The Sensex went down, bond yields moderated and the rupee strengthened a wee bit after the Budget announcements were absorbed by the markets. These movements may not be fully reflective of the reactions to the Budget because the stock market was buffeted by the Adani story for the last few trading sessions. The rupee movement may not be directly affected by the Budget content. But the softening of bond yields is a thumbs up for the fiscal path outlined by the Finance Minister.

The macro effects of the Budget are multi-faceted. First, there is an element of growth orientation given the higher capex of the government at ₹10-lakh crore. As this would be directed mainly at roads and railways, where there are strong backward linkages with industries such as steel, cement, machinery, electrical goods etc., the push given is commendable. This push however on its own cannot accelerate the economic growth process, for which private investment needs to step in.

Second, there are sops given on the income tax front provided one switches to the new tax regime. A lot will depend on whether taxpayers opt for this route. If there is a significant migration to the new regime as there are tax savings to be had, there could be a positive effect on consumption at the margin. Given inflation has eroded consuming power, this can be a palliative.

Third, savings is something which can receive a marginal thrust. The new schemes announced for women can work provided the interest rate being provided at 7.5 per cent is better than that on bank deposits. Presently, several banks are offering higher rates which will make this scheme unattractive. Further, the sop to retired folks to invest more in the senior citizen savings schemes will definitely provide higher return but may not involve an increase in gross savings at the economy level as this class may only reallocate their savings portfolio in its favour.

Fourth, investment will get a direct boost from the capex of the government. States need to follow up with their action. This is so because with overall investments in the country going by the gross fixed capital formation rate being around ₹90-lakh crore, until the private sector comes in, there would be some heavy lifting to be done by governments.

Fifth, the SMEs would benefit from the credit guarantee scheme announced. The outlay of ₹9,000 crore is supposed to generate credit of ₹2-lakh crore. Intuitively it can be seen that such schemes are the right way to go because the outlay is a contingent liability which kicks in only when there is a default. As SMEs get loans at 1 per cent lower interest rate, their savings would be ₹2,000 crore on such payments. This class remains vulnerable post Covid.

Inflation may not be affected

Sixth, inflation would be largely unaffected by the Budget as the indirect taxes which come under the purview of GST primarily have not been affected. The government could have lowered the excise duty on fuel. However, the Budget has kept the total realisation of ₹3.4-lakh crore slightly higher than that of FY23, which means there are no plans to lower these duties during the year as of now.

Seventh, though there is not any direct sop for the stock market in terms of capital gains tax or any benefit for corporates, the disinvestment programme will sound good.

Eight, a concern is debt servicing. The interest payments for FY24 will cross the ₹10-lakh crore mark this year. Overall debt of the government is to increase from ₹152.6-lakh crore to ₹169.5-lakh crore in FY24. The Budget hence does provide nudges in various directions. The private sector should start firing.

The writer is Chief Economist, Bank of Baroda. Views are personal