Vipin Malik, Chairman & Mentor, Infomerics Ratings and Sankhanath Bandyopadhyay, Economist, Infomerics Ratings shared insights.
As India prepares for the unveiling of its budget for the fiscal year 2024-25 (on 23rd July 2024), speculative expectations and projections are building up regarding the government’s financial priorities and strategies.
According to the interim budget announced in Feb’24, the GOI plans to invest over 11 lakh crores in long-term infrastructure projects. Moreover, the Centre plans stricter norms for project execution accountability. Aimed at enhancing accountability, these norms aim to curb cost escalations and ensure efficient project execution.
There is also speculation that the government is working towards a strategy to tackle non-tariff barriers faced by exporters by setting up a committee and launching a portal. Further strategic alignments of custom tariffs in line with the existing Production Linked Incentives (PLI) might also take place.
One of the primary expectations from the common public is a revision in income tax slabs and rates to provide relief to middle-class taxpayers. There is hope for an increase in the basic exemption limit or a reduction in tax rates, which would leave more disposable income in the hands of taxpayers.
Further, there is an anticipation for a revision in income tax slabs and rates to provide relief to individual taxpayers. The deductions could include deductions for medical expenses, education expenses, home loan interest, and contributions to savings schemes like Public Provident Fund (PPF) and National Pension Scheme (NPS). It is expected that such demand side measures would enhance the overall effective aggregate demand, hence sustaining the domestic business.
However, a balance is required between fiscal expenditure and fiscal revenues. The interim budget pegged fiscal deficit target at 5.1 per cent of GDP for 2024-25. Speculation emerges that Budget 2024 may introduce a provision that brings overseas credit card spending above ₹7 lakh under the Liberalised Remittance Scheme (LRS). At present, spending over ₹7 lakh in a financial year using debit cards, forex cards, and certain other methods attracts a 20 per cent TCS or Tax Collected at Source, but credit card transactions are exempt from this tax. The forthcoming budget might revise these regulations.
Given the effects of COVID-19 pandemic and the importance of healthcare infrastructure, there is an expectation for increased spending on healthcare facilities and services, including investments in hospitals, healthcare professionals’ welfare, and initiatives to improve healthcare accessibility and affordability.
The issue of unemployment remains one of the most critical challenges for the government. The budget may focus on sectors with high employment potential such as manufacturing, construction, and services. Initiatives to support entrepreneurship, skill development, and small businesses are also anticipated.
Given recent inflationary pressures, there is a hope for measures to stabilize prices of essential commodities and control inflation. Policies to manage food prices and ensure availability of essential goods at reasonable prices are crucial for household budget management. India’s retail inflation rose to 5.08% annually in June, moving away from the RBI’s 4% target, impacting interest rate cut discussions. The Fed’s rate cut expectations contrast with the RBI’s stance. High prices for tomatoes, potatoes, and onions in several other cities have been driven by supply disruptions following extreme heat and subsequent heavy rainfall. Vegetable inflation escalated to 29.32% in June from 27.33% in May, with onion and potato prices soaring by 58.49% and 57.59% respectively.
With increasing emphasis on sustainable development and climate resilience, provisions for renewable energy projects, environmental conservation efforts, and green technologies are expected to be part of the budget agenda. These initiatives align with India’s commitment to balancing economic growth with environmental sustainability.
The budget is also anticipated to outline policy reforms aimed at enhancing ease of doing business, attracting investments, and promoting entrepreneurship. Measures to streamline regulatory frameworks, improve governance, and enhance fiscal management are likely to be emphasized to foster a conducive business environment.
Record dividend transfer from the RBI to the government this year and substantial tax collections have provided certain leeway for the government for strengthening some of the existing schemes and to propel further growth-inducing investments. Increased allocation towards R&D in high-technology sectors such as semiconductors, medical devices, and clean technologies are also expected. Sector-specific issues, for instance for MSMEs might also be likely. Overall, the budget is likely to focus on strategically improving domestic growth by trying to boost domestic manufacturing while maintaining the fiscal discipline carefully.
