Interim Budget 2024: Expectations v/s Reality

Finance Minister (FM) Nirmala Sitharaman presented the interim budget- a short-term financial plan on February 1, 2024, in the parliament. The full budget would be presented by the new government, in July, after the Lok Sabha polls. The interim budget is the balanced budget and seeks Parliament's nod for a grant in advance to meet the government's essential expenditure for the first four months of the new financial year. In her speech, the FM confirmed the budget's focus on the four major pillars of developed India namely, the young, poor, women, and farmers. The budget is a representation of FM’s outlook to make India a ‘Vikasit Bharat’ by 2047. She added that the government could save INR2.7 lakh crore (around $32.5 billion) through avoidance of leakages.

Review of the Past Performance of the Government and Economy

• FM in her budget pointed out the doubling of the FDI inflows in the 2014-23 period to $596.0 billion, compared to the inflows in 2005-13. She also highlighted a shift in focus of the bilateral investment treaties, to ‘first develop India’. The treaties are being negotiated with the foreign partners.
• FM further, highlighted the government’s success in pulling out 25.0 crore (250.0 million) Indians from multi-dimensional poverty in the past decade.
• Electronic Agri Mandi has connected 1051 mandis, transacting INR2.0 lakh crore ($24.1 billion).
• The government has increased the minimum support prices for the produce of ‘Annadata’ (farmers) periodically.
• The government extended direct financial assistance to 11.8 crore (118.0 million) farmers, under the PM KISAN SAMMAN Yojana, including small and marginal farmers.
• FM stressed the effect of ‘Direct Benefit Transfer’ on reducing corruption and the transparency and benefits it has brought to eligible people. She also expressed that social justice is an effective and necessary governance model.
• The budget speech highlighted a surge of 28.0% in the enrollment of females in higher education, over the past decade.
• The average real income of Indians has increased by 50.0%
• PM-SVANidhi provided credit assistance to 78.0 lakh (7.8 million) street vendors. Of this 2.3 lakh (230 thousand) have received credit for the third time.
• FM also highlighted the PM Vishwakarma Scheme, which was launched in September last year, that provides end-to-end support to the artisans & craftspeople belonging to 18 trades.
• The National Education Policy (NEP) 2020 is ushering in transformational reforms, as validated by the Union FM. PM Schools for Rising India (PM SHRI) are delivering quality teaching, with a motive of nurturing holistic and well-rounded individuals.

Direct and Indirect Taxation: An Overview

The budget does not announce any changes in the tax slabs in both the old and new regimes. The import duty would also remain constant. Thus, both regimes will continue to prevail, and the taxpayers are free to choose their preferred regime. This stands contrary to the expectations on the increment of the overall tax exemption limit to INR8.0 lakhs ($800.0 thousand).

Further, there has been no addition to the tax concession under sec 87(A), sec 80(D), and sec 80(E). Also, there has been no increment in the standard deduction and the incorporation of HRA deductions as per the expectations. No estimated deductions related to electricity and electronic gadgets have been included. There have also been no changes in the tax rates for the Company, LLP, and other entities.?

The Income Tax remission scheme was also announced during the interim budget. The scheme is said to benefit 1.0 crore (10.0 million) citizens of the middle class. It withdrew outstanding direct tax demands up to INR25,000.0 (around $301.3) until FY 2009-10, and outstanding direct tax demands up to INR10,000.0 (around $120.5) for financial years 2010-11 to 2014-15. The budget has also reduced the average ITR assessment days to 10, focusing on improving taxpayer services.

Key Changes

Economists were of the view that the central government would prioritize capital expenditure in the upcoming budget. The budget has validated their farsightedness with a declaration of a historic high investment in the capital expenditure of INR11.11 lakh crore (around $133.9 billion). Underlining the capex and infra spending at a sweet spot, PM Modi highlighted the creation of enormous job opportunities for the youth in the coming years.

FM has also adopted an aggressive fiscal consolidation target, as per the expectations. An FY25 fiscal deficit target of 5.1%, although the final target is on the lower side against the expectation of a 5.3% level. Also, the FY24, fiscal deficit target of 5.8% has been achieved, as against the target of 5.9%, accounting for better revenue mobilization.

The FY25 budget also highlights the government’s INR1 lakh crore ($12.0 billion) corpus, for the long-term funding of R&D projects including those in deep defense technology (including the core areas such as marine and air platform engine development and manufacturing). The corpus will be established with a 50-year interest-free loan in Sunrise domains. The details of scheme allocation under different heads for ministries to take up R&D projects will emerge later.

FM also announced three upcoming railways corridors in her budget speech, that are mooted to improve efficiency, reduce cost, and accelerate GDP growth. These corridors would include the energy, mineral, and cement corridors, the port connectivity corridors, and the high-traffic density corridors. Also, various projects have been identified under the PM Gati Shakti for enabling multi-modal connectivity. This will help in achieving the National Rail Plan targets by having a 50.0% modal share in the medium term. This is aimed at strengthening the safety considerations, however, there have been no announcements related to the indigenous Kavach system, as per the expectations.?? She also announced the conversion of 4000 normal railway bogies to meet the Vande Bharat standards.

