Budget 2024 : Biggest Mistake or a Masterstroke by the Modi govt? | Complete analysis
ASHISH Gupta
26 min read
- union budget
Again New biggest controversy in India related to Union Budget of India.The Union Budget of India, also referred to as the Annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India set by Ministry of Finance for the following financial year, with the revenues to be gathered by Department of Revenue to identify planned government spending and expected government revenue and the expenditures gathered by Department of Expenditure of the public sector, to forecast economic conditions in compliance with government policy.
Let's go though this blog what is inside this union budget why this is in controversy again.
Introduction
On 23rd of July 2024, the Finance Minister of India presented her 7th consecutive Union budget. It is the big day today: India's Union budget is out. I present the budget for 2425. It was her seventh consecutive budget speech, the most by any Finance Minister in this country. We need to focus on four major curs and since it's the budget right after the elections, it has caused an absolute chaos in the country. This model shall showcase in a growth trajectory. The response of the government is too little and will have only little impact on the grave unemployment situation. Very little in terms of any good, creative ideas when it comes to generating more jobs in our economy. In the last 10, 15 years, budget has not been for the middle class. While our ex Finance Minister, P chinam, said that the BJP has copied a few policies from the Congress Manifesto, ntin Kut has predicted a Slowdown in the Indian stock market due to the rise of capital gains. On top of that, many ministers from various states have come forward to say that BJP has strategically favored Andra Pradesh and Bihar for political gains in these states. At the same time, while Manipur and Kerala have suffered deep financial crisis, they haven't even got a significant mention in the budget. And, lastly, the middle class seems to be enraged because of taxes, taxes and taxes. I have two announcements to make for those opting for the new tax regime. Two, tax regime is a bad idea. We pay taxes when we earn money, when we spend money and even when we invest money wherever we go. Whatever we do, the government has one hand in our back pocket. So, as usual in this episode today, we are going to cut through the chaos and jargons to help you break down the union budget of 2024 in such a way that, in simple language, you can understand what is bjp's strategy with this year's budget. Which sectors are expected to get the biggest boost due to this year's budget? Are there any changes in tax benefit for the taxpayers of India and, most importantly, what are the biggest criticisms of this year's budget?
Employment and Skilling Themes
the description, to know more people. The first thing that we need to understand is the vision and major themes that the government has touched upon in this year's budget. This year, there are four. Four major themes: employment and Skilling, msmes, farmers and rural development, and the middle class. Let's start with employment. In this theme, the vision of the government is to facilitate employment, Skilling and opportunities for 4.1 CR youth over a 5-year period with a central outlay of 2 lakh crores, and here's where, as a business owner, I feel like it's a complete waste of money. Now, usually you must have noticed that I often refrain from giving my own opinions, but this time, since I'm a stakeholder in this ecosystem, I will tell you why this is useless. So let's dive in. Firstly, we have a budget allocated for first timers. So if you're stepping into a formal sector job for the first time and you are registered under the employee Provident fund organization or epfo, then under this scheme the government will give you a one month wage in all formal sectors in three installments, up to 15,000 rupees. This scheme is designed to benefit 2.1 CR youth all across the country. Number two is job creation in manufacturing. This is an incentive for both employee and the employer. So if the employee is a fresher in the manufacturing sector, then an incentive will be provided to both the employe and the employer for the first four years. This incentive is again expected to benefit 30 lakh youth entering the workforce. And then there is employer focused scheme. Under this scheme, If an employer creates additional employment opportunity within a salary of 1 lakh rupees, then the employers will be reimbursed up to 3,000 rupees for 2 years towards the epfo contribution or employee Provident fund organization contribution. And this scheme is supposed to give reimbursement for 50 lakh new jobs and, lastly, to increase women's participation in the workforce, the government has decided to set up working hostels in collaboration with the industry. Now all of this looks fantastic right, but I'll tell you why this is useless. Talk to any business owner and they will tell you that the reason why they don't recruit freshers is not because they don't want to pay the freshers, but because most of the freshers in India are useless, unskilled and unemployable. So the problem is not money, it is skill and education, and I know at least a dozen business owners in my own Circle who would happily pay a person 6 lakh rupees per month, even if she's a Dropout. The only