The full Union Budget of 2024 was expected to be a populist one – aimed at soothing sentiments and boosting public support for the incumbent government. However, in a surprise move, the Centre indicated its determination in sticking to the tried and tested combination of fiscal discipline with calibrated capital expenditure. Despite damaged sentiments coming to the forefront in the immediate aftermath of the Budget, the long-term focus of the narrative, and the positive highlights have won out, with the indices making up for much of the bloodbath before the end of the trading day. 

Inarguably, the negative market sentiment can, in part, be attributed to the change in the capital gains structure with the Long-term Capital Gains (LTCG) tax increased to 12.5 per cent from 10 per cent and the Short-term Capital Gains (STCG) tax increased from 15 per cent to 20 per cent, on certain financial assets. The main objective of this proposed increase is to promote long-term investing and reduce speculative investment action. This is further exemplified by the increase in STT on F&O trades from 0.02 per cent to 0.1 per cent. The government’s focus on simplifying the tax structure is evident, and is likely to have a positive impact on the long-term health of the markets.

Core focus areas

The 2024 Budget, aims to uplift the underprivileged, women, youth, and farmers, with the FM outlining plans to increase spending, generate employment, and offer relief to the middle class, in addition to announcing significant reforms in the taxation system. As the Centre moves towards realising its vision of Viksit Bharat, the focus areas remain centred on employment, skilling, MSMEs (Micro, Small and Medium Enterprises) and the burgeoning middle class. 

Given the Centre’s consistent focus on strengthening the economy for the longer term, the Budget emphasised a strategic alignment between fiscal discipline and capital expenditure, underscoring a commitment to fiscal prudence while addressing significant capital investment needs. With a targeted fiscal deficit reduction to 4.9 per cent of GDP for the fiscal year 2024-25, down from the previously anticipated 5.1 per cent, the Budget reflects a disciplined approach to managing public finances. This reduction also aligns with the government’s overarching goal of achieving a fiscal deficit of below 4.5 per cent by 2025-26, a target that integrates both immediate fiscal constraints and long-term economic objectives.

Despite pressures from coalition partners for increased funding and calls from the middle class for tax relief, the government remained steadfast in adhering to its fiscal consolidation roadmap – an approach that is pivotal as it balances the imperative for robust capital expenditure with the need to maintain fiscal discipline. The Budget retained the capital expenditure target at INR 11.11 lakh crore, which is essential for stimulating consumption, job creation, and economic growth, thus supporting India’s aspiration to become the world’s third-largest economy by 2030. The reduction in the gross market borrowing target to INR 14.01 lakh crore, from the earlier figure of INR 14.13 lakh crore, further illustrates the government’s commitment to fiscal responsibility while managing capital spending – this cautious borrowing strategy, combined with the record dividend payout from the Reserve Bank of India and improved tax collections, underscores a balanced approach to fiscal management.

As the government navigates the complexities of a global macroeconomic environment, the emphasis on fiscal discipline, coupled with strategic capital expenditure, remains crucial for sustaining economic momentum and enhancing India’s global standing. Overall, the Union Budget for 2024 can, therefore, be considered a fine one, focused on addressing key long-term structural concerns while cementing India’s position as the growth engine of the global economy.