Jobs and skilling take centre stage; mkts frown raise in capital gains taxes

FY25 fiscal deficit was estimated to be 4.9% of GDP, lowered from the previous estimate of 5.1%. For FY26, the fiscal deficit is estimated to reach 4.5% of GDP

All eyes were on Union Finance Minister Nirmala Sitharaman, when she presented the Union Budget 2024-25 on Tuesday. In what was largely anticipated to be a budget for the masses, she stated that the focus would be on employment, skilling, MSMEs, and the middle class. The proposed ‘Viksit Bharat’ roadmap comprises nine key priority areas

As regards agriculture, 109 new high-yielding and climate-resilient varieties of 32 different crops would be released for farmers this year. The government aims to review research for developing climate-resilient seeds and initiate one crore farmers into natural farming within the next two years. These initiatives demonstrate a proactive approach to foster a more resilient farming sector.

Five new schemes have been introduced for employment and skilling in its bid to create more job opportunities and benefit 4.1 crore youth, with an outlay of Rs. two lakh crore.

The government is launching three employment-linked incentive schemes focusing on EPFO enrolment and prioritizing first-time employees. Additionally, it has pledged financial support for loans up to Rs. 10 lakh for higher education in domestic institutions.

As part of inclusive human resource development and social justice, programs like PM Vishwakarma Yojana, Svanidhi and the National Rural Livelihood Mission will uplift the disadvantaged communities and support self-employment. The introduction of the Purvodaya program aims to drive comprehensive development in eastern India through human resource development, targeted investments and infrastructure improvements. An industrial node is being developed at Gaya along the Amritsar Kolkata Industrial Corridor to catalyse industrial development in the region.

With regard to manufacturing and services, the budget has focused on supporting MSMEs through the credit guarantee scheme, providing coverage of up to Rs. 100 crore per applicant. The government is actively working on the Jan Vishwas Bill 2.0 to enhance the 'Ease of Doing Business', and states will receive incentives for implementing business reforms action plans and digitalization efforts. Additionally, with improved Mudra loans and various supportive measures, the government aims to strengthen the MSME sector for global competitiveness.

For urban development, states have been to lower stamp duty rates for properties purchased by women, with a focus on promoting urban development. The PM Awaas Yojana - Urban 2.0 entails housing for one crore urban poor through an investment of Rs. 10 lakh crore. Furthermore, the budget allocation for PMAY has been increased to Rs. 80,671 crore, up from Rs. 79,590 crore in 2023-24.

A comprehensive energy plan was unveiled on the energy security front, highlighting a focus on small, modular nuclear reactors, rooftop solar plants and advancement of indigenous technology for more efficient thermal power plants. The plan highlighted the expected contribution of nuclear energy to India's energy mix, with proposed collaboration with the private sector for establishing small reactors and advance research and development of newer nuclear technologies.

In infrastructure, the previously announced capital expenditure allocation of Rs. 11.11 lakh crore (3.4% of GDP) was maintained. The historic Nalanda in Bihar will be promoted as a tourism hub.

For innovation and R&D, the government will soon launch the Anusandhan National Research Fund to facilitate basic research and prototype development. Private sector-led research and innovation on a commercial scale will be bolstered with a funding pool of Rs. one lakh crore. Additionally, to further expand the space economy by five-fold over the next decade, a venture capital fund of Rs. 1,000 crore will be initiated.

In terms of next generation reforms, the government is set to create an economic policy framework that will outline the overall strategy for economic development and define the focus of the upcoming wave of reforms aimed at promoting job creation.

As regards fiscal measures, FY25 fiscal deficit was estimated to be 4.9% of GDP, lowered from the previous estimate of 5.1%. For FY26, the fiscal deficit is estimated to reach 4.5% of GDP. The government also announced an outlay of Rs. 2.66 lakh crore across government schemes in a bid to boost rural infrastructure and consumption.

Basic Customs Duty (BCD) on mobile phones, mobile PCBA, and mobile charger was lowered to 15 per cent from 10 per cent to enhance affordability. Similarly, reduction of duties on gold and silver to six per cent and platinum to 6.4 per cent could potentially boost demand for the jewellery and precious metals sectors. Titan, PC Jeweler and Senco Gold were up more than five per cent following the announcement. However, an increase in duty on Printed Circuit Board Assembly (PCBA) for telecom equipment to 15 per cent may raise costs and affect consumer demand and industry profitability.

Stock sentiment hurt:

The proposed increase in long-term gains to 12.5 per cent from 10 per cent and short-term gains on select financial assets to 20 per cent from 15 per cent led to markets initially crashing nearly 1.5 per cent before recovering slightly. However, a higher annual exemption limit of Rs. 1.25 lakh crore aims to mitigate some of the negative impacts of higher capital gains taxes.

Meanwhile, the Securities Transaction Tax (STT) on Futures and Options (F&O) was substantially hiked to 0.02 per cent and 0.10 per cent, respectively. Although the intention was to curb speculation, the move may significantly raise the tax burden on investors and decrease trading volumes in derivatives markets.

The personal income tax proposed increasing the standard deduction in the new regime to Rs. 75,000 from Rs. 50,000. This adjustment is aimed at boosting take-home pay for salaried individuals, especially those in the lower and middle-income brackets, which could potentially stimulate private consumption. Salaried employees under the new regime are expected to save up to Rs. 17,500 in income-tax.

While the capital gains taxation weighed on the overall markets, some rural consumption themes and defensive sectors such as FMCG and auto were back in focus and trading in the green.

However, the budget did not provide any details on key sectors like railways and defence, which probably led to a sell-off in stocks in those sectors. From a banking perspective, with the increase in capital gains taxation, investors may move money from the markets to long-term deposits.

(The writer is the founder and CEO at ValueAdd Research and Analytics Solutions LLP)