In terms of Article 112 of the Indian Constitution, a statement of estimated receipts and expenditure of the Government of India has to be laid before Parliament every financial year. But every Budget provides an incisive examination of the macro-economy indicates the global and the domestic stand, governmental priorities, the use of identified instruments to realize avowed objectives and influence the direction and pace of implementing measures and charts the growth path.
Global Perspective
This Budget has been formulated against the backdrop of an uncertain global economy characterized by elevated asset prices, political uncertainties, shipping disruptions and the lagged effect of cumulative tightening of the central banks. These and other forces and factors have led to the “poly-crisis” battering countries around the world. These are VUCA (volatility, uncertainty, complexity, ambiguity) times. The present day VUCA world is characterized by extensive and rapid changes in all walks of life and activity, explosion of information fuelled by Internet, dramatic growth of technology and geo-economic fragmentation. In this overarching setting of the “new normal”, disequilibrium is the new equilibrium.
While the US would outperform Europe, China’s growth momentum could peter out in the second half of 2024. UK’s recessionary concerns stem from shrinkage of UK’s GDP by 0.1% in Q3 of 2023. India has, however, emerged as a bright spot with 7% GDP growth and 4% inflation. The central theme of “Viksit Bharat” by 2047 is founded on the development mantra of “sabka saath, sabka vikas, sabka vishwas” and the trinity of demography, democracy and diversity. The Budget for 2024-25 is viewed as the action plan for the Modi 3.0 government, outlining a roadmap for India’s development over the next five years.
India’s Growth Story and Macroeconomic Implications
India has been the fastest-growing major economy for the third successive year. Despite global headwinds, including geo-political realignment, India’s economy continues its strong and resilient onward march of about 7% sustained growth. India, which is already the fifth-largest economy globally with Gross Domestic Product (GDP) of $ 3.8 trillion, could become the third-largest economy with a GDP of $5 trillion in the next three years and $7 trillion by 2030 with capital expenditure driving economic growth and structural transformation. Of late, high capital expenditure has fostered investment-led growth in the absence of a broad-based resurgence in private investment.
A renewed capex cycle, a well-capitalised banking system, robust credit growth, an upturn in the housing sector, rising domestic consumption, robust investment, growing services exports and “digitalization-driven productivity gains” are force multipliers. India would consolidate its global heft by important transformative drivers both on the demand and the supply sides.
Against this global and domestic canvas, the higher outlay for infrastructure e.g., roads, highways, bridges, railways, ports, etc. this year marked a rise of 11% from last year, but is below the nearly three-fold trend-line annual increases India has been seeing since 2019. The renewed thrust on capex with its significant multiplier macro-economic effects augurs well for the Indian economy and infra sectors.
Another positive aspect of the Budget is the concerted attempt to foster innovation across the development spectrum. The New Innovation Fund includes 50-year interest-free loan, long-term financing or refinancing with long tenures with low or nil interest rates to encourage the private sector to scale up research and innovations “significantly in sunrise domains”.
With an accent on employment, skilling, infrastructure, MSMEs, and the middle class and to achieve the mission of “Viksit Bharat”, this Budget has proposed sustained efforts on nine priority areas for driving the economy forward through policy continuity and fiscal consolidation. These areas are: productivity and resilience in agriculture; employment & skilling; inclusive human resource development and social justice; manufacturing & services; urban development; energy security; infrastructure; innovation, research & development and next generation reforms.
Micro, Small & Medium Enterprises (MSMEs)
Credit guarantee scheme and term loans for machinery purchase, technology support package for Ministry of MSMEs are focused on
- Providing internship opportunities in Top 500 companies to 1 crore youth in 5 years
- Allowance of Rs. 5,000 per month along with a one-time assistance of Rs. 6,000 through the Corporate Social Responsibility (CSR) funds
- Mudra Loan scheme, started in 2015, aims to provide guarantee-free funds to small businessmen and street vendors to expand their business. Under the Pradhan Mantri Mudra Loan Yojana, loans can be taken through any bank, microfinance company or NBFC. Any Indian who is doing business or wants to start his own business can take a Mudra loan. Under Pradhan Mantri Mudra Yojana, loan is given in three categories. The first category is Shishu loan. In this, a guarantee free loan of Rs. 50,000 is available. In the Kishore category, loan is given from Rs. 50,000 to Rs. 5 lakh. In the Tarun category, the government gives loan from Rs. 5 lakh to Rs. 10 lakh. Now this limit has been increased to Rs. 20 lakhs. That is, in the Tarun category, loan from Rs. 5 lakh to Rs. 20 lakh will be available. The doubling of the upper limit of Mudra loans to Rs. 20 lakh would promote entrepreneurship in India.
In another welcome move, SIDBI will open new branches to expand its reach to serve all major MSME clusters within three years and provide direct credit to them.
Wielding the Budget-Cheaper and Costlier
Regarding an import duty cut on gold, silver, and platinum, the total duty has been revised to 6% from the earlier 15% effective July 2024. This would boost retail demand and help curtail smuggling in the world’s second-biggest bullion consumer. This would lead to higher imports of gold and other precious metals and a higher current account deficit (CAD). However, because of a narrower merchandise trade deficit and a robust expansion in the services trade surplus, India’s CAD more-than-halved to a seven-year low of $23.2 billion in FY2024 from $67 billion in FY2023. As a proportion of GDP, the CAD dipped sharply from 2% in FY23 to 0.7% in FY24. Given this macroeconomic scenario, we see no reason to be unduly concerned on this score.
