Union Budget Impact Analysis - Feb 02, 2023

Executive Summary

It is with pleasure that we share our analysis on the Union Budget for FY24. Beyond a comprehensive analysis of the fiscal print and its likely impact on the economy undertaken by our economic research team, our ratings team has also gone through the budgetary print to identify the impact, if any on the key sectors which play a significant role in shaping the country’s growth trajectory. I am sure you have access to other reports on the budget but you may still want to go through it in case you seek the bigger picture both from a macroeconomic and sectoral perspective.

Acuité Ratings & Research is already acknowledged as one of the respected rating agencies in India despite being smaller in size. While we have cumulatively rated over 9,500 companies and a larger chunk of that over the last five years, we remain focussed on ensuring the integrity of our processes and the quality of our ratings. As a group, we have maintained a strong presence in the SME ratings space through our subsidiary (SMERA). We have also continued to make substantial progress in the ESG Ratings space with our subsidiary, ESG Risk Assessments & Insights Ltd (ESGRisk.ai) has the highest domestic ESG assessment coverage with reports on over 1,000 companies.

We will describe this budget as work in progress on various medium and long term goals articulated by the current government over the last almost one decade. What has received a thumbs up from all stakeholders is the consistent push for public capital expenditure in the background of pandemic stress and the need to revive the structural growth trajectory. The elevation of capex to 3.3% of GDP should drive growth and employment if implementation of projects happens in a timely manner. The railway sector in particular, has received significant attention given its role in long distance and urban connectivity apart from freight and logistics where higher efficiencies can improve India’s export competitiveness significantly. While the government did step up on social expenditure in a big way through the Covid pandemic through higher food and fertiliser subsidies, fiscal consolidation demands a rationalization of such expenses and the government has made an honest effort towards that objective despite populist pressures emerging from the impending state and the central elections. While the government has provided some additional relief for MSMEs, it is largely indirect like providing capital to the credit guarantee providers.

There are three other important goals that the government has continued to pursue through this budget. One, gradual steps towards agricultural reforms to enhance farm output, productivity and farmers’ incomes. Second, adoption of digital technology across all possible economic areas to drive efficiency gains. This should drive the ease of doing business in the years to come. Third, making progress on the sustainable development goals through energy transition and power storage (battery) projects, encouraging hydrogen as a green fuel and also facilitating indigenous manufacture of EV batteries. While the possibility of a moderate reduction of personal taxes through the new regime has enthused the market, the key takeaway there is the gradual but assured transition to a simpler, exemption free transparent tax structure going forward.

Overall, the fiscal arithmetic is credible for FY24 in the backdrop of a resilient domestic economy though the government can’t afford to be complacent, given the heightened macro uncertainties. Hope you enjoy reading our report.

Sankar Chakraborti
Group CEO, Acuité Ratings & Research