As we eagerly await the Budget 2024 interim, our expectations resonate across key sectors. In railways, we anticipate a surge in investment, unveiling transformative projects and introducing 300-400 Vande Bharat trains. The commitment to new highways holds promise for enhanced connectivity and economic vitality. The manufacturing sector anticipates a visionary PLI scheme, fostering innovation and global competitiveness. Finance Minister Nirmala Sitaraman's budget is poised to be a catalyst, propelling India towards a future of modernized infrastructure, efficient railways, robust highways, and a thriving manufacturing ecosystem.

"The interim union budget for 2024-25 will be presented on February 1, 2024. As has been the custom, the government may not announce any major policy changes in the interim budget ahead of Union elections. So, the key focus area from the market's perspective, would be the government's fiscal deficit target and market borrowing numbers.

Given the Indian economy is showing steady growth trend, the government will likely continue with the fiscal consolidation plan to bring down the fiscal deficit to 4.5% of GDP by FY 2025-26. Based on this glide path, for the FY 2024-25, fiscal deficit target should be around 5.3% of GDP.

Government's borrowings from the bond market in FY25 might be lower than last year by around Rs. 500-700 billion. We expect the gross market borrowing of around Rs. 14.8 trillion and net market borrowing around 11.2 trillion in FY25.

Lower market borrowing from the government coupled with rising demand from long term investors like PF, pension and insurance companies makes the demand supply balance favorable for government bonds. Demand for bonds will also be boosted by India's inclusion in the global bond indices. We expect demand for bonds to outpace its supply in 2024. Thus, bond yields will likely go down and bond prices move higher. Since longer term bonds are more sensitive to yield changes, we expect long term bonds to perform better in 2024."

Today's announcement by the Union Cabinet to introduce an incentive scheme of 8,500 Crore for promoting Coal gasification marks a significant stride towards realizing Atmanirbhar Bharat in Energy Security and Forex saving. This strategic move will reduce our dependence on imports for natural gas, hydrogen, urea, methanol, ammonia, DME/LPG etc, resulting in considerable forex savings.

New Era CleanTech Solution leads one of India's pioneering 5 MMPTA private sector clean coal gasification projects, and the approval of this incentive scheme opens doors to numerous opportunities in the coal-to-chemicals sector, enhancing the viability of coal gasification projects and attracting further investment. It will also open doors for more private-sector projects leading to more manufacturing, and local employment, and boosting the economy. This aligns perfectly with our commitment to driving positive change and shaping a more sustainable energy landscape through innovative CleanTech solutions.

China's successful use of coal gasification in recent years to produce essential materials like urea, ammonia, methanol, and hydrogen shows immense potential for India. With vast coal reserves, India can benefit tremendously from syngas produced through the partial oxidation of coal.

We are excited about the possibilities that lie ahead and reaffirm our dedication to fostering positive change in the pursuit of a more sustainable and energy-secure future.

The inclusion and recognition of those working with agri-residues as feedstock for biofuels in the priority sector lending mandate in the budget can help open up significant financing opportunities for smaller players in the industry and rural entrepreneurs. Currently, aspects like tractor financing are part of priority sector lending, which benefits from lower interest rates. It would not only provide financial impetus to emerging sectors within agriculture but also align with broader goals of sustainability and innovation in agricultural practices. It will also encourage farmers to refrain from stubble burning and contribute to the growing biofuel industry, creating a sustainable cycle of waste-to-wealth.

"The incubation ecosystem in India is at a curious cusp. There are over 1000 incubators in India today. However, very few are truly able to work with ventures to unlock innovation and create sustainable, scalable businesses. Of the over 100,000 startups incorporated in the country since 2016, less than 5% work with incubators to gain entrepreneurial expertise. Despite this, startups are estimated to contribute to 5-6% of our GDP growth. This implies we have a huge upside opportunity by upgrading Incubation capability to enable startups to truly innovate and scale. On the other hand, the incubation ecosystem runs the risk of becoming irrelevant to the startup ecosystem beyond being incidental contributors. Both scenarios have played out in other entrepreneurship ecosystems across the world.

This is a market failure that requires concerted policy intervention that puts the incubator at the centre and enables world-class incubation capability at the national scale.