catch over here is that they need to have the skill set to work at that particular job, because when you pay somebody as a business owner, it is not an expense, it is an investment, because we all know that a good talent will easily generate 200% of their salary in revenue for the company. But the problem over here is that most of these freshers are useless and unskilled. So this 3,000 rupees, or a one month salary up to 15,000 rupees, is of no use at all, and instead of spending 2 lakh crores into this useless scheme. The government must invest 2 lakh crores into incentivizing colleges to either hire high grade professors, or we can use this money to improve our institutes and have better infrastructure, so these super skilled professors and infrastructure together could then impart great skills and generate a high quality Workforce, and the employment will be a result of a high quality Workforce. And, by the way, on this note, people, we at things School are looking to hire 10 video editors in our Mumbai and Pune offices, with a salary range of 3 lakh rupes to 12 lakh rupees perom. So, based on your skills, if you're an intern you will get a 25,000 rupes Style. If you're a pro, then you can get up to 12 lakh rupees perom in salary. people, the government's own economic survey has predicted that India needs at least 7. 8 million jobs in the non farm sector over the next 7 years to keep up with the demo graphic changes, and this budget seems to be a direct response to it. And here's where education and upskilling comes in, and this is what I'm happy about. There are two major announcements over here. Number one: the government will launch a Skilling program in collaboration with the state governments and the industry to upskill 20 lakh youth over the next 5 years. Under this program, 1,000 industrial training institutes will be upgraded for outcome
orientation and eventually new courses will be introduced as per the skills need needed in the industry. Secondly, more loans will be made available for educational purposes. So loans up to 7.5 lakh rupees will be given to 25,000 students each year, with a guarantee from a government promoted fund. And not just that: loans up to 10 lakh Rupees will be given for higher education in domestic institutes. This will be done in the form of E voucher to 1 lakh students with an annual interest subvention of 3%. In simple words, what is interest subvention you will get a 3% discount on your interest. So if the interest on your loan is 10%, you will have to pay just 7%.
MSMEs and Rural Development Themes
he government has done a fantastic job in the budget. For those who don't know? Msmes are of utmost importance for the economic development of our country. There are 6 CR Ms units in India, employing over 11 CR people, and msmes are so, so important to our economy that they account for 30% of our GDP and 50 % of our exports. But the problem over here is that among the 64 million msmes in our country, only 14% of them have access to credit, as in loans and financing. So the first scheme for msmes is the credit guarantee scheme. Under this scheme, msmes in the manufacturing sector will get term loans for the purchase of machinery and equipment without collateral or third party guarantee, and the entrepreneurs who have paid back their previous loans they will be eligible for another loan. Cherry on the cake for these people who have paid back their loans, their limit for this loan has been increased from 10 lakh Rupees to 20 lakh rupees under the mudra loan scheme. Secondly, to make credit assessment process streamlined, the Finance Minister has announced a new assessment model for public sector Banks. So public sector banks are supposed to build in-house capabilities to assess msmes instead of relying on third party assessment. What will this do? Because of bringing this operation in house, even those m msmes which do not have any formal accounting system, they can be checked for loan eligibility.
Eventually we can increase our credit accessibility to more and more msmes. Thirdly, the msmes which are at the risk of default: they will get continued funding from the banks, even during their stress period, And this is being done with the vision that the msme sector of India should not struggle during Market shocks. Again, this is a wonderful move by the government. Fourthly, the turnover threshold for converting trade receivables Into Cash has reduced from 500 crores to 250 crores, and I know this sounds complex, so I'll explain it in simple words. In simple words, if you have a company with a turnover of 500 crores and your company is about to get 100 crores from your customers as receivables, then you can give the trade receivable note to the bank and the bank will give you 100 CR rupees today itself and the customers will actually supposed to pay you in 3 months. They will now pay the bank in the next 3 months. This is being done with the visual that our medium skill businesses should not face a cash crunch while the global market is booming. So again, it's a great move by the government. So earlier, while this turnover threshold was 500 crores, now it has been reduced to 250 crores, so even smaller companies with a turnover of 250 crores can take benefit of this scheme. And because of this, now an additional 7,000 msmes will be able to take advantage of this Arrangement. And lastly, because msmes account for 50% % of our exports, the government wants to support them to increase their exports even further. This is why an export Hub will be set up all across the country to facilitate trade and Export services for the msmes in the international market. And this is perhaps the perfect solution for all the pain points of the msmes, which usually revolve around lack of credit and lack of cash flow. And this brings us to the next theme, and that is rural economy and the farmers. Here, if you remember, there has been a big uproar in the country that the NDA doesn't really care about Farmers. But the truth is that this time the budget has an extensive allocation just for the rural economy and the farmers. If you see the budget, the agricultural spending has now increased
