Union Budget 2024: Mutual Fund Houses Pin Hopes on Fiscal Consolidation, Focus On Infra, SME & More

The stage is set for Union Finance Minister Nirmala Sitharaman to present the much-anticipated Budget 2024 on July 23. This year's budget presentation carries significant weight, as it is the first budget of the coalition government. With varied expectations from individual taxpayers, corporate entities, and small investors, the mutual fund industry is also gearing up with a wishlist centred around fiscal prudence, investment stimuli, and market-friendly reforms.

Expectations Across the Spectrum
Individual taxpayers are hopeful for a reduction in income tax rates, a move that would provide immediate relief and increase disposable income. Corporate India, on the other hand, is looking forward to incentives and stimuli that would boost investment and drive economic growth. Small investors, meanwhile, are eagerly anticipating favourable adjustments in capital gains tax provisions, which could significantly impact their investment returns.

Institutional investors, who play a crucial role in the financial markets, are keen on maintaining fiscal prudence and ensuring the continuity of rational economic policies. Their expectations are shaped by the need for a stable and predictable economic environment, which is essential for making long-term investment decisions.

Mutual Fund Industry's Wishlist
The mutual fund industry has outlined several key expectations from Budget 2024. These expectations reflect the industry's desire for a balanced approach that promotes growth while ensuring fiscal responsibility.

Fiscal Consolidation
Fund managers are hoping that the budget will aim to lower the fiscal deficit target to less than 5%. Fiscal discipline is crucial as it affects the domestic liquidity environment, currency movement, inflation rates, interest rates, and the overall equity market outlook.

Focus on Infrastructure and SME Sector
In addition to fiscal consolidation, there is a strong call for increased focus on infrastructure development and the SME sector. Investments in infrastructure can drive long-term economic growth by improving connectivity, reducing logistical costs, and creating jobs. The SME sector, often referred to as the backbone of the economy, requires support to enhance productivity, innovation, and competitiveness.

Reduction in Market Borrowings
Another expectation is a reduction in market borrowings, particularly in light of the Reserve Bank of India's (RBI) substantial dividend payout. Lower market borrowings would reduce the pressure on interest rates, making it more attractive for businesses to invest and expand.

Stimulus for Higher Private Sector Capex
The mutual fund industry is also advocating for measures to boost private sector capital expenditure (capex). Encouraging higher private-sector investment is vital for sustaining economic growth and enhancing productivity.

Revisions in Long-Term Capital Gains (LTCG) Tax
One specific suggestion from mutual fund experts is to raise the profit threshold for Long-Term Capital Gains (LTCG) tax from the current Rs 1 lakh to Rs 3 lakh. This adjustment would make long-term investments more attractive, encouraging investors to commit to longer investment horizons. Additionally, there is a call to eliminate the capital gains tax when investors move their funds from regular to direct schemes, simplifying the investment process and reducing the tax burden on investors.

As Budget 2024 approaches, the mutual fund industry is hopeful that the Finance Minister will strike a balance between promoting growth and maintaining fiscal prudence. The industry's wishlist highlights the need for policies that foster a stable economic environment, encourage private investment, and support key sectors like infrastructure and SMEs. By addressing these expectations, the government can create a conducive atmosphere for mutual funds and other investors.