It will require a combination of capability building, incentive mechanisms for corporates and science & technology institutes to work with incubators systemically, and fiscal and monetary support to enable incubators themselves to sustain and continuously innovate."

Taxation

1. Removal of security transaction tax (STT) - The markets have had this demand for removal of STT for a few years now and as the GST collection went up, this demand has again gained traction. The move will attract more investors to invest in domestic equity markets.

2. Double taxation on dividend: The company pays tax on its profit and at the same time the government levies tax on dividends in the hands of shareholders resulting in double taxation on dividends. Thus, a relief from double taxation on dividends will be appreciated by the markets.

Pension and Insurance

1. Raising the minimum pension amount under APY: The government may consider raising the pension floor for the unorganised sector workers under its flagship scheme, the Atal Pension Yojana (APY) as the current amount may not attract enough potential subscribers to enroll.

2. Tax free status to annuity income from NPS: Senior citizens rely heavily on annuity income during retirement years. Considering the rise in medical expenses and the financial wellbeing of senior citizens, the government may accord tax-free status to annuity income from NPS. Also, an investment of Rs.50,000 a year is unlikely to yield much pension and the limit may be enhanced to Rs. 1 lakh.

3. Separate tax deduction for life insurance premium: A separate tax deduction for life insurance premium instead of clubbing it under Section 80C will improve the penetration of insurance products in the country and encourage people to secure their family's financial future by investing in life insurance. Also, the government may reconsider the 18% Goods and Services Tax (GST) charged on health insurance policies.

Markets

1. Cryptocurrency: Markets seek a more comprehensive policy on crypto currency regulation.A regulatory framework may result in a more inclusive participation in the crypto market.

2. Sovereign green bonds: The stage is set for sovereign green bonds to make a comeback in the Budget as green bonds address the funding requirements for wind, power and hydropower sector.

3. Energy Transition Fund: A mega capital outlay may be earmarked for energy transition and net-zero objectives. Government is expected to focus on new-age fuels - green hydrogen, ethanol, and other biofuels.

Mutual Funds

1. Parity in Taxation: The government may consider addressing the difference in tax treatment between equity mutual funds and Unit linked Insurance Plan (ULIP). Also, an equity Fund of Fund needs to be at par with equity-oriented mutual funds for taxation.

2. Simplification of capital gains structure: The capital gains taxation structure may be simplified by introducing a uniform holding period across domestic equities and mutual funds. Uniformity in tax treatment is expected to encourage higher compliance. However, it needs to be noted that equity investors take higher risks than other investors and hence the same needs to be taken care of accordingly.

3. Revisit Taxation change for non-equity funds - The tax amendment to the Finance Bill last year created a level playing field between bank deposits and debt mutual funds. However, an investor in fixed deposits pockets assured returns irrespective of interest rate movements while a debt fund investor is exposed to not only interest rate risk, but credit risk as well in case the issuer defaults. Also, with the removal of earlier indexation benefit, global equity funds, equity fund of funds, gold funds and hybrid funds holding less than 35% in equities turned out to be tax-unfriendly and suffered collateral damage. Thus, the tax change might be revisited.

"As India approaches the upcoming Budget 2024 and the transformative era of the Lok Sabha Elections, a promise of prosperity and resilience beckons. Anticipating a balanced yet growth-centric budget, we expect a focus on priority sectors, green initiatives and proactive support for the rural sector. This optimistic vision is set to drive inclusive development, environmental sustainability, and economic empowerment for all.

In alignment with the government's commitment to sustainable development, the budget is likely to emphasize green projects and eco-friendly initiatives, reinforcing India's dedication to environmental stewardship. Furthermore, targeted measures for the rural sector, coupled with visionary strategies for financial upliftment and social welfare, are anticipated.

In conclusion, the budget should be largely balanced with the upcoming elections, steering the nation toward a resilient, inclusive, and environmentally conscious future."

"The Travel & Tourism sector represents a vital economic driver: With a 5.8% contribution to India's GDP (2022) and the government's target of achieving $1 trillion by 2047, the sector forms a strong force multiplier - across allied sectors, employment generation and foreign exchange receipts. Our expectations from the Union Budget include key pivots to transform India into a destination of choice:

- Infrastructural Focus: As a key fundamental for the sector, setting up of new airports via private participation must become a priority - thus creating a viable hub & spoke model; also rapid expansion in rail, road and waterways (sea and river cruises). Additionally, infrastructure development for high growth areas like religious circuits and underleveraged hidden gems (Lakshadweep).

