Finance Minister Nirmal Sitharaman on Tuesday presented her seventh budget and the first one of the PM Modi government’s historic third term. The FM’s Budget Speech, anchoring on fiscal policy for growth and welfare, reforms and ease of doing business, signalled the continuity of the decade of economic transformation.
Fiscal policy for growth
The Budget sticks to fiscal prudence and pencilled in conservative nominal GDP growth and tax buoyancy. The fiscal deficit was lowered to 4.9 percent from the earlier 5.1 percent in the interim budget driven by higher than budgeted RBI surplus transfer. The last mile in the fiscal glidepath towards 4.5 percent by FY26 is now easily achievable.
At 3.4 percent of GDP, capital expenditure remained the same as in interim budget with the amount under special assistance to states increasing to 1.5 lakh crores from 1.3 lakh crores. Not only addressing the infrastructure deficit, the capital expenditure would aid the momentum of private investments acquired post-covid. Operationalizing the Anusandhan National Research Fund will drive the private sector GFCF in machinery and equipment and intellectual property products.
Currently, the CPI inflation is hovering around 5 percent due to high food prices which is out of reach of monetary policy. Along with good progress in monsoon, complementary fiscal policy measures such as non-inflationary capital expenditure focus on vegetable clusters and the missions for pulses and oilseeds will drive down the food prices and CPI towards 4 percent.
Promotion of exports through customs duty rejig on various items and e-commerce exports, reducing the corporate tax rate on foreign companies from 40 to 35 per cent and simplification of rules for facilitating foreign direct investments will lend stability to rupee exchange rate and current account deficit. The thrust on macroeconomic stability aligns with the Indian Government Bonds (IGBs) inclusion in JPMorgan – Emerging Market Bond Index and S&P Global Ratings upgrading India’s outlook to positive after 14 years.
The impetus to growth would not only accrue from macroeconomic stability but from MSMEs, manufacturing and climate change too. Economic Survey 2024 suggests that focus on MSMEs especially on access to credit will sustain the high growth rates. Expanding the number of SIDBI branches and new assessment model for MSME credit for public sector banks will pull large number of MSMEs into formal banking credit. Measures were also announced for existing MSMEs availing bank credit.
Manufacturing through Make in India and Atmanirbhar Bharat has been the focus of the Modi government in the first two terms and continues to be so. It will be bolstered by development of investment-ready plug and play industrial parks with complete infrastructure in or near 100 cities and 12 industrial parks under the National Industrial Corridor Development Programme. Addressing the credit needs of MSMEs – existing and new, higher capital expenditure, bolstering exports and proposals on customs duties – exemption, hike and reduction will provide fillip to value addition and domestic manufacturing.
India, at the 26th session of the United Nations Framework Convention on Climate Change (COP 26) in November, 2021, announced its target to achieve net zero by 2070. This is an effort towards coping with the climate change and energy transition is at the heart of climate change. FM stresses that the government will bring out a policy document on appropriate energy transition pathways and a policy for promoting pumped storage projects will be brought out for electricity storage and facilitating smooth integration of the growing share of renewable energy.
Fiscal policy for welfare
The FM also took note of Prime Minister’s focus on four important castes – garib, youth, annadata and narishakti to transform India into a developed country by 2047. The announcement of additional 3 crore homes for the poor and the continuation of key welfare schemes will help the remaining poor escape poverty at a faster pace as earlier despite maintaining a higher quality of expenditure.
The budget’s focus on expanding income earning opportunities especially on employment hogged much of the limelight. Through the Prime Minister’s Package for Employment and Skilling, 2.9 crore formal jobs including 2.4 crore jobs for first timers are likely to be created in the next two years addressing the high youth unemployment rate relative to overall unemployment rate. It is to be noted that the overall unemployment has decreased since the start of PLFS. The measures related to MSMEs, manufacturing, exports, energy transition and tourism are also employment generative.
Abolition of angel tax, providing internship opportunities in 500 top companies to 1 crore youth in 5 years, skilling the youth including women over a 5 year period, increasing the limit under Mudra and stepping up implementation of schemes such as PM Vishwakarma, PM SVANidhi, National Livelihood Missions and Stand-Up India will also expand the labour force further. Enhanced target of 3 crore lakhpati didi, setting up working women hostels and establishing creche facilities are measures not only for raising the women labour force participation rate towards global average but provide impetus to overall labour force participation rate.
The FM did not buy the post-election widely popular rural distress narrative and instead focussed on rural development augmentation through additional houses for the poor in rural areas, PMGSY, announcement of National cooperative policy and increasing incomes of the farmers by way of setting up vegetable clusters, focus on oilseeds and pulses, improving productivity, releasing high-yielding varieties and initiating the farmers into natural farming.
Reforms and Ease of Doing Business
The reforms announced in the budget laid focus on factors of production. Finance Minister announced that a strategy document will be prepared for meeting financing needs of the economy. Regarding land and labour, assignment of Unique Land Parcel Identification Number or Bhu-Aadhaar for all lands in rural areas, digitisation of land records in urban areas and integration of e-shram portal with other portals to provide services to labour were announced. Jan Vishwas Bill 2.0, incentivizing states for implementation of their Business Reforms Action Plans and digitalization, comprehensive review of the Income-tax Act, 1961, revamping Shram Suvidha and Samadhan portals would enhance the ease of doing business.
Indian economy is firing despite the economic shocks and global headwinds. It has been the fastest growing large economy which has registered GDP growth of 8.2 percent CAGR for the 3 year period ending 2023-24. Economic Survey 2024 notes that India has one of the highest ratio of GDP in 2023 to the level in 2019 among large economies. Various agencies express their optimism that this momentum will continue in FY25 too with revised upwards forecasts ranging from 6.6 percent to 8 percent.
The budget imparts momentum to the Indian economy with growth likely to hit the top end of the FY25 forecast range. Conditional upon policy continuity and normalising global environment, India would also be the fastest growing large economy until 2030 with a concomitant rise in its share in the global economy from the current 16 percent to 18 percent. On a closing note, the FM catered to the expectations of all the segments and carried the vision of Viksit Bharat.
(The author is an Economist & Columnist and a member of the Bharatiya Janata Party.)
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