Budget 2024: The continuation of the decade-long economic transition was foreshadowed by FM Nirmala Sitharaman’s Budget Speech, which focused on fiscal policy for growth and welfare, reforms, and ease of doing business.
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On Tuesday, Finance Minister Nirmal Sitharaman unveiled her seventh budget, the first of the historic third term of the PM Modi administration. With a focus on fiscal policy for welfare and growth, as well as reforms and ease of doing business, the FM’s Budget Speech underlined the continuation of the decade-long economic transition.
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Fiscal policy for growth
The Budget maintains budgetary restraint and accounts for nominal GDP growth and tax buoyancy that are both prudent. Due to a larger than anticipated transfer of RBI excess funds, the fiscal deficit in the interim budget was reduced to 4.9 percent from 5.1 percent. It is now simple to reach the final mile on the fiscal glidepath, which will take us to 4.5 percent by FY26.
Capital spending stayed at 3.4% of GDP from the interim budget, with the amount allocated to states for special assistance rising to 1.5 lakh crores from 1.3 lakh crores. The capital expenditure would not only help close the infrastructure gap, but it would also accelerate post-COVID private investment. The Anusandhan National Research Fund’s operationalisation will propel the private sector’s GFCF in terms of machinery, equipment, and intellectual property goods.
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Because of the high cost of food, which is outside the purview of monetary policy, the CPI inflation rate is currently circling 5%. Complementary fiscal policy measures, such as non-inflationary capital investment focused on vegetable clusters and the missions for pulses and oilseeds, will push down food costs and the CPI towards 4 percent in conjunction with favourable monsoon progress.
The rupee exchange rate and current account deficit will be stabilised by export promotion through customs duty reductions on a variety of goods and e-commerce exports, corporate tax rate reduction on foreign companies from 40% to 35%, and rule simplification for facilitating foreign direct investments. The focus on macroeconomic stability is consistent with the addition of Indian Government Bonds (IGBs) to the JPMorgan Emerging Market Bond Index and the upgrade of India’s outlook to positive by S&P Global Ratings following a 14-year hiatus.
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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 Indian economy gains impetus from the budget, and growth is predicted to reach the highest end of the FY25 projected range. India’s economy will develop at the quickest rate among large economies until 2030, provided that policy changes are maintained and the global environment normalises. This would result in an increase in India’s share in the global economy from its current 16 percent to 18 percent. Finally, the FM conveyed the Viksit Bharat vision while meeting the aspirations of every section.
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