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Things to look for in the (Interim) Budget

January 24, 2024

The Government of India will present the Interim Budget on 01 February 2024. Why is it an Interim Budget and not an Annual Budget?

It is the year of General Elections. Whether or not the ruling party changes, by structure, a new government will take charge after the elections. The budget to be presented on 01 February will be applicable for only 2-4 months. Therefore, it is an interim budget.

The interim budget’s primary focus is on the income and expenditure of the previous year. While the government might present a roadmap of income and expenses for the next year, it will be of little use if the ruling party changes.

Nevertheless, if you are a newbie looking at the budget for the first time, you can use this checklist as your reference for the announcements to look out for in the budget.

  • Information highlights of the previous years
    • Nominal and real GDP growth – to judge how much the country’s income grew
    • Per capita GDP growth – to judge how much an average citizen’s income grew
    • EPFO membership – to get an idea of employment growth
    • Number of bank accounts – indicates the level of financial inclusion in the population
    • Insurance cover – shows the level of life and health insurance cushion for the public
  • Updates or changes in taxes
    • Direct taxes on
      • Income from profession/business
      • Income (dividends and interest) from investments
      • Capital gains from selling investments
    • Indirect taxes in the form of
      • GST on products
      • Excise and VAT special products such as liquor and petroleum
  • Spends on
    • Education
    • Healthcare
    • Infrastructure
    • Digitalization / Internet access
    • Providing Housing
    • Eradicating Hunger
    • Improving sanitation
    • Defense
      Expenditure can be current or capital. Building a highway, school, or hospital is a capital expenditure. Maintaining the highway and the salaries of nurses and teachers are current expenditures.
      Expenditures such as building infrastructure and infusing capital in PSUs are meant to generate revenues. Expenditures towards subsidies and direct cash transfers are consumption activities that do not generate any income.
  • Incentives for businesses/industries
    • Production linked incentives
    • Tax breaks
    • Free trade zones/trade parks
  • Financing support for small businesses, farmers, and the rural population
    This could be in the form of discount loans, interest-free loans, or government guarantees for loans taken by farmers from the banks or NBFCs.
  • Capital infusion into or divestment from PSUs
  • Fiscal deficit targets
    A fiscal deficit suggests that the expenditure is more than revenues. This difference is funded by borrowing.
  • Borrowing plans
    • Amount to be borrowed
    • Sources (INR/USD denominated)
  • Sops for transition to a net-zero carbon economy (high-yield green bonds, tax breaks, or financing support for green infrastructure)

As the bread-earner of your family, you want to know the taxes applicable to you and the government spending on education, healthcare, insurance, and housing.

If you are an investor, taxes on investment income and capital gains can influence the market price of your assets. Reports on GDP, bank account numbers, electrification, and internet access could indicate the strength of the economy and, hence, the growth potential of your investments.

As a business owner, you would be interested to know the financing options available and the incentives or levies announced for your and allied sectors/industries.

The budget is a financial plan for the whole spectrum of activities that a government intends to do for the whole country. Its application and implications are multi-layered and often a point of contention between political parties. Attempting to know the entire budget can be overwhelming. Several parts of it may not even impact you or be of interest to you. A checklist like this could, therefore, come in handy.

Content, Zerodha Varsity


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