The government focus heavily on infrastructure-oriented sectors in its latest budget

The government aims to increase spending by 8% over the previous fiscal year

Companies in the B2B sector or those involved in government projects should capitalize on the substantial increase in spending on large infrastructure projects with a particular focus on railways, roads, and airport construction. These companies should also pay special attention to the states that utilize the government’s interest-free loans to implement state-level infrastructure projects. Firms with an existing or planned manufacturing base in India should aim to capture the benefits from the government’s ongoing production-linked incentive program; those in the pharmaceutical, medical device, and electronics sectors are more likely to benefit from substantial and timely funding under this program than companies in other sectors. Firms serving the consumer space should expect a moderate improvement in consumer spending due to higher disposable incomes resulting from changes in the tax structure.


The Indian government presented its FY 2023–2024 (April 2023–March 2024) budget on February 1, expecting to increase spending by a substantial 8% over the previous fiscal year, with a large focus on capital expenditure. At the same time, the government expects to reduce its fiscal deficit to 5.9% of GDP down from 6.4% during the previous fiscal year. To achieve this goal, the government budgeted for significant reductions in food and fuel subsidies and announced record-high market borrowing plans.

Our View

The recent budget clearly focused on higher spending while also aiming to rein in the fiscal deficit. Key announcements and expectations in the budget include:

  • Focus on capital expenditure: The Narendra Modi government has doubled down on capital spending over the past few years, increasing the expected CAPEX by 37% YOY (especially on railways, roads, and airports) and extending an additional US$ 15.7 billion in interest-free loans to incentivize states to increase their own capital spending as well. This is a crucial move, as states contribute to about 50% of the country’s total capital expenditure.
  • Mixed expectations on green energy spending: While the government’s budget speech highlighted green energy projects as a key focus area, budgeting a 45% increase in renewable energy spending over the previous fiscal year, it provided scant details on the specific programs within this sector.
  • Mixed expectations on production-linked incentives (PLI): The government expects to significantly ramp up spending under various PLI schemes (especially for electronics, food processing, and semiconductors) in FY 2023–2024. However, companies should exercise cautious optimism on the government’s ability to meet their budget expectations, considering its record in FY 2022–2023 when it spent far lower than the budgeted amount on PLI programs across sectors.
  • Increased disposable incomes: The government raised the tax-exempt annual salary threshold from US$ 6,038 to US$ 8,453 and reduced the maximum tax rate from 42.7% to 39%. This move is aimed at directly increasing disposable income for tax-paying individuals across all income segments.
  • Reduced subsidies: The government plans to reduce subsidies by 28%, particularly on food and fuel, a surprising move considering the upcoming key state elections in 2023 and national elections in 2024. However, this move is crucial to the government’s efforts to reduce the fiscal deficit in FY 2023–2024 compared to the pandemic years.

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