Customs duty on mobiles, chargers, and accessories has been reduced to 15%. Customs duties on 25 critical minerals have been fully removed, and duties on shrimp and fish feed have been lowered to 5%.
The Budget has eliminated the customs duty on imported cancer medicines. Previously, a 10% duty was imposed on three life-saving medicines, but it has now been completely removed. This change is expected to save cancer patients approximately Rs. 40,000 rupees each month. However, the government increased customs duties, raising the rate on ammonium nitrate by 10% and on non-biodegradable plastics by 25%. Additionally, telecom products will become more expensive due to a rise in the basic customs duty from 10% to 15% on certain telecom equipment. Plastic products will also see a price increase following a hike in customs duty on these items.
Productive and Resilient Agriculture
Food, nutrition security, economic growth and distributive equity provide the basic building blocks of resuscitation in Indian agriculture. Towards this end, there is an accent on Kisan Credit Card Scheme, R&D, natural farming and Digital Public Infrastructure.
Employment & Skilling
In order to facilitate employment opportunities and sustain high growth, the government will initiate and incentivise reforms for improving productivity of factors of production and facilitating markets and sectors to become more efficient. A new Employment Linked Scheme under the PM package would support new employees through direct benefit transfer across three sub-schemes. Eligibility for these benefits will be based on enrolment in the Employees’ Provident Fund Organization (EPFO). There are 3 Schemes for ‘Employment Linked Incentive’, as part of the Prime Minister’s package:
- Job creation in manufacturing linked to first-time employees: expected to benefit 30 lakh youth
- Government will reimburse Employees’ Provident Fund Organisation (EPFO) contributions of employers up to Rs. 3000 per month for 2 years for all new hires
- Allocation of over Rs. 3 lakh Crore for schemes benefitting females in entrepreneurship & workforce
Consumption, exports growth and broad-based productive employment must drive the process and pattern of economic growth and structural transformation.
Receipts and Expenditure
For the year 2024-25, the total receipts other than borrowings and the total expenditure are estimated at Rs. 32.07 lakh crore and Rs. 48.21 lakh crore respectively. The net tax receipts are estimated at Rs. 25.83 lakh crore. The fiscal deficit is estimated at 4.9% of GDP.
Fiscal Deficit
In a welcome move, the FM announced that fiscal deficit will drop further to 4.5% by FY 26. The post-election Union Budget 2024-25 has tried to balance between the fiscal consolidation path and maintaining the growth momentum of the economy. It is expected that the nominal GDP to increase by 10.5% in FY25. Fiscal deficit has been pegged at 4.9% of GDP or ₹16.13 lakh crore in FY25.
India’s real GDP grew by 8.2% in FY24, posting growth of over 7% for a third consecutive year, driven by stable consumption demand and steadily improving investment demand. Gross value added (GVA) rose by 7.2% (at 2011-12 prices) in FY24, with broad-based growth. Net taxes at constant (2011-12) prices grew by 19.1% in FY24, facilitated by relatively strong tax growth, both at the centre and state levels and rationalisation of subsidy outlay. While the Government is on track about its task of achieving 4.5% of GDP by FY 2026 with “a desire to manage deficits to keep debt on a declining path”, the long-term deficit target of 3% of GDP under the 2003 Fiscal Responsibility and Budget Management (FRBM) Act seems difficult and public finance metrics in general need synchronized measures over the long haul.
Concluding Observations
This Budget, which is focused on centre-state policy coordination, income tax slabs, robust capital expenditure, and better macroeconomic stability, is well-conceived with capex momentum and seeks to create a foundation for sustained medium-term growth. This Budget would thus pave the way for consolidation of India’s position in the comity of nations.
While the Opposition accused the government of presenting a “discriminatory Budget” that excluded the States ruled by parties not part of the NDA, the FM strongly rebutted this impression. The scheme-wise allocations details were available in the Budget documents. She asked “the Cabinet… decided to set up a port at Vadhavan, but Maharashtra’s name was not included in the Budget. Does this mean that Maharashtra should feel ignored?” She added that ₹76,000 crore was allocated for the project.
While the FM has done well to cogently articulate the future goals to transform India’s economic landscape, the Budget would in the ultimate analysis be tested by its implementation on the ground. For, the proof of the pudding lies in the eating. Evidently, then, execution is the key. There is also a compelling need for a paradigm shift from outlay to outcome.
There are elements of both change and continuity in the FM’s seventh consecutive Budget. But this Budget also marks the first Budget of Modi 3.0. The FM has done well in adroitly balancing the requirements of various sectors and the macro-economy and has taken the right call in advancing the pursuit of “Viksit Bharat” in an effective manner in the pathway to growth. As the PM Modi stressed, it is an “important Budget for Amrit Kaal,” which will set the direction for the next five years and serve as a strong foundation for the vision of a “Viksit Bharat”.
ABOUT THE AUTHORS
Vipin Malik, Chairman, Infomerics Ratings, served on Boards of Reserve Bank of India and Bharatiya Reserve Bank Note Mudran Private Limited, Canara Bank, J&K Bank, etc. Author of several well- received books and several articles. He appears often on television debates on economy issues.
Dr. Manoranjan Sharma is Chief Economist, Infomerics, India. With a brilliant academic record, he has over 250 publications and six books. His views have been cited in the Associated Press, New York; Dow Jones, New York; International Herald Tribune, New York; Wall Street Journal, New York.
