UNION BUDGET '24

Union Budget 24-25: Encouraging fiscal numbers may empower FM to stick to fundamentals

It would be a politically humbled Union Finance Minister Nirmala Sitharaman who would stand up to deliver her seventh consecutive budget speech on July 23. Nearly six months ago, on February 1, it was without a hint of democratic modesty that Sitharaman declared that the BJP government would return to power.

The BJP did return to power but has been diminished, and would be forced to bow to the demands of local players like Chandrababu Naidu's Telugu Desam Party (TDP) and Nitish Kumar's Janata Dal (United) that have acquired outsized influence in the Central government with a vote share of less than 3 per cent.

But it looks like the fortunes of the BJP and the economy have gone opposite ways. While the BJP's influence has shrunk, the economy has expanded since Sitharaman presented her interim budget on February 1. From GDP to foreign direct inflows, economic indicators have shown robust growth. Unemployment and inflation have eased. Even rural demand has picked up.

The interim budget was a no-nonsense budget that rigorously stuck to the fundamental goal of fiscal consolidation. Sitharaman's confidence, bordering on vanity, that people would vote Narendra Modi back to power with an even bigger majority would have authorised the finance minister last February to resist the temptation to trumpet 'crowd-puller' pre-election announcements in the budget.

Though given a reality check, the encouraging fiscal blossoming that happened while the BJP suffered a surprising fall from grace could once again empower Sitharaman to stick to fundamentals and refrain from making flashy announcements that could undo the good work.

Here are certain signs that the economy did well after the interim budget of February 1.
GDP GROWTH
January: GDP growth for the Q3 of 2023-24 was 7 per cent.
July: GDP growth for Q1 of 2024-25 is pegged at 7.4 per cent.

HIGH-FREQUENCY INDICATORS
January: E-way bills, a trade signifier, posted a growth of 13.2 per cent in December 2023. Toll collection, suggesting inter-state movement of freight, reached a series high, expanding by 18.6 per cent (year-on-year) in December.

Automobile sales moderated, registering an expansion of 14.1 per cent (y-o-y) in December, while two and three-wheeler sales recorded double digit y-o-y growth. Tractor sales recorded a two-year low in December, contracted by 19.8 per cent (y-o-y).

July: E-way bills grew by 16.3 per cent (y-o-y) in June 2024. Toll collections increased by a strong 37.4 per cent (y-o-y) in June 2024.
Automobile sales recorded a growth of 18.2 per cent (y-o-y) in June 2024, led by two-and-three wheelers followed by passenger vehicles. Growth for entry level vehicles continued to remain weak, suggesting low demand at lower income levels.

Domestic tractor sales reached an eight-month high in June 2024 with total volumes surpassing the 1-lakh mark (a 3.86 per cent jump comparead to the same period last year), indicating dramatic improvement in farm sentiments.

UNEMPLOYMENT
January: The all-India unemployment rate (UR) declined to 8.7 per cent in December, driven by lower jobless rate in rural areas. Nonetheless, urban UR recorded an increase.

Demand under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) rose by 12.9 per cent in December as rabi sowing neared its completion. Recourse to MGNREGS employment remained lower in December 2023 from a year ago, reflecting improved rural employment prospects

July: Things got even better. Organised manufacturing employment recorded the fastest rate of expansion in over 19 years on the back of rising production. Services job creation expanded to its strongest level since August 2022, driven by a surge in new business.

Demand under the MGNREGS witnessed a marginal decline of 2.9 per cent in June. Though there was a marginal increase in demand during April, it went down in May and has now reached the lowest since April 2023, hinting at the growing availability of better paid jobs.

EXPORTS
January: Out of 30 major commodities, 17 commodities accounting for 53.9 per cent of the export basket registered expansion on a y-o-y basis. Engineering goods, iron ore, gems and jewellery, electronic goods and drugs and pharmaceuticals supported overall export growth whereas petroleum products, readymade garments of all textiles, rice, other cereals, and marine products were the major laggards.

