab for lower-income groups or a substantial increase in standard deduction limits. Currently, salaried taxpayers benefit from a standard deduction of Rs 50,000, and an increase could potentially bolster savings and boost spending among the middle-class population.

Additionally, there may be enhancements in the Production Linked Incentive (PLI) scheme along with a focus on the MSME sector, particularly employment-related sectors. India's unemployment rate has risen to a 3-month high of 7.8 per cent in March, according to CMIE data, which underscores the need for action by the NDA.

Then, as markets seem to be discounting, there could be some announcements around boosting agriculture especially given the uneven monsoon so far. We anticipate subsidy increase for key inputs, increased outlay on agriculture for modernization, along with changes to the Minimum Support Price (MSP) policy and MGNREGA payments.

For India Inc

Ambitious targets are expected for disinvestment in Public Sector Undertakings (PSUs). In the Interim Budget, the Finance Minister revised FY24's disinvestment target to Rs 30,000 crore from Rs 51,000 crore budgeted previously. Furthermore, the target for FY25 has been set at Rs 50,000 crore. Investors are eagerly awaiting updates on IDBI Bank and CONCOR disinvestment, which have been pushed for a while now.

Furthermore, sectors such as electric vehicle (EV) batteries, semiconductors, drones, telecommunications, and other emerging industries might receive incentives aimed at reducing import dependence. Potential focus could also be on initiatives related to defence, particularly enhancing naval capability.

Lastly, the budget might address concerns in the real estate sector, especially for affordable housing, possibly through measures aimed at boosting demand, given the industry's challenges stemming from reduced incentive schemes and lack of industry status.

For capital markets, the expectation is extremely contrarian – some huge negative announcements for derivative traders and on the other hand, uniform tax slab rates on gains across asset classes. We believe the FM would choose not to do anything to disturb the momentum as capital market buoyancy remains critical to the funding of balance sheets.

The bottom line is that we believe the government will choose not to be profligate and, within its limitations, attempt to boost several areas that have implications for the general masses. This includes boosting domestic manufacturing without disturbing the momentum in key areas such as capital markets, defence, railways and road infrastructure.

Disclaimer: The opinions expressed above are personal and may not reflect the views of DSIJ.