Fiscal Deficit – Gradually Coming Down 

 

 

 

• The Fiscal Deficit (Expenditure – Revenue) for 2023-24 was at 5.6% of the GDP. The deficit is expected to fall to 4.9% in 2024-25. 

• Govt is focused to reduce the fiscal deficit to 4.5% by 2025-26. 

• A lower fiscal deficit leads to lower borrowings by Govt and eventually a stronger balance sheet of the country. Source: SBI AMC

 

 

Capital Expenditure – Highest in 25 Years

 

 

 

• Capital Expenditure (Assets & Infrastructure) as % of GDP has been increasing since 2020-21.

• Capex as a percentage of GDP in 2024-25 is expected to be at 3.4% which is the highest in 25 years.

Source: Franklin Templeton AMC

 

 

Subsidies – Getting Moderated

 

 

 

• Subsidies are expected to see a reduction in 2024-25. As a percentage of GDP, subsidies are expected to fall to 1.3%  in 2024-25 from the high of 2.1% in 2021-22. 

• Reduction in subsidies may lead to fall in consumption and rural spend.

 

 

Personal Tax – Key Proposals

 

 

• The tax slabs for New Personal Tax Regime (NPTR) are revised as shown above.

• Standard Deduction for salaried employees increased from Rs. 50,000 to Rs. 75,000.

 

 

Change in Capital Gain Tax Rules

 

• Simplification and rationalisation of capital gain tax has been made. 

• International, Hybrid and Arbitrage funds have become attractive.

 

 

Alpha Capital View

 

 

• According to us, the Govt has tried to focus on the long-term benefits of the economy by increasing capital expenditure for Infrastructure. 

• Govt has decided to reduce the fiscal deficit significantly despite weak election results and has shown commitment to bring down the deficit to 4.5% by FY 26. This will bring stability to the balance sheet of India. 

• Reduced social spending may continue to negatively affect the consumption and rural demand.

• Simplification of Capital Gain Taxes is good and has created a level-playing field for all the asset classes. 

• The equity market is overvalued by approx. 20% and is expected to continue doing well for next 1-2 years due to huge domestic flows and expected US Interest Rate cut. 

• International Funds have again become attractive due to new tax rules and will help in diversification of portfolio. 

• Its recommended that investors follow an asset allocation approach aligned to one’s risk appetite & investment horizon and not get swayed by short term market volatility.

 

Best Regards,

 

Alpha Research Team

 

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