Budget July 2024: Expectations and surprises

There were a lot of anticipations from this budget, considering that it is the first full
fledged budget after formation of Modi 3.0 Government. Analysts and economists
expected that this budget would probably balance growth along with increased focus
on allocation to sectors like agriculture and healthcare. Given the record of the last
decade, the government spending on infrastructure development was expected to
continue.

Post the presentation of the budget in the Parliament, let us look at whether some of
the expectations have been met and if there were any surprises!!
The Union Budget 2024-25 identified nine priorities for generating ample
opportunities — Productivity and Resilience in Agriculture, Employment and Skilling,
Inclusive Human Resource Development and Social Justice, Manufacturing and
Service, Urban Development, Energy Security, Infrastructure, Innovation, Research
and Development and Next Generation Reforms. The Finance Minister made major
announcements for Bihar and Andhra Pradesh, including a boost in infrastructure
and special financial support, without any special status for these two states, which
was demand from the alliance partners on whom the coalition government stands
supported.

Fiscal Deficit

Expectations: Analysts expected a continued focus on fiscal consolidation with a
target to reduce the fiscal deficit closer to 4.5% of GDP by 2025-26. A moderate
increase in nominal GDP growth was anticipated, with real GDP growth projections
around 7%.
The budget met these expectations with a projected fiscal deficit of 5.1% for 2024-25
and a target to reduce it to 4.5% by 2025-26. The nominal GDP growth projection
was set at 10.5%, with real GDP growth at 7.2%. Finance Minister Nirmala
Sitharaman also announced allocating ₹11,11,111 crore towards capital expenditure.
This would account for 3.4% of the GDP.

Income Tax Slab Rates

Expectations: There were hopes for further rationalization of tax slabs and potential
reductions in tax rates, especially for middle-income groups. Simplification of GST
and more relief for small businesses were also anticipated.
The budget did not introduce new tax slabs or significant changes in income tax
rates. It maintained the status quo for personal income taxes and extended benefits
under the new tax regime, such as no tax liability for incomes up to Rs 7 lakh.
New Tax slabs announced under New Tax Regime
Up to Rs 3 lakh no tax
Rs 3 -7 lakh 5 percent
Rs 7-10 lakh 10 percent
Rs 10-12 lakh 15 percent
Rs 15 lakh 30 percent

Social Welfare

Social welfare and Development Expectations: Continuation and expansion of
flagship social welfare schemes like PM-KISANand Ayushman Bharat, with
increased allocations for healthcare and education.

The budget delivered on these fronts with ongoing support for PM-KISAN and the
extension of Ayushman Bharat coverage. Initiatives for women’s empowerment and
higher education were also emphasized. The budget made a provision of ₹1.52 lakh
crore for the agriculture and allied sectors and provides ₹2.66 lakh crore for rural
development

Infrastructure and Industry

Expectations: Significant increases in capital expenditure to boost infrastructure development, with a focus on housing, transport, and renewable energy projects.
The budget set a capital expenditure target of Rs 11.1 lakh crore, aligning with
expectations. New housing schemes for the middle class and expansion of EV
infrastructure were announced

Sector Specific Announcements

Expectations: Measures to support specific sectors such as tourism,
diamond trade, and shipping were anticipated, especially with an emphasis on
improving global competitiveness and domestic infrastructure
The budget included targeted initiatives for tourism development, tax benefits for the
diamond trade, and investments in port infrastructure to support shipping.
Sector-Specific Disappointments: Certain sectors did not receive as much focus as
anticipated, particularly in terms of immediate relief and incentives. For example, the
diamond trade and tourism sectors expected more robust support measures to boost
recovery post-pandemic.

Capital Gains

Expectations: It was widely anticipated that there would be no change in the short
term and long term capital gains from equities. With the governments concern over
higher derivatives trading, additional taxation on this segment was expected.
The budget surprised with a hike in both short term as well as long term capital gains
for certain asset classes. Short-term capital gains to be 20%. LTCG to be 12.5% for
some assets. STT increased from 0.1% to 0.2%. STT also increased for Future &
Options: STT on F&Os proposed to be increased to 0.02% and 0.01% respectively.
Other key highlights

While we have broadly covered the major sectors and their expectations, there were some other important announcements in the budget as well. These include:

•  Standard Deduction on New Tax Regime raised from Rs 30,000 to Rs 75,000.
• Customs duties on gold, silver cut to 6%, platinum to 6.4% and Lithium,
  Copper, Cobalt exempted from Custom Duty
• Industrial parks will be developed in or near 100 cities. These would be
  Investment-ready “plug and play" industrial parks to be developed in or near
  100 cities. 12 industrial parks sanctioned under National Industrial Corridor
  Development Programme.
• Programme and Upgradation of Industrial Training Institutes with 1,000 ITIs to
  be upgraded in hub & spoke arrangements in 5 years. These will have a focus
  on outcome and quality in collaboration with states and industry
•  Under the PM Awas Yojana-Urban, the housing needs of one crore poor and
  middle class families will be addressed with an investment of ₹10 lakh crore.

Conclusion:

The Budget 2024-25 largely met macroeconomic expectations but fell short in
specific areas like tax reforms and aggressive sectoral incentives. The initial market
reaction, as seen in the Sensex decline, reflects these unmet expectations and
concerns about the feasibility of fiscal targets amid global economic uncertainties.
While the budget laid out a comprehensive plan for growth and welfare, its
immediate impact on investor sentiment highlights the delicate balance between
policy announcements and market expectations.

Frequently Ask Questions:-

What is the meaning of Budget?

The budget is a spending plan based on income and expenses of the Government of
India. In other words, it’s an estimate of how much money you’ll make and spend
over a certain period of time, such as a month or year.

What is Fiscal Deficit?

Fiscal deficit is the difference between the total revenue and total expenditure of a
government in a financial year.

What are the income tax slab rates as per the Budget?

As per the latest budget, the income tax slabs have been revised for those filing
returns under the new tax regime. This includes no tax up to Rs 3 lakh and maximum
slab of 30% for income above Rs 30 lakh

What is the budget allocation for agriculture sector?

According to the Budget 2024-25, the government has announced a provision
of ₹1.52 lakh crore for the agriculture and allied sectors and provides ₹2.66 lakh
crore for rural development

What are changes in short term and long term capital gains in this Budget?

Short-term capital gains to be 20%. LTCG to be 12.5% for some assets. This is
higher than 10% for LTCG and 15% from STCG earlier.

What is the standard deduction as per the Budget?

Standard Deduction on New Tax Regime raised from Rs 30,000 to Rs 75,000.

What is the allocation for housing under the Budget?

Under the PM Awas Yojana-Urban, the housing needs of one crore poor and middle
class families will be addressed with an investment of ₹10 lakh crore.