Budget 2024 Unpacked: Potential Impact on smallcases

Introduction

First things first, how is an interim budget different from a regular budget? An interim budget is a financial statement that the government presents under specific circumstances, such as time constraints or impending general elections. Typically, it serves as a temporary measure until a full budget can be presented, particularly if the upcoming elections may result in a new government. It serves to provide essential financial provisions until a new government can present a comprehensive budget. Unlike the regular budget, the interim budget lacks full parliamentary approval for expenditure and is considered a stop-gap measure presented by the outgoing government.

The Interim Budget 2024-25, delivered in a concise 58-minute address, reiterated the government’s commitment to inclusive growth, economic stability, global strategic positioning, sector-specific advancements, and environmental sustainability. However, some observers noted similarities between the budget’s messaging and election campaign rhetoric, prompting discussions on the fairness of using such a platform.

Navigating the Complexities of the Budget

Understanding the Budget can be challenging due to its technical jargon, vast scope, and political considerations. But, grasping the basics is crucial for citizens to comprehend government policies, economic impact, and implications for individual finances.

To understand the chart above, let us understand the budget in the simplest terms. A budget is like a plan that shows how much money you expect to earn and how you’re likely to spend it. It’s like making a list of all the things you need to pay for (like bills, groceries, and other expenses) and figuring out how much you can afford to spend on each item. Just like you budget your own money to make sure you don’t overspend, the government also makes a budget to manage its finances and decide where to allocate funds for different things like education, healthcare, infrastructure, and more.

Let’s understand where the money comes from – we call that revenue source.

Revenue Sources (left side of the chart):

• The government’s main source of money comes from taxes, both direct (like income tax) and indirect (like GST on goods and services).
• Other contributors include customs duties (tax on imports), excise duties (tax on production), and the state’s share of taxes collected. These taxes make up the bulk of what’s called the Gross tax.
• The government also earns money from non-tax sources like interest on loans it gives out, dividends from investments, and other income.
• Apart from taxes, the government also gets money from borrowing (debt receipts), loans, and investments (capital receipts).
• It also collects money from various savings schemes (NSC) and state provident funds.

Now, let’s look at where they spend all this money – naturally, we call it expenditure.

Expenditure (right side of the chart):

• The government spends a significant chunk on various schemes aimed at different sectors like health, education, agriculture, infrastructure, and social welfare.
• This includes funding for specific projects, subsidies on essentials like food, fuel, and fertilizers, and support for economic and social development programs.

• Some money is transferred to state governments for their expenses and development projects.
• The government also has to pay interest on loans it has taken, pensions for retired employees, and cover the costs of running its offices and programs.

By understanding these revenue sources and where the government spends its money, we get a clearer picture of how public finances work and where taxpayer money goes.

Next, we’ll dissect the key highlights of the recent budget and examine how specific announcements could impact various smallcases. 

Budget Highlights

Fiscal Deficit Improvement:

Despite initial projections, the fiscal deficit for FY 24 performed better than expected, dropping from the anticipated 5.9% of GDP to a lower 5.8%, signifying improved fiscal management. The FM announced that the next fiscal year’s target will be 5.1% and reiterated the Government’s commitment to reduce it below 4.5% by 2025-26.

Picture the fiscal deficit as a leaky bucket: when the government’s spending exceeds its income, it’s as if more water is pouring out than is coming in, leading to a shortfall that needs to be plugged to keep the bucket (or budget) balanced. A lower deficit indicates better control over government spending and financial health.

Increased Capital Outlay:

The budget allocates a substantial 11.1% increase in capital outlay for the next year, reaching ₹11,11,111 crore, equivalent to 3.4% of the GDP, signaling a significant investment in infrastructure and development projects.

Capital outlay refers to the funds allocated by a government for long-term investments in infrastructure, equipment, and other capital projects, aiming to enhance productivity and promote economic growth.

Dedicated Railway Corridors:

The government plans to implement three dedicated railway corridors aimed at enhancing the transportation of resources such as minerals and cement, connecting ports, and easing congestion on existing railway lines, reflecting a strategic focus on infrastructure development.

Total allocation towards the transport sector, including railways, has experienced a notable 46.6% increase, amounting to ₹4,76,363 crore, indicating a strong emphasis on improving transportation infrastructure and connectivity nationwide.

