Budget 2024 Analysis: Opportunities For Investments

What does the budget for 2024-2025 hold for senior citizens of India? Are there specific mentions within the budget that are worth noting, not just for the current year but also for the future? Recently, Dr. Pallavi Mody presented her analysis of the Union Budget 2024-2025, and its impact on tax and investment options, to members of Silver Talkies. Her insights come from her longstanding study of the Indian economy and economic policies. Apart from being a professor at the S.P. Jain Institute of Management and Research in Mumbai, Dr Mody also heads a personal finance consultancy called SVA Finance.

India’s Economy in the World

There have been many predictions in recent years, by economists with the IMF, as well as investment and financial services organisations like Goldman Sachs and Morgan Stanley that have India to be the next economic superpower by 2050. In 2024, the current gross domestic product (GDP) of the world stands at $109.5 trillion. The US leads with its GDP at $28.78 trillion; India stands fifth in that list, with a GDP of $3.93 trillion. On the other hand, Japan and Germany, which are ahead of India, are growing only at 1 percent per annum, while India is growing at 7 percent per annum. Soon enough, India will hence overtake Germany and Japan. But what are the everyday implications of this possibility? Dr Mody shared that this will attract a larger number of investments, which in turn will help India to grow faster.

Goldman Sachs predicts the world economy to grow up to $228 trillion by 2050, with India among the top three with $2.2 trillion and China leading at $41.9 trillion. It makes a similar prediction for 2075. Goldman Sachs’ predictions from 2003 about 2025 are almost accurate; India and China have done better than was predicted.

Dr Mody said, “These predictions are important because we need to develop long-term vision, and manage our personal finances in such a way that we are comfortable with risks, take opportunity with growth, and allocate resources for a well-balanced portfolio.”

India’s Union Budget

The Union Budget—which is the annual financial report of the government—can be broadly divided into total revenue and total expenditure. The GDP for the current year is Rs 326 lakh crore. The government’s source of revenue comprises revenue receipts (tax and non-tax) and capital receipts (disinvestment and borrowing); the government’s expenditure comprises revenue expenditure (administrative, which includes defense, police, subsidies, and interests) and capital expenditure (infrastructure, education, health and research). Each of them stand at Rs 48 lakh crore, which is 15 percent of the GDP. But there is also a fiscal deficit, with expenditures being greater than revenue, which indicate the magnitude of borrowing. This currently stands at Rs 16 lakh crore, or 4.9 percent of the GDP.

The tax to GDP ratio is at 11.8 per cent, compared to Europe where it is between 40-45 percent. Dr Mody said that despite the success of GST, the aggregates have not changed, and this ratio needs to increase significantly. The good news is that capital expenditure has been rising in the past decade. However, the deficit reflects the health of the budget: a high deficit means an unhealthy economy. This year, it stands at 4.9 percent of the GDP, with further promise of going down. During the COVID-19 pandemic, it had risen to 9.2 per cent. Some countries like Greece, Portugal and Ireland have been on a borrowing spree, with the deficits increasing. But India having been conservative with borrowing has kept the deficit in check.

Union Budget for 2024-2025

Dr Mody said that the current budget is reflective of the shock of the 2024 election results for the BJP-led government. Addressing high unemployment is hence a main focus of the current budget, apart from other priorities: skilling, small and medium enterprises (MSMEs), and the middle class. “While the GDP increased because of the promotion of large industries, it did not generate enough employment. So there is now a realisation of an imbalanced growth. And hence the government is keen on promoting MSMEs,” she said.

She added that there is also a renewed emphasis on agricultural productivity, manufacturing and services, innovation and research, rural and urban land digitisation, urban development, rural infrastructural development, energy security, and electricity.

This budget is also special since five employment-linked incentives were announced. The spend on infrastructure also continues, with roads, railways, airports, ports, power and telecom, with Rs 11 lakh crore, amounting to 3.4 percent of the GDP; this is in addition to the Rs 10 lakh crores from last year’s budget. In the past three years alone, the government has spent Rs 30 lakh crores on infrastructure which is significant.

Budget and Taxation

Dr Mody said that within the realm of direct tax, the government keeps referring to simplification. The current budget has offered new slabs of taxation based on income levels. A cess of 4 percent has been levied on the income tax amount. The government claims that it is saving up to Rs 17,500 that a person would have paid. But one person cannot claim several different deductions, and instead, there is a full tax rebate on an income of up to Rs 7 lakhs, and standard deduction has been raised to Rs 75,000. The surcharge for high net-worth individuals (HNIs) has gone down, bringing down the effective rate from 42.5 percent to 39 percent.

For capital gains tax, short term gains of financial assets will now attract 20 percent tax rate. There is also an increase in the limit of exemption of capital gains on financial assets, to Rs 1.25 lakh per year.

Investment Options

The investment options in the face of the new budget are largely physical, financial and insurance.

Sharing her perspective on the corpus of investment, Dr Mody said that the general thumb rule should be followed, of dividing the annual expense by rate of interest, and multiplying it by 100. Accounting for inflation at 6 percent, an increase in annual expense can be estimated. So the corpus should be divided into debt for regular needs, and the rest in equity and mutual funds, and taking advantage of the market cycle (investing in debt when interest rates are high, and investing in equity when interest rates are low).

What should be the asset allocation? Dr Mody said that this should be based on goal, time horizon, and risk willingness, while acknowledging that with age, the time horizon and risk appetite are lower.

“So if you are 60 years old, take a hundred and subtract it by 60, and so invest 40 percent in mutual funds, and the rest in debt. Of that which is invested in mutual funds, 40 percent should be invested in index funds, and 30 percent each in hybrid and multicap.”

The government has also proposed doubling the investment limits on Senior Citizens Saving Scheme (SCSS) and Post Office Monthly Income Scheme (POMIS).

Finally, Dr Mody shared some tips on decluttering one’s assets. “Property is a tricky one, with a challenge on getting the desired price. But it is best to dispose of them,” she said. Other ideas that she suggested were to consolidate fixed deposits, bonds and other debt investments, file them together and keep them in one place. “Consolidate your investments in shares and mutual funds in fewer scripts, but again file them and keep them in one place. People invest their money with 50 mutual funds, but it doesn't help. Instead, consolidate them into 3-5 mutual funds and keep track of dividends and other benefits in a more efficient manner,” she said.