to 1.52 lakh crores, Which is higher by 11,318 crores from last year. Similarly, rural spending has been hiked by over 10% to 2.66 lakh crores. But the question over here is where is this money going and how is it going to make a difference to the rural economy. Well, firstly, the government has focused on research and New Age farming. So in this budget, the government wants to focus on increasing productivity and to develop climate resilient varieties of crops. For example, in India, rice and wheat have been affected because of climate change and this is affecting the farmers income. So instead of being over reliant on wheat and rice, Farmers now need to adapt to changing weather patterns and grow new varieties of crops. This is the reason why the government is investing in research to find new ways to increase productivity and to focus on products like mullets, which are climate resilient. So in this budget, the Finance Minister has announced that the government will introduce 100 new high paying, climate resilient varieties of 32 crops to boost the agricultural output of India. So if Farmers switch to these crops, they are bound to benefit. Secondly, the budget also supports natural farming and under this initiative, 1 CR farmers will be taught natural Farming and they will be supported by certification and branding over the next 2 years, and 10,000 research centers will be established to provide necessary inputs for natural farming. So if you or your friends are engaged in natural farming, do check out the government websites to see how you can benefit. And when it comes to infrastructure, under the pradhanmantri grah sadak yoga, some 25,000 villages will be provided connectivity. Now, all of this put together, it looks fantastic on the outside, but only the implement lamentation of these policies will tell us if it is effective or is it just another announcement. But you know what, guys? I am extremely happy because rural development and agriculture: they both have received the second and third highest funding, just after defense, which is a great thing, and this means that the government really intends to go bullish on Rural Development. So this will automatically increase our per capita income and it will boost the number of taxpayers.
Tax Reforms and Financial Management
In the new tax regime, the tax rate structure is proposed to be revised as follows: income tax, personal income tax, income tax. India's Finance Minister, Nirmala sitaraman, has announced revised personal income tax slabs that are aimed at reducing the tax burden on the salaried employees. Two tax regime is a bad idea. It will lead to tax arbitration. Some taxes have also been hiked, like the long-term capital gains tax, which, in fact, was a surprise move, people, in an effort to provide some relief to taxpayers and to increase the number of taxpayers in our country. The government has made some changes in the tax Labs. So if you look at our tax labs, this is what the new tax Labs look like and here's what the revised new tax Labs look like now. The biggest debate over here is whether the middle class is going to benefit from this or not. So let's take an example and understand this better. Let's say Shashank is a salaried employee with an income of 20 lakhs per month. Here's how he's taxed in the revised regime: from 0 to three lakhs, Shashank would pay nothing. From 3 to 7 lakhs, he would pay 5%, so it will be 5% of 4 lakhs, equal to 20,000 rupes. Similarly, from 7 to 10 lakhs, he would pay 10%, so 10% of 3 lakhs is 30,000 rupes. Then, from 10 to 12 lakhs, he would pay 15%, which is 15% of 2 lakh rupes, equal to 30,000 rupes. And then, from 12 to 15 lakhs, he would pay 20%, %, which is 20% of 3 lakhs, equal to 60,000 rupes. And from 15 to 20 lakhs, he would pay the usual 30%, which is 1.5 lakh rupees. So in total, shashan pays 20,000 plus 30,000, plus 30,000 plus 60,000 plus 1.5 lakh rupees, which comes to 2.9 lakh rupees, and if you calculate and compare it to the new tax regime, his total tax liability would have been 3 lakh rupees perom. So for Shashank, this is a tax tax saving of 10,000 rupees. Now I know that this does not seem like a very big amount, but this is not all. There is also something called cess and search charge. So let's start with cess. What is cess cess is a tax on tax, so cess is levied by the government generally for promoting health and education, for example. Sess on education is used to pay for students midday meals or to pay the salaries of employees in government schools and colleges. So it's a percentage of the existing tax that you are paying instead of the tax on the income generated, so it's called tax on tax.