More affordable homes:

To address housing needs, the government aims to construct an additional 2 crore houses over the next five years, demonstrating a commitment to providing affordable housing solutions and accommodating more families across the country.

Research and Innovation:

To accelerate advancements in sunrise domains and stimulate economic growth, the government plans to establish a ₹1 lakh crore corpus with a 50-year interest-free loan.

Budget impact on thematic smallcases

Before we get to the impact, let’s clarify the meaning of actuals & different types of estimates upfront for better understanding.

1. Budget Estimates: Think of Budget Estimates as the initial blueprint for government spending, like a chef planning out ingredients for a recipe before heading to the kitchen.

2. Revised Estimates: Revised Estimates are like a midway pit stop during a road trip, where you take stock of your remaining resources and adjust your plans based on unexpected detours or new destinations. They’re adjusted based on what’s actually happening, so they’re more accurate than the initial guesses made in the budget estimates.

3. Actuals: Actuals are like receipts from a shopping trip—they’re the real evidence of how much money was actually spent, showing the exact amount that went out of your wallet. They tell us the exact amount of money that went out.

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From Blueprint to Reality

PM Awas Yojana (Grameen): The government aims to achieve the target of building 3 crore houses shortly, with an additional 2 crore houses to be constructed in the next five years.

Windmill Capital’s Affordable Housing smallcase includes companies involved in affordable housing development, construction, and related sectors.

Budget Impact: The budget’s increased allocation towards affordable housing indicates continued government support for the sector, which could benefit sectors within this smallcase through increased project opportunities and demand for their products and services.

Driving Green

Pradhan Mantri Suryodaya Yojana (Rooftop Solarization Scheme): One crore households to receive up to 300 units of free electricity monthly, aiding electric vehicle charging.

Government Support for E-Vehicles: Encouragement of manufacturing and charging infrastructure. Promotion of e-buses for public transport networks with payment security mechanisms.

Electric Mobility smallcase by Windmill Capital comprises companies engaged in the production, distribution, and support infrastructure for electric vehicles, batteries, software, and related technologies.

Budget Impact: The budget’s focus on promoting electric mobility, including incentives for manufacturing and charging infrastructure bodes well for sectors in this smallcase as it creates a favorable environment for the growth and adoption of electric vehicles.

Rural Renaissance

Emphasis on value addition, boosting farmers’ income, and promoting private and public investment in post-harvest activities.

A comprehensive program for supporting dairy farmers, controlling foot and mouth disease, and enhancing milk productivity.

Implementation acceleration of Pradhan Mantri Matsya Sampada Yojana (PMMSY) to enhance aquaculture productivity and generate employment opportunities.

The Rising Rural Demand smallcase includes companies involved in agriculture, dairy, aquaculture, and related sectors, benefiting from increased rural demand and government support.

Budget Impact: The budget’s emphasis on enhancing the agricultural sector, supporting dairy farmers, and promoting aquaculture productivity is likely to drive growth opportunities for sectors within this smallcase, given the potential increase in demand for their products and services.

Building Blocks

Capital outlay for the next year sees an 11.1% increase to ₹11,11,111 crore, equivalent to 3.4% of the GDP.

The Infra Tracker smallcase comprises companies involved in infrastructure development, construction, and related sectors.

Budget Impact: The significant increase in capital outlay for infrastructure projects signals robust government spending in this sector, presenting growth opportunities for sectors within this smallcase involved in infrastructure development, construction, and related activities.

Conclusion

In summary, the Interim Budget 2024-25 presents opportunities for investors to align their portfolios with the government’s priorities and capitalize on emerging trends. Key highlights such as increased focus on affordable housing, electric mobility, rural demand, and infrastructure development offer potential investment prospects across sectors.

smallcase investments can serve as a strategic avenue for investors to diversify their portfolios and potentially benefit from the budget’s implications. Exploring smallcase options allows investors to stay attuned to evolving fiscal policy dynamics without committing to specific recommendations. By carefully evaluating their investment objectives and risk tolerance, investors can consider incorporating smallcases as part of a well-rounded investment strategy.

Until our financial paths cross again! ✌️

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