Union Budget simplified for retail investors

The Union Budget of India will be presented on 1st February 2023 by the Finance Minister of India, Mrs. Nirmala Sitharaman in the Parliament. It outlines the government's revenue and expenditure for the upcoming fiscal year, which begins on April 1st.

 

As a retail investor, understanding the Union Budget can be crucial for making informed investment decisions. In this blog post, I will provide a simple and easy-to-understand overview of the Union Budget and explain how it can impact individual retail investors.

 

The Union Budget is divided into two parts: the Revenue Budget and the Capital Budget. The Revenue Budget consists of the government's revenue and expenditure, while the Capital Budget focuses on the government's investments in infrastructure and other long-term projects.

 

The Revenue Budget includes the government's revenue from taxes, non-tax revenue, and grants. The revenue expenditure is divided into two categories: plan and non-plan. Plan expenditure is the money spent on development projects and schemes in areas of agriculture, energy, communication, etc., while non-plan expenditure is the obligatory expenditure on day-to-day administration and maintenance such as salaries, subsidies, loans, interest, etc.

 

The Capital Budget, on the other hand, consists of the government's capital receipts and capital expenditure. Capital receipts include the proceeds from loans and disinvestment of government-owned companies, while capital expenditure is the money spent on creating assets, such as building infrastructure, roads, and airports.

 

As retail investors, the Union Budget can have a direct impact on our investments. The government's expenditure on infrastructure and other development projects can boost the economy, leading to an increase in stock prices. Furthermore, changes in taxes and other policies can also affect the stock market, so it's important to pay attention to these details of the Union Budget when making investment decisions.

 

 

Taxation: The budget will announce any changes to tax laws and rates, which can have a significant impact on the returns and profitability of investments. Investors should pay close attention to changes in tax rates for capital gains, dividends, and interest income, as well as any changes to tax deductions or exemptions. There are expectations of an increase in 80C & 80D tax exemptions which can positively impact salaried individuals. The capital gains tax structure is also likely to be simplified.

 

Infrastructure spending: The government's allocation for infrastructure spending in the budget can have a direct impact on sectors such as construction, real estate, and transportation. These sectors can provide good investment opportunities for retail investors, and an increase in infrastructure spending can boost their growth and profitability. A confidential report by the top Finance Ministry officials during post-Budget discussions last year, states that for every Rs 1 spent on a direct benefit transfer-type scheme results in 90 paise of economic growth, whilst Rs 1 spent on infrastructure and public works adds 3 rupees to gross domestic product. A major focus is expected to be on key infrastructure segments like roads, railways, and urban infrastructure.

 

Agricultural sector: The budget will also announce policies and allocation for the agricultural sector. Agriculture and rural development are key sectors of the Indian economy, and any measures to support these sectors can have a positive impact on the overall economy and can provide good investment opportunities in the rural and agro-based industries. Budgetary allocation towards the improvement of crop production, efficiency, and enhancement of the supply chain is expected to benefit farmers, which could improve the productivity of the agriculture sector

Fiscal deficit: The budget will announce the government's fiscal deficit target for the coming year, which is the difference between the government's revenue and expenditure. A high fiscal deficit can lead to inflation and interest rate hikes, and devaluation of the currency, which can negatively impact investments. With the government meeting the current year’s fiscal deficit target of 6.4%, the FM is likely to announce a target of around 5.5 - 5.8%.

Divestment: The budget will also announce the government's plans for disinvestment, which is the sale of government-owned assets to the private sector. This can provide good investment opportunities for retail investors, and any changes to the government's disinvestment plans should be closely watched. Divestment in LIC, and BPCL are in the pipeline. The government had set a divestment target of Rs 65,000 crore in the previous budget, but so far, the government has received only Rs 32,000 crore through divestment. Looking at this shortfall, the government may announce an aggressive divestment target this year.

 

In conclusion, the Union Budget of India is a financial statement that outlines the government's revenue and expenditure for the upcoming fiscal year. As a retail investor, understanding the Union Budget can be crucial for making informed investment decisions. The government's expenditure on infrastructure and other development projects can boost the economy, leading to an increase in stock prices, and changes in taxes and other policies can also affect the stock market, so it's important to pay attention to the details of the Union Budget when making investment decisions.