For example, if you have an income of 1,000 rupees on which tax is 300 rupees, then CES would be 4% of 300, equal to 12 rupees, so it's an added tax. Then we come to deductions. Deductions are nothing but tax cuts that the government gives you if you invest your money into sectors that are beneficial for you and the country. This includes investing in healthcare, housing, retirement savings and many more, as mentioned on the the screen. So if you spend or invest money in these instruments, the government will not tax you for that amount of money. But for the Simplicity of this example, let's take the main deduction for all salaried employees, which is standard deduction. This is a flat deduction from the total salary earned by the employee in a particular Financial year and this is done to reduce the taxable income. Now this limit used to be 50,000 Rupees until last year, but now it has been increased to 75,000 rupees. So now Shashank will be taxed not at 20 lakh rupees but at 20 lakh minus 75,000, which comes to 19. 25 lakh rupees. So this brings his tax down to 2H 67,500 rupees from 2.9 lakh rupees. And here's where we add cess. Cess in India is 4% on income tax amount. So 4% Off 2 lakh 67,500 rupees plus 2H 67,500 R is equal to 10,700 plus 2 lakh 7,500 rupees, equal to 2 78,2 R. So if you see, this is the amount of money that Shashank has to pay, which is 2 lak 78,2 rupees. And if Shashank was earning 10 lakh Rupees then under the new regime, after the standard deduction and cess, he would be paying 54,600 rupees. But under the revised regime it would be4 24,200 R. So that's a difference of 10,400 R. And if his income is 15 lakh rupes, then he would be paying 1ak 45,600 rupes under the new regime and just 1.3 lakh rupes under the revised regime. That's again a difference of 15,600 rupees.
So this way, without counting, says, on an average, the revised tax regime is likely to save 17,500 rupees per person per year. This is a perspective of the pro government opinion, but the argument over here is that even though this tax has been reduced, the capital gains has actually been increased. For those who don't know capital gains, again, it's pretty simple: if you buy a stock for 10,000 rupees and you sell it in the same year at 12,000 rupees, you will incur a short-term capital gains on this 2,000 rupes of profit that you have generated. And if you sell the stock after 1 year, then you will incur a long-term capital gain tax on this 2,000 Rupees of profit. And when it comes to other assets like house land, gold and silver, here's a table that tells us the exact holding period for the asset to qualify for short-term capital gains and for long-term capital gains. And in this year's budget the short-term capital gains has been increased from 15% to 20% and long-term capital gains has been increased from 10% to 12.5%. This is one of the reasons why the middle class of India is extremely angry because, while the government is meagerly reducing the income tax, these capital gains taxes will then erode The Profit that the Indian middle class could generate in the stock market of India and- and because there is no right or wrong in this, you tell me in the comments if you find this to be better or worse for you. This is the second part of the budget, which is taxes and the middle class approx.
If this is very clear to you, let's come to a very, very critical part of the budget, which is India's financial management. Here's why, ladies and gentlemen, again, the government has done a fantastic job in the past 5 years. If you see this graph, our fiscal deficit is reducing from 99.2% postco to just 4.9% in the coming year. For those who don't know, the meaning of fiscal deficit is very simple. If the government generates 100 rupes in tax and non tax revenue, but spends 120 rupees, then this 20 rupees of extra spending needs to be funded through bonds and Loans, so this 20 Rupees is called fiscal deficit. So if your GDP is 200 cror and deficit is 20 crores, then fiscal deficit as a percentage of GDP is 20 divided 200 into 100, which is 10%. So the lesser the fiscal deficit, the better it is for the country. And if you look at the numbers, in 2021, our economy was in a disastrous State. Our fiscal deficit shot up to 99.2%, but now we are reaching an amazing figure of just 4.9%, which is excellent. Ideally, this number is supposed to be 3% of our GDP, but we're getting closer and closer. Secondly, the biggest source of revenue for the government is borrowings, so 27% of our Revenue comes from just borrowings. Now, although this sounds sounds scary on the outside, what you need to know is that last year, this number was 34%, so we have significantly reduced our revenue from borrowings because of which it's a great thing for our country. Similarly, if you look at other numbers, our debt to GDP ratio has gone down from 89% in 2021 to 81% in 2024. Similarly, our external debt to GDP ratio has gone down from 21.2% in 2021 to 18.7% in 2024, so we are doing a great job with managing our finances.
