India’s Finance Minister Nirmala Sitharaman presented an interim budget for 2024 on February 1st, avoiding major policy changes before crucial national elections.
Key budget highlights
The budget aims to boost infrastructure spending while reining in the fiscal deficit. Some key highlights include:
- Income tax slabs remain unchanged, providing some relief to middle income groups
- Capital expenditure budget increased by 33% to ₹10 lakh crore
- Fiscal deficit for 2023-24 pegged at 5.1% of GDP, down from 5.4% for FY 2023
- Divestment target set at ₹51,000 crore
- Agriculture credit target increased to ₹20 lakh crore with focus on animal husbandry and fisheries
- Special boost provided to green growth and mobility
“This budget strikes a delicate balance between supporting growth and ensuring fiscal prudence ahead of elections,” said leading economist Dr. Rathin Roy.
Building on economic momentum amid global headwinds
The Indian economy has shown remarkable resilience in recent years in the face of pandemic disruptions and global turbulence. GDP growth for 2023-24 is estimated at 7%, making India the fastest growing major economy in the world.
Inflation has moderated in recent months but remains elevated at around 6.5%. “The focus on capex and infrastructure should boost growth and keep inflationary pressures in check,” said eminent banker Uday Kotak.
The budget comes at a critical juncture for Asia’s third largest economy. India is projected to overtake China to become the world’s most populous nation this year. Meanwhile, manufacturing investments and exports have shown robust growth as companies shift production away from China.
“We are building a strong foundation for India to rank among the top three economies over the next 10 years. The seeds have been sown for the Amrit Kaal roadmap,” said Finance Minister Sitharaman in her budget address.
Table 1: Key Budget 2024-25 highlights
| Parameter | Projection 2023-24 | Budget Estimate 2024-25 |
|---|---|---|
| GDP growth | 7.0% | 6.0-6.8% |
| Inflation | 6.5% | 4-4.5% |
| Fiscal deficit (%GDP) | 5.1% | Below 5% |
| Disinvestment target | ₹51,000 cr | ₹51,000 cr |
| Capex budget | ₹10 lakh cr | ₹13 lakh cr |
However, some analysts say the budget numbers seem optimistic given the challenging global environment. “There is not enough of a buffer built in if oil prices rise or global growth slows more than expected,” cautioned leading economist Bibek Debroy.
Table 2: Snapshot of Budget 2024-25 tax proposals
| Heads | Key highlights | Impact |
|---|---|---|
| Personal income tax | No changes to income tax slabs and rates | Provides relief to middle income groups amid elevated inflation |
| Corporate tax | Concessional 15% corporate tax rate for newly incorporated manufacturing entities extended by 1 year till March 31, 2025 | Continues support for manufacturing investments under Make in India initiative |
| Customs duty exemptions | Exemptions from customs duty and agriculture infrastructure development cess extended on raw cotton import till September 30, 2024 | Provides relief to textile industry grappling with input cost pressures |
| EV ecosystem | Customs duty exemptions extended on capital goods/machineries for manufacture of lithium-ion cells for batteries used in EVs | Reinforces sustainable mobility focus |
Political messaging before crucial election
There was intense speculation that the ruling BJP would use the last budget before elections to unveil populist measures like income tax cuts, cash transfers or loan waivers.
However, the party has resisted the temptation to indulge in pre-election freebies. “This shows the supreme confidence of PM Modi ahead of elections,” said senior leader Piyush Goyal. With the opposition in disarray, surveys predict the return of the Modi government for a third consecutive term.
The budget speech peppered references to the government’s signature programs like digital push, skilling initiatives and welfare schemes targeting the vulnerable.
The rhetoric around self-reliance, green industrial policies and tech-centric growth aligns with Modi’s vision for a “New India”.
While avoiding controversial reforms, the budget reiterates commitments to transparency, good governance and fiscal restraint.
“The overall idea was to present a no-surprises, no-disruption budget that focuses on stability and continuity ahead of elections,” explained Finance Secretary TV Somanathan.
Growth roadmap for Amrit Kaal
The Modi government’s long term vision focuses on transforming India into a developed nation by 2047 – the 100th anniversary of independence. This “Amrit Kaal” roadmap entails raising per capita income to over $10,000 from the current $2,100.
The interim budget has laid the directional blueprints in terms of boosting public infrastructure, driving private investments and unleashing the innovation potential of startups.
There is growing optimism that leveraging India’s young demography, enterprise and technology adoption can accelerate growth to 8-9% per year.
“The strong economic foundation and clear strategic vision reinforce India’s prospects to become the third largest economy within this decade,” said Kumar Mangalam Birla, Chairman of the Aditya Birla group.
The budget provides continuity in policies around fiscal consolidation, manufacturing growth, digital public infrastructure and sustainable development. Significant reforms in taxation, administration and financial services regulation are likely after elections.
Challenges remain in raising growth potential
However, India faces monumental challenges in upgrading its creaky infrastructure, enhancing human capital and creating quality jobs for its millions of young people joining the workforce each year.
Much more regulatory reform is essential to improve the ease of doing business, attract foreign investment and boost private enterprise across sectors beyond digital.
Labour reforms, land acquisition policies, legal-judicial overhauls and power sector viability pose complex issues needing political consensus.
“Long term growth acceleration also requires improving health and education outcomes together with concrete action in areas like water conservation, environmental regulation and urban planning,” said leading public policy expert Yamini Aiyar.
Bridging regional and income divides in order to equitably distribute development gains to neglected peripheries and communities also remains an enduring challenge for policymakers.
Thus, while the stable interim budget attempts to steer the economy towards sustained high growth before elections, much work lies ahead for the next government in translating ambitions of Amrit Kaal into tangible outcomes.
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