- Inbound Tourism: revival of the Inbound incentive scheme - but for select destinations.

1. Tax:

- Reduced Income tax levels to provide increased disposable income in the hands of the people - a boost for travel & tourism spends

- LTA exemption annually, against twice in 4 years to catalyse domestic tourism

- Standardisation of TCS at 5% on foreign travel packages (against the current 5% and 20% slabs).

- Clarity wrt TCS on Forex card payments

2. GST is a key area and our wish list for Budget 2024-25 includes:

- Allow GST input credit facility for inbound and domestic tourism

- Centralise similar issues faced by a single assessee in multiple states - reducing unwarranted time, efforts and litigations in multiple jurisdictions

- Simplify the compliance mechanism in filing reports, reconciliations, audits".

"SOTC Travel advocates for a muti-pronged approach.Albeit interim, the Union Budget offers significant opportunity as a growth accelerator for the travel & tourism sector - a valuable contributor to the country's GDP and a powerful employment engine. Our ask is a multi-pronged approach:

Coalesce the TCS rate on outbound tours into a single 5% slab to reduce the significant advantage enjoyed by international competitors (exempt from this levy).

Remove the deterrent to technology - in the form of the current TDS that is levied on automated bookings (self-booking tools) for internal/closed user groups such as our Business Travel platforms. This would align with the government's commitment to ease of doing business and digital adoption, and the larger objective of building a Digital India.We are confident of the government's continued focus on expediting infra development, especially extension of its Udan Yojana and Vande Bharat routes that ensures regional access and affordability. Connectivity to remote but viable tourism areas creates vibrant new circuits plus meaningful employment that uplifts the entire eco-system. Incentives that promote sustainable travel and tourism is now a critical ask as we endeavour to preserve our planet for future generations."

"Health insurance has become a basic necessity today whether one is self- employed or a salaried person. It is a critical component in mitigating rising healthcare costs while accessing quality health care treatments for individuals and families. Senior citizens constitute approximately 9% of our population, and with a higher life expectancy, access to health insurance protection is crucial.

However, penetration of health insurance continues to be very low in our country. More than 50% of healthcare expenses are met out of pocket. Given importance of health insurance in safeguarding families and senior citizens against increasing hospitalization costs and alleviating financial strains, in light of these circumstances the insurance industry would urge the government to consider a reduction in existing 18% GST rate on retail health insurance products. This reduction in GST rate would not only enhance affordability of health insurance for the general public but also contribute to increasing insurance penetration and accessibility, particularly in tier-II, tier-III cities, and rural markets."

"As the world's most-populous country and one of the fastest-growing economies, India faces both unique challenges and un-paralleled opportunities in the healthcare sector. It is crucial that the upcoming budget allocate the resources to drive India towards an inclusive digital health system.

While the government's initiatives over the past couple of years like ABPMJAY, ABDHM, focus on telemedicine and enhancing healthcare infrastructure have been commendable, a lot still needs to be done. India has one of the lowest public health expenditures relative to GDP in the world. While India's population has grown nearly 15 per cent over the last decade, this growth has not been complimented by an equitable growth in healthcare spending. The upcoming budget should focus on increasing healthcare expenditure aiming for 2.5 to 3.5 percent of the total GDP in order to move closer towards universal health coverage.

Every year, roughly 5.8 million Indians succumb to heart and lung diseases, stroke, cancer and diabetes. Preventive health check-ups can help in early diagnosis and timely treatment of NCDs, hence lowering complications, mortality and burden on secondary and tertiary care facilities. Incentivising health insurance and preventive healthcare will play a pivotal role in this regards.

Expediting the implementation of measures announced in the previous budgets to enhance the public healthcare and medical education facilities in the country is critical. Further, to bridge the gigantic demand vs supply gap, the government should consider providing tax incentives for Healthcare Skill Development initiatives.