State Allocation and Political Implications
Andhra Pradesh and Bihar getting a political benefit. Due to the BJP favoring its Alliance, the budget made special allocations of Bihar and Andhra Pradesh. Andhra Pradesh chief minister Chandra Babu naidu's dream project of building a new capital for the state, Amarvati, got a major boost. The government has proposed 26,000 crores for various Road projects in bihar and 21,000 crores have been reserved for power projects. Opposition ranks across the party actually lable this an attempt to save the government. I think this budget should be called to tell you about it. Here's what the government has proposed for Andhra Pradesh: up to 15,000 crores will will support multilateral funding for Andhra Pradesh New Capital, which is in line with the Andhra Pradesh reorganization act. Secondly, financing will be provided to complete the palm irrigation project, which is crucial for the state and its Farmers. Thirdly, grants will be given to the backward regions of Andhra Pradesh to reduce disparities and promote balanced growth. And lastly, funds will be allocated for infrastructure such as water, power, Railways and roads in key industrial areas of Andhra Pradesh, which will help the vishakapatnam Chennai Industrial Corridor and the Hyderabad bengaluru industrial Corridor. Similarly, in Bihar, 26,000 crores will be allocated for road projects. 21,000 crores will be year marked for power projects and the government votes to support Temple economies in multiple areas all across Bihar. On top of that, the central government will Aid in developing an industrial node at GAA, which is a part of the Amritsar Kolkata industrial coridor. And, lastly, the government will expedite the request from Bihar for external assistance from the multi lateral development Banks. So is this good? Absolutely yes. There is no problem with the center allocating funds for Bihar and Andhra Pradesh at all, because it is, after all, our own people who will benefit from it. However, critics point out that while Bihar and Andhra Pradesh have been given preference, Manipur is also struggling a lot due to violence and communal unrest, and this has been happening for the past 1, 1 and a half years. But even then there was nothing significant for Manipur. Now, the argument here is that NDA is doing this to favor the their alliance with Nitish Kumar in Bihar and ChandraBabu Naidu in Andhra Pradesh. So while it is great that these states are getting funding, it is equally important to give special allocations for States like Manipur, which is currently in a pathetic condition.\
Sector Allocation and Market Impact
The argument here is that NDA is doing this to favor the their alliance with Nitish Kumar in Bihar and ChhBabu Naidu in Andhra Pradesh. So while it is great that these states are getting funding, it is equally important to give special allocations for States like Manipur, which is currently in a pathetic condition. If this is very, very clear to you, let's come to the macro part of the budget, which is about the sectors that the government is bullish on. And why is this important? It is important because the government is the Godfather of the market and if they are bullish on some sectors, the companies in these sectors will see a massive growth, including your own company, if you are in one of these sectors. So this is a wealth of opportunity that the government is presenting to yourself in the form of budget allocation. So the question over here is: which are the companies and sectors that will benefit from this budget and which are the stocks that you need to put on your watch list? But before we move on with the segment guys, I just have to let you know that I am not a se- registered investment adviser, and nothing of what I'm telling you is an investment advice. Everything is meant to be used for educational purposes only. This is because I believe that one of the best ways to do market research about a particular industry is to study the public listed companies, to study the annual reports and see how these stock Ms are happening, because these stock movements are cues to help you understand the waves in the market. If this is clear to you, let's move ahead. People, the first set of companies that are expected to benefit from this budget are the power companies, because renewable energy is a key theme in the budget and the government is very bullish to meet the target of 500 Giga Watt renewable energy capacity by 2030. So 6,250 crores of government money is going into suryaghar muft bijli scheme. So keep an eye on solar stocks like Waaree Technology Ltd, adani green energy and insulation energy. And, more importantly, if you're in the Solar industry, do keep an eye on your value chain so that you can understand the opportunities in the value chain betterand then cater to those opportunities in such a way that eventually you can gain more profit from it. Moving on, secondly, since the government is spending a lot on the rural economy of India, it is expected to raise the income of poor and middle class. Eventually it would increase consumption and then benefit the FMCG companies of India. So keep an eye on ITC and godrej consumers. Thirdly, we saw a reduction in customs duty on gold and silver, which is again expected to benefit companies like Titan, tribhovandas bhimji zaveri and senko gold India. And lastly, the government has removed custom duties from three cancer medications and they've increased the pl on Pharma medical industry from 1,200 crores last year to 2,143 crores this year. So keep an eye on companies like astrazenica India and SunPharma. These are the most important points that we believe were the highlights of the budget. So long story short. Firstly, employment allocation to me seems like a waste of money, but when it comes to budget allocation for Education, Loans, those are great. Secondly, msme allocation is absolutely amazing and it is the need of the hour. Third, thirdly, when it comes to taxes, you tell me if you find it to be better or worse, and when it comes to capital gains, according to me, it's definitely not a good thing. Fourthly, allocation for Andhra Pradesh and Bihar is not a problem at all, but the ignorance of other states like Manipur is a big, big problem, specially Manipur, because this state has gone through horrendous times in the past one and a half years. And when it comes to budget allocation for sectors, I don't have the necessary qualification or expertise to comment on it. So here's where I would just trust the government and they in tank because they know their job better. This is what we have to say about the highlights of the budget of 2024. For the rest of the information, I will attach docs in the description so that you can educate yourself and understand the budget better.