– By Suman Chowdhury
The Union Budget of July 2024 outlines not just short term fiscal measures but also a strategic roadmap for economic and fiscal policies over the next five years. With a focus on fiscal consolidation, rationalization of taxation structure and a reboot of the manufacturing sector, the budget also prioritizes long-term goals like employment generation through incentives and skilling initiatives, crucial steps towards the goal of Viksit Bharat.
Key Themes
Fiscal Consolidation
The budget reaffirms the government’s commitment to fiscal consolidation, aiming for a fiscal deficit below 4.5% by FY26 after targeting a 4.9% figure in FY25 based on a realistic growth in tax revenues. From FY27, the focus will shift to a gradual reduction of the Central Government debt as a proportion of GDP. From a low of 3.4% in FY19, the fiscal deficit spiked to 9.2% in FY21 due to COVID-19, followed by a steady decline to 5.6% in FY24. The government improved on the last fiscal’s deficit target by 30 bps and now revised the current year target by 20 bps over the interim budget.
Employment Generation
Three new schemes will incentivize job creation for both new employees and employers, targeting the creation of over 2 Crore new jobs, which will positively impact private consumption over the medium term.
Manufacturing Ecosystem
The budget emphasizes the developing of a robust manufacturing sector, especially through MSMEs, to generate employment. Measures include:
– A separate guarantee fund for MSME loans up to Rs 100 Cr.
– Additional loans for stressed MSMEs.
– An expanded TReDS platform for better working capital funding.
Policies were announced to improve the manufacturing infrastructure through new industrial parks, rental housing for industrial workers, and the ship leasing industry, further supported by large outlays for skilling programs.
Infrastructure Development
With a capital expenditure allocation of Rs 11.1 tn, a 16% growth over the previous year, the government aims to accelerate infrastructure development, particularly boosting the order book of construction companies post general elections. Special focus is on infrastructural development in Bihar and AP, and tourism infrastructure in several states.
Agricultural Transformation
Policy measures to enhance crop diversity, mitigate climate risks, and moderate food inflation include initiatives for self-reliance in pulses and oilseeds and developing urban-centred vegetable production clusters. Establishing a digital land registry backbone is a pivotal reform for the agricultural sector.
Sustainability and Energy
While the budget falls short on some sustainability fronts such as EVs, it includes measures to support indigenous manufacture of batteries and solar cells by reducing customs duties on essential components. Policies to diversify alternative energy sources, such as pumped hydro projects and small modular nuclear reactors, aim to enhance the renewable energy mix in the grid, essential for achieving the 2030 SDGs.
Tax Reforms
Adjustments in tax slabs under the new regime and a moderate increase in the standard deduction will reduce tax payouts for mid-income salaried employees, potentially boosting consumption and encouraging transition to the simpler tax regime. However, higher tax payouts on capital gains will impact those with significant equity market incomes.
Overall, the 2024 budget is structured to support long-term economic growth through strategic thrust on infrastructure, manufacturing, and employment generation, aligning with the broader vision of a Viksit Bharat.
(Suman Chowdhury is the Chief Economist and Head of Research at Acuite Ratings and Research.)
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