Union Budget 2024: Expectations and Key Focus Areas for India's Economic Growth

As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2024 on July 23, anticipation runs high across India. This budget holds particular significance, following the Lok Sabha election that secured Prime Minister Narendra Modi's government a third term. Modi is expected to use this opportunity to reconnect with voters by focusing on enhancing job opportunities, increasing incomes, addressing uneven economic growth, and tackling rising food prices.

The Union Budget 2024 is poised to play a crucial role in shaping India's economic future. Strong tax revenue collections and a substantial dividend from the RBI have positioned the government favorably to drive impactful reforms. The focus will likely be on eight key areas: sustainable growth, the financial sector, infrastructure and investment, support for women, youth, and farmers, last-mile connectivity, inclusive development, and overall economic expansion. These priorities align with the vision of achieving 'Viksit Bharat' by 2047.

Fiscal Discipline and Economic Stability

The government's commitment to fiscal discipline is vital for signalling economic stability and building investor confidence. However, this must be balanced with the need for economic growth and adequate funding for key social programs to ensure that development benefits reach all segments of society.

Fintech Industry Expectations

In the fintech industry, there are high hopes for policies that will drive innovation and digital transformation across India. India fintech industry is projected to reach $420 billion by 2029 with CAGR of 31%, which is essential for driving India toward its $5 trillion economic goal. Historically, budget allocations have prioritized sectors such as agriculture, automotive, and MSMEs. Fintech companies are urging the government to introduce schemes and incentives to support their expansion into underserved sectors, enhancing financial inclusivity. Collaborations between fintech and NABARD can foster innovative solutions while maintaining financial stability.

Optimizing the tax framework to empower the middle class and increase consumption will substantially assist the fintech industry. Keeping UPI free of Merchant Discount Rates (MDR) on payment instruments is crucial, especially as digital payments have surged to over 90% in India over the past decade. Furthermore, fintech companies should have greater access to incentives through a more transparent?procedure.

Role of NABARD

NABARD plays a crucial role in assisting the government, the Reserve Bank of India, and other organizations in rural development. It offers training and research facilities for banks, cooperatives, and organizations in this field. Allowing fintech companies to leverage NABARD's opportunities would benefit the overall economy. By accessing NABARD's resources, fintechs could develop custom solutions for rural financial needs, enhancing financial inclusion and driving economic growth in underserved areas. This integration would help to strengthen and broaden the financial ecosystem across the country.

Support for MSMEs

The finance ministry should consider raising the loan ceiling under the MUDRA Yojana to Rs 20 lakh and boosting credit guarantee coverage for unsecured loans to MSMEs from Rs 2 to Rs 5 crore. Furthermore, MSMEs seek government incentives to help their attempts to promote their products globally.

Focus on Infrastructure and Manufacturing

With the government's renewed focus on infrastructure development, manufacturing, and job creation, India aspires to be an export hub with a target of $2 trillion in exports of goods and services by 2030. This goal can be achieved by reducing tariffs on raw material imports and ensuring the right building blocks are in place, especially for the manufacturing sector. Implementing stringent anti-dumping measures will ensure that domestic manufacturers have a level playing field.

Chemicals Sector Expectations

The Budget is expected to reinforce the government's commitment to the manufacturing sector, particularly the chemicals sector. Chemicals contribute around 7% to GDP, making India the 6th largest producer of chemicals globally. The sector is projected to grow to $300 billion by 2025 and $1 trillion by 2040. There are hopes for Production Linked Incentives (PLI) in the chemical and petrochemical sector to propel growth for both existing and greenfield facilities. Developing quality infrastructure and chemical hubs with centralized waste and effluent treatment systems will bring India on par with other manufacturing hubs.

Real Estate Sector Reforms

The real estate sector has been saddled with numerous and double GST taxation, which must be reduced to a one-time transaction. Establishing a monitoring cell to ensure that construction costs do not increase moving forward is crucial. Reducing the GST rate on cement from 28% to 18% would greatly support the growth and stability of the real estate sector.

Personal Tax Relief

Both new and old tax regimes offer a standard deduction of Rs 50,000, introduced in 2018 and increased in 2019. There is a longstanding demand to raise this deduction to keep up with inflation. Experts suggest the government may increase it to Rs 1 lakh, providing substantial tax relief, especially for fixed-income groups like pensioners. Such an increase would boost disposable income, particularly benefiting lower and middle-income earners.

Gold Loan Sector Developments

In the gold loan sector, granting eligible gold loan NBFCs 'priority sector status' would drive financial inclusion, significantly impacting small borrowers whose needs are often below Rs 50,000. A 'Gold linked credit line via UPI' could help households and small business owners meet their financing needs and monetize idle gold jewellery. Linking NBFCs with the UPI payment system would provide secured credit at lower interest rates (12%-18%) compared to the high rates (around 36%) charged by credit cards. Additionally, bridging the disparity in single counterparty exposure limits for gold loan NBFCs compared to other NBFCs (20% of Tier-1 capital) would create a level playing field, enhancing their ability to lend credit and benefit potential customers.

As the budget announcement approaches, there is widespread optimism about the potential for positive change and growth across various sectors of the Indian economy. With the right policies and initiatives, India can pave the way for a more inclusive, innovative, and prosperous future.