July: The export expansion was more broad-based, as 19 out of 30 major commodities (accounting for 62.6 per cent of the export basket) registered y-o-y increases. Engineering goods, electronic goods, drugs and pharmaceuticals, coffee, and organic and inorganic chemicals supported export growth in June, while the usual suspects petroleum products, other cereals, meat, dairy and poultry products, marine products, and gems and jewellery dragged down export growth.

REVENUE
January: On the receipts side, direct tax collections grew by of 24.6 per cent (y-o-y) during April-November 2023, with income tax and corporate tax collections rising by 29.4 per cent and 20.1 per cent respectively, reflecting increased compliance, higher advance tax collections and widening of the tax base.

Indirect tax collections grew by 5 per cent (y-o-y), with GST and customs revenues recording a growth of 10.3 per cent and 0.3 per cent respectively, although excise duties registered a contraction of 7.9 per cent. Overall, gross tax revenue recorded a growth of 14.7 per cent over a year ago.

July: Collections went further up, except for corporate tax. Gross tax revenue recorded a growth of 15.8 per cent during April-May 2024, with direct and indirect taxes registered y-o-y increases of 24.6 per cent and 8 per cent respectively.

Under direct taxes, corporate tax recorded a contraction of 19.8 per cent, but income tax increased by 41.6 per cent y-o-y. Under indirect taxes, GST collections recorded a growth of 10.5 per cent. Customs duty demonstrated a noticeable growth compared to January at 3.8 per cent.

Non-tax revenue receipts recorded a y-o-y growth of 86.9 per cent during April-May 2024 on the back of higher than budgeted surplus transfer from RBI. (The apex bank had made a a significant surplus transfer of Rs 2.11 lakh crore to the Central Government in May for the accounting year 2023-24.)

INFLATION
January: Food inflation (y-o-y) increased to 8.7 per cent in December from 8 per cent in November. In terms of sub-groups, inflation in vegetables increased sharply for the second consecutive month while it moderated in respect of cereals, meat and fish, eggs, spices, milk and non-alcoholic beverages. Inflation in fruits, pulses and prepared meals remained steady, while edible oil prices continued to record deflation.

July: Food inflation (y-o-y) firmed up to 8.4 per cent from 7.9 per cent in May, but it is still below January levels. In terms of sub-groups, inflation edged up in cereals, milk and products, fruits, sugar and prepared meals while meat and fish, eggs, pulses and spices registered a moderation. Vegetable prices continued to record a double-digit y-o-y increase. Edible oils and fats recorded a lower rate of deflation.

FOREIGN DIRECT INVESTMENT
January: Gross inward foreign direct investment (FDI) declined by 4.1 per cent to US$ 47.0 billion during April-November 2023 as compared with US$ 49.0 billion during the corresponding period a year ago.

Manufacturing, electricity and other energy sectors, transport, financial services, and retail and wholesale trade contributed around two-thirds of the gross inward FDI equity flows. The bulk of the equity inflows (69.9 per cent) were received from Mauritius, Singapore, Japan, the US and the Netherlands during the same period. Net FDI moderated to $13.5 billion during April-November 2023 from $19.8 billion a year ago, primarily due to a fall in gross inward FDI and a rise in repatriation of equity capital.

July: Gross inward foreign direct investment (FDI) at $15.2 billion during April-May 2024 was higher than $12.3 billion recorded a year ago.
More than 80 per cent of the gross FDI inflows were concentrated in sectors such as manufacturing, financial services, computer services, business services, and electricity and other energy.

Major source countries included Mauritius, Singapore, the Netherlands, the US and Cyprus, accounting for more than 80 per cent of the flows. Net FDI at $7.1 billion in April-May 2024 more than doubled from $3.4 billion a year ago, due to a rise in gross inflows and a moderation in repatriation.