The interim budget also places a significant focus on the development of domestic tourism. State governments will be offered interest-free loans (on a matching basis) to boost tourism within their borders. The initiative holds substantial potential for generating tourism revenue in India and creating numerous job opportunities. Also, the government is looking forward to the development of some comprehensive tourist centers. These centers would be branded and marketed on a global scale. A framework for rating the centers based on the quality of facilities and services will be established.

In addition to the tourism and agricultural industry, the budget also reflects the government's focus on the development of the EV ecosystem, on par with expectations. This would be initiated by supporting manufacturing and charging infrastructure. A payment security mechanism would be established to facilitate greater adoption of e-buses for public transport networks. FM added a mandate of blending compressed biogas into compressed natural gas for transport and piped natural gas. Also, the bio manufacturing and bio-foundry scheme will be launched to provide environment-friendly alternatives for bio-degradable production.

Miscellaneous Highlights

• Gross borrowings have declined in comparison to FY24 and are estimated to be INR14.1 trillion (around $170.0 billion), for FY25. The net borrowings, adjusted for maturities, are planned at INR11.7 trillion (around $140.0 billion) for the upcoming fiscal year.
• The budget also strives to make India self-sufficient in the growth and development of indigenous oilseeds such as mustard, groundnut, and sesame. The government also expresses its focus on Nano DAP (Di-Ammonia Phosphate).
• FM announces a housing scheme for the middle class to those living in rented houses, slums, and unauthorized colonies.
• 706 medical colleges to be set up in India, using existing infrastructure. These will include both government and private colleges, offering admission to 109065 MBBS seats.
• Healthcare coverage under the Ayushman Bharat scheme is to be extended to all Accredited Social Health Activist (ASHA) workers, Anganwadi workers, and Helpers.
• Certain tax benefits and rebates are being announced to the startups and investments made by sovereign wealth or pension funds as also tax exemptions on certain incomes of some IFSC units expiring in March will be extended to March 2025. This is done with a motive to provide continuity in taxation.
• An enhancement in the target for Lakhpati Didi Scheme from INR2.0 crore ($240.0 thousand) to INR3.0 crore ($360.0 thousand), has been announced.
• The budget announced the success of the PM Awas Yojna (Gramin), achieving the target of close to 3.0 crore (30.0 million) houses. FM also announced that the government further plans for 2.0 crore (20.0 million) more houses to be taken up in the next five years.
• The government will encourage vaccination for girls in the age group of 9-14 years to prevent cervical cancer.
• The budget also extended the plan of rooftop solarization and free electricity. The initiative is aimed at providing 1.0 crore (10.0 million) houses with 300 units of free electricity every month.
• The government aims to eliminate the worries about food and hunger by providing free ration to 80.0 crore (800.0 million) people.
• The PM-JANMAN Yojana aims for the welfare of vulnerable tribal groups, who have remained outside the realm of development so far.
• FM also announces a scheme for the Empowerment of Divyang (Persons with Disabilities) and transgender people.?
• PM Mudra Yojana has sanctioned a total of 43.0 crore (430.0 million) loans, amounting to INR 22.5 lakh crore ($271.2 billion), to support the entrepreneurial aspirations of the country’s youth.
• The government has taken multiple initiatives, through various credit guarantee schemes for assisting the Indian youth namely, Fund of Funds, Startup India, and other Startup Credit Guarantee Schemes.

Effect of Interim Budget on the Financial Markets: A Case Study

The Nifty50 began for the budget session on a slightly upbeat note, at about 21790 levels, lost ground to 21720, by the time of wrapping up. The markets demonstrated volatility till 12:00 pm IST, on Thursday. NSE Nifty was up by 0.03% or 5.95 points to 21,731.65 points, while BSE Sensex was at 71,806.44 points, up by 0.04% or 6.0 points. A total of 3,820 stocks were actively traded, 1,722 advanced, while 1,962 declined and 136 stocks remained unchanged where 397 stocks hit a 52-week high and 13 stocks hit a 52-week low.

Shares of companies related to electric vehicles jumped on Thursday after the budget announcement.

• The stock of Olectra Greentech jumped 6.2% to reach its 52-week high of INR1, 849.2 ($22.2) on the Bombay Stock Exchange (BSE).?
• JBM Auto increased by 4.9% to hit its one-year peak of INR2,010.8 ($24.2)
• Greaves Cotton escalated by 3.0% to the day’s high of INR168.5 ($2.0)

Also, as the government lowered the borrowings, the Indian Bonds rallied. The budget presented a lower-than-expected bond sales program for the next fiscal year. This was backed by the nation's preparations for big foreign inflows on global index inclusion.?

PM Narendra Modi asserted that the union budget offers the guarantee of strengthening the foundation of a developed India. He further added that the budget reflects the aspirations of a young India. The budget rightly highlights the government's initiative to take India to new benchmarks by empowering its youths, women, the poor, and farmers. It has also maintained flexibility across the taxation system and strives for uniformity across taxes and spending. Majorly addressing capex, fiscal deficit, and the sunrise sectors, the budget lives up to its said motive of raising India to the benchmark of a developed economy.

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