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Budget 2023 – Income tax, expectations and more

by Tavaga Invest

The budget is due tomorrow and it is a big one as being the last budget before the general elections and is bound to affect public sentiments. 

Historically speaking, only two budgets have been populist with a major chunk allotted towards rural spending compared to defense and infra. Nifty has been up only after 8 of 15 budgets in the past, indicating that markets and the public have often been unsatisfied with the GoI’s plans for its purse.

Finance Minister Nirmala Sitharaman will likely increase expenditure by about 12.5% y-o-y to 44.40 trillion rupees ($544 billion), according to a Bloomberg survey. The fiscal gap is expected to narrow to 5.9% of GDP, from 6.4%. The government will probably borrow 15.8 trillion rupees, 11% higher than last year to cover this gap.

The hopes 

The looming economic slowdown, rising cases of COVID-19, and layoffs coupled with inflation are bound to cause hysteria in the minds of the common man. Tax relief in the form of a hike in the basic exemption level is due. Experts feel that a rejig of the tax slabs will help lead the country to an “exemption-less” tax regime.

Manufacturers expect to see some rationalization in tariffs and reform through PLI 2.0 to help the sector thrive. The startup ecosystem also needs a push with manufacturing, supportive infrastructure, and funding. 

The fintech industry needs tax incentives for Web3-based platforms to prevent capital drain in digital assets, non-fungible tokens, and Web3space. Synchronizing the legal framework for data privacy will reduce compliance.

Housing reforms include tax breaks for homebuyers, and the Credit Linked Subsidy Scheme (CLSS) to encourage consumers to buy affordable homes.

The country is behind on its first green goal of installing 175 GW of renewable capacity by the year 2022. Emphasis is required on circular economy and renewable power, given India’s very aggressive target for carbon neutrality by 2070.


Will the Union Budget FY 2023 also steer away from populism? It may be. As chair of the G20, India announced its target to attract $100 billion FDI this year itself. This indicates the need for a budget focused on capital expenditure and infrastructure investment.

A populist budget may be a thing of the past, instead social reforms and their expenditures are generally spread across a longer period like in the Pradhan Mantri Ayushman Bharat Health Infrastructure Mission, which is spread over five years from 2021-22 to 2025-26. Governments are also likely to make populist announcements outside of the budget.

As evident from the charts below, in all the budget years preceding the election year, budgetary outlay towards social welfare and rural schemes have not seen drastic changes in pre-election terms in the last decade. There has been a shift from populism as it does not guarantee voter confidence and is not beneficial to the economy in the long run. 

Is it worth the hype?

The people want a break and expect the government to take a populist stand but the reality is the last populist budget India saw before elections was in 2008, as populism does not always lead to a healthy growth trajectory for the nation.

The money allotted towards rural areas has always been heavy since India is an agro-based economy, yet the focus is shifting due to urban migration which has left a glaring gap in the infrastructure needed and the current provisions. 

The nation’s purse is also limited despite higher tax collections seen in the last year. The government’s commitment to fiscal consolidation, high borrowings, expected moderation in tax revenue, and high levels of committed expenditure, may not leave enough room for populism in the upcoming budget. 

The budget will probably be committed to capex and infrastructure with an added push to the rural sector which is still struggling post-covid. This will hopefully help bolster the economy’s growth and the reduced subsidies will help cover its deficit. 

Disclaimer: Above piece is only for information purposes. Please consult a SEBI Registered Investment advisor before taking any investment decision. 

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Ruchi Mehta



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