A robust infrastructure backed by technology will be the backbone of delivering quality healthcare for all. As healthcare was introduced in the harmonised master list of Infrastructure sub sectors by RBI in 2012, long term financing options (as available to other sectors accorded infrastructure status), should be made available to healthcare also, in some form or the other. Other provisions such as depreciation for investments made for creating diagnostic infrastructure, incentivizing infrastructure creation and ease of doing business for the private sector would help fortify the infrastructural transformation for the sector. This financial support will also help in creating an attractive environment for domestic production of medical equipment, devices and consumables as well as catalyzing research and development. With this regard introducing either Zero rating GST to the health care sector with Input Tax credit, or bringing the healthcare sector under 5% GST with Input Tax credit, will help.

Digital healthcare, including Artificial Intelligence, Machine Learning, can contribute significantly towards making healthcare more accessible and affordable in the country. Tax incentives on technology investments and setting up ecosystems to aid the development of innovative digital healthcare delivery models suited for Indian healthcare would help in fuelling this transformation.

As India envisions becoming the medical tourism hub of the world, policy to ease the facilitation by Indian embassies abroad, insurance recognition for Indian providers, one stop welcome desk at airports, etc. will boost Medical tourism in India.

This budget presents an opportunity to strengthen India's healthcare sector foundation, catalyse growth and move towards being a more resilient & self-reliant nation".

"In the Union Budget 2024, the Indian government must prioritize AI integration in education to align with the National Education Policy (NEP) 2020. NEP's goal of 6% GDP allocation to education is a step towards educational revolution, but true transformation lies in embracing AI. AI can personalize learning, making it inclusive and effective. Strategic funding should support AI-driven educational models, digital infrastructure, and AI literacy. Such initiatives must extend beyond conventional classrooms, ensuring equitable access across socio-economic strata.

Investments in AI research, especially in educational applications, are vital. Collaboration between educational institutions and industry can accelerate AI solutions for educational needs. Teacher training in AI, developing AI-enabled learning tools, and democratizing technology access are essential for an AI-ready generation.

The Union Budget 2024 should not only increase allocation but strategically channel resources for AI embedding in education. This step will realize NEP's vision and prepare India for an AI-dominated future, balancing technological advancement with social sector imperatives."

We anticipate that the Interim Budget 2024 might not bring significant shifts in the stock market or investor portfolios, but it's crucial to closely analyze any key announcements for their market impact. This year, market dynamics are expected to be shaped by political and economic factors, with a clear focus on capital expenditure rather than short-term populist measures. This continuation of last year's strategy, emphasizing long-term infrastructural investment, reflects a commitment to sustainable economic growth. Understanding this government approach is vital for investors as they navigate the financial markets in the upcoming year.

An increase in the minimum revenue threshold for mandatory GST registration from INR 20 lakhs to INR 50 lakhs will help small scale suppliers minimize their compliance costs. Additionally, there is a need for clear guidance on the necessity of GST registration for businesses that are entirely focused on exports, considering their supplies are zero-rated.

Another key expectation is the simplification of the Input Tax Credit (ITC) refund process for exporters. The current disparity between the documentation requirements of the Foreign Exchange Management Act (FEMA) and GST is a significant hurdle. While FEMA and the Reserve Bank of India have eliminated the need for the Foreign Inward Remittance Certificate (FIRC), the GST department still demands it to confirm the receipt of export remittances in foreign currency. Aligning FEMA and GST documentation requirements will facilitate smoother operations for exporters, reducing bureaucratic hurdles and expediting the refund process.

These measures and adjustments to the GST framework will help simplify processes, reduce compliance costs, and enhance operational efficiency for small businesses and exporters.

India's path to growth lies in prioritising exports to global markets, which are vast compared to the domestic Indian market. The government's ambitious target of exporting goods and services worth $2 Tn by 2030, and the spectacular growth of electronics exports last year inspire confidence that policy-wise, we have the right targets in mind. However, till October '23, India's overall merchandise exports had declined by 5.5% year-on-year. This has happened, in part, because with an average MFN (most-favoured nation) tariff of 9.7% and a relative absence of FTAs compared to countries like Vietnam, India imposes the highest tariffs among prominent developing economies. High tariffs on imports result in costlier inputs and reduces the competitiveness of downstream Indian exports in international markets.

Since this will be a vote on account or an interim budget before the general elections, it is unlikely to have any big announcements. Still, reductions of import duties are well within its ambit. Given the government's focus on exports, we think that the budget will reduce tariffs to foster competitiveness and enable Indian industry to thrive globally.

