Never before in the recent past has a Union Finance Minister been on such a good wicket with a host of tailwinds favouring Nirmala Sitharaman as she prepares to present her full budget for 2024-25 on Tuesday.
India’s economy is racing ahead, buoyed by an 8.2 per cent growth rate recorded in 2023-24. Inflation, as measured by the Consumer Price Index (CPI) though high, is within the tolerance limit mandated by Parliament, below the upper band of 6 per cent. The wholesale price index (WPI) is even lower at about 3 per cent.
Foreign exchange reserves are $660 billion, enough to pay for one full year of imports. The current account deficit is below 1 per cent for the first time in several years. India’s banks and corporates too are in good shape. However, concerns regarding unemployment, the rich-poor divide and the income level of farmers remain.
In line with the interim budget presented on February 1, 2024, the government’s tax collections now are on target. The RBI has also passed on a hefty dividend of Rs 2.1 lakh crore (against about Rs 87,000 crore last year).
Given this backdrop, what can we expect from the FM on July 23? Will the election results that led to the BJP falling short of a majority on its own have an impact on the budget proposals? Will she plan for a fiscal deficit lower than the 5.1 per cent targeted in the interim budget? Will the budget lean towards welfare and increased public investments? These are key questions worth considering.
The Government had aimed to collect about Rs 22 lakh crore of direct taxes for 24-25 as per the interim budget — Rs10.43 lakh crore in corporate tax and Rs 11.56 lakh crore in personal income taxes. By July 11, it had already managed to mop up Rs 5.75 lakh crore, more than 25% of the target.
It can hike the direct tax target to Rs 23 lakh crore now, in light of the robust tax collections and the higher growth prospects. Realistically, its share of GST projected at Rs 10.68 lakh crore (as per the interim budget) too can be hiked to about Rs 11 lakh crore. With these increases, plus a net gain of about Rs 1.2 lakh crore from the RBI dividend, the FM will have an additional Rs 2.5 lakh crore to play around with.
Out of this, Rs 2 lakh crore can be the actual spend with the balance being used to reduce borrowings and resultantly, the deficit. The overall budget size can be increased from Rs 47.65 lakh crore (interim) to about Rs 50 lakh crore.
Public investment in infrastructure has been the hallmark of the three post-Covid Union budgets. From Rs 7.5 lakh crore in 2022-23 to Rs 10 lakh crore in 23-24 to Rs 11.11 lakh crore in the interim budget, the allocation has seen a steady increase. Private capex has been lagging. Therefore, one should not be surprised if the outlay on infra push is increased to Rs 12 lakh crore.
Studies done by the finance ministry and RBI have indicated that for every rupee spent on infra investment, the addition to the GDP is Rs 3 or even Rs 4, yielding handsome multiples for growth.
The outlay on schemes under health, farmers’ welfare, MNREGA and education can also be expected to be hiked using the higher receipts. The Pradhan Mantri Jan Arogya Yojana (PM-JAY) provides health insurance cover of Rs 5 lakh per year to over 10 crore poor and vulnerable families. The renamed Ayushmann Bharat Mandir (primary health care infrastructure) is another focus area.
The coverage of the insurance scheme and the allocation for primary health centres needs a bigger push. While the total outlay for the two schemes was about Rs 11,600 crore (interim), there is scope to increase the funds by at least another Rs 3,000 crore.
Farmers as a constituency have not exactly been pleased with the establishment despite numerous government support programmes. As crucial Assembly elections in Maharashtra, Haryana and Jharkhand are slated before the end of this year, the Government may increase the PM Kisan benefit transfer from Rs 6,000 to Rs 8,000 per annum. This will involve an additional outlay of Rs 20,000 crore making the allocation Rs 80,000 crore.
Apart from this, support for FPOs, primary cooperatives and agri startups need to be increased in this budget. The Government will then have sufficient time to follow through with the implementation.
Regarding employment, the Government’s stand has been to promote growth and investments thereby opening up job opportunities. The BJP had promised in its election manifesto that the limit on Mudra loans, a major scheme of the Government to provide self-employment, would be doubled to Rs 20 lakh. An announcement in this regard would be welcome for the youth.
In the interim budget,Sitharaman had termed digital public infrastructure as another “factor of production.” The benefits of UPI have been widely felt as the payment system has marginalised multinational companies like Visa/Mastercard. One can therefore expect announcements regarding new initiatives in the digital space including the Open Network for Digital Commerce (ONDC).
While manufacturing had been given a push through the production-linked incentives (PLI) scheme, as the actual disbursals have been only around Rs 9,700crore(up to March 31, 2024)out of an allocation of Rs 1.97 lakh crore there is space to include new sectors. The extension of the concessional 15 per cent corporate tax to new companies for another two to three years may also be music to corporate ears.
Though the middle class expects further tax concessions,the Government’s broad approach has been to move to better compliance with lower rates for the lower slabs. No changes are expected here.
Even with the increased outlays, the Government will be in a position to peg the fiscal deficit at about 4.8 per cent (against 5.1 per cent in the interim budget).Add a few directional announcements for a medium-term policy including a push for exports (with higher allocation for remission of duties paid by exporters and rebates)and Budget 2024can be a sweet deal for all.
(S Adikesavan is a commentator on the economy and banking. Opinions expressed are personal)