"In the last two terms of the Modi-led-NDA government copious structural reforms, viz. Make In India, Production-Linked Incentive (PLI) scheme, Start-up India, National Single Window System (a digital platform to help businesses apply for approvals from central and state governments), Skill India, Digital India, development of India's core infrastructure, financial inclusion for all, Housing For All (also known as the Pradhan Mantri Awas Yojana), RERA, renewal energy, tax reforms such as GST, corporate tax cuts, the Insolvency and Bankruptcy Code, creation of bad banks (as part of a wider strategy to clean up the balance sheets of banks), merger of PSU banks, and many social others have been rolled out and implemented. In short, the government laid the path to economic reforms and progress.

Today, the World Bank sees India fastest-growing economy of the seven largest EMDEs. Similarly, the International Monetary Fund (IMF) observes India as a "bright spot" --- and rightly so, because of several reforms of the government and prudent monetary policy actions of the RBI. The Equity AUM of Indian mutual funds, as a consequence, has also reported a phenomenal rise with very encouraging participation from individual investors, both retail and HNIs.

Interestingly, individual investors (retail and High Net worth Individuals) today, hold a relatively higher share of the industry's assets (59.2% as of November 2023). India's mutual fund industry AUM-to-GDP ratio -- which represents the penetration of mutual funds in the economy -- is currently around 15% compared to 7-8% a decade ago. Although this ratio is low compared to the global average of around 75%, a remarkable increase in AUM is quite evident.

For deeper penetration of the mutual funds, i.e. for a bigger pie of the households' financial assets, along with investor education, I believe, the government should also consider making mutual fund investments more tax efficient. Many of the long-standing expectations of the Indian mutual fund industry haven't been honoured by the government so far. We expect the budget to address the difference in tax treatment between equity mutual funds and Unit linked Insurance Plan (ULIP).

At present, when it comes to capital gains of ULIPs, if the annual premium is less than Rs 2.5 lakh, the returns are not taxed. It is important to bring both ULIP and equity mutual funds on par as regards taxation (since ULIPs are essentially investment products providing some risk cover).Furthermore, the government should revise the definition of equity-oriented mutual fund schemes by including equity Fund of Fund (FoF) schemes. For instance, even an equity FoF is regarded as debt-oriented from a tax standpoint. An equity FoF should be on par with equity-oriented mutual funds for taxation.

Similarly, the Intra-scheme switches, i.e. switching of investment within the same scheme of a mutual fund. Switches should be exempt from payment of capital gains tax as no gains are realised in such a case. Therefore, we suggest that amendments must be made so that switching of units from (a) Regular Plan to Direct Plan or vice-versa; and (b) Growth Option to Income Distribution cum Capital Withdrawal (IDCW) Option or vice-versa, within the same scheme of a mutual fund are not regarded as 'transfer' and hence, shall not be charged to capital gains. Moreover, we also propose that when an investor moves or switches his investment from one equity scheme to another equity scheme within the fund house, the government should consider exempting the capital gains (since it's a case of simple allocation of the funds).

Additionally, since Indian bonds would now be part of the JPMorgan Global Bond Index and Bloomberg indices from mid-2024 onwards (expected to bring billions of dollars of foreign money into the Indian debt market), we also suggest introducing Debt Linked Saving Scheme (DLSS) on the lines of Equity Linked Saving Scheme (ELSS). This would channelise the long-term savings of retail investors into high-quality debt instruments with tax benefits, helping in deepening the Indian Bond Market. DLSS shall enable small investors to participate in bond markets at low costs and lower risk compared to equity markets.

We also propose allowing mutual funds to channelise retirement savings with the government providing tax incentives. A Mutual Fund Linked Retirement Scheme (MFLRS) with the same tax concessions available to the National Pension System (NPS) be permitted. A majority of NPS subscribers are from the government and organised sector. The MFLRS could target individuals who are not subscribers to NPS, especially those from the unorganised sector, providing them with an option to save for a vital long-term goal such as retirement coupled with tax benefits.

Although we understand that this is an interim budget -- a vote of account -- before the Lok Sabha elections 2024, but many of these suggestions are structural reforms for greater financial inclusion with mutual funds. If these see the light of the day in time to come, it would be a win-win for investors and the industry."