Introduction

The Economic Survey’s conservative GDP growth projection of 6.5% to 7% for 2024-25, compared to the Reserve Bank of India’s 7.2%, indicated that the Union Budget 2024-25 would avoid aggressive fiscal measures. Instead, the budget focuses on boosting India’s medium- to long-term growth prospects, reflecting the nation’s current advantage in growth rate relative to major global economies and stable inflation management.

Capital Expenditure and Infrastructure Development

• The budget maintains its focus on capital expenditure to enhance long-term economic prospects and address infrastructure gaps.
• The allocation remains at ₹1.1 lakh crore (3.4% of GDP), with an effective capital spending figure, including interest-free loans to states, expected to be ₹315 lakh crore.
• This strategy, though commendable, faces the challenge of weak consumption demand, particularly among lower-income groups, crucial for sustained private investment revival.

Agricultural and Regional Development Initiatives

• To boost incomes in less affluent regions, the budget promotes farmer cooperatives and supply hubs, alongside plans for a new National Cooperation Policy and the Purvodaya initiative targeting economic revitalization in Bihar, Jharkhand, West Bengal, Odisha, and Andhra Pradesh.
• These areas, rich in potential, are expected to generate significant growth momentum.

Manufacturing and MSME Support

• The budget introduces changes to customs duty rates to incentivize domestic manufacturing, though the impact on correcting the inverted duty structure remains to be seen.
• For MSMEs, measures include a ₹100 crore credit guarantee, subsidies for new formal sector jobs, and an upgraded credit assessment framework.
• Additionally, the enhancement of 1,000 Industrial Training Institutes (ITIs) and provision of Skilling Loans aim to alleviate skilled labor shortages.

Fiscal Prudence and Macroeconomic Stability

• The projected fiscal deficit for 2024-25 is pegged at 4.9%, 20 basis points lower than the interim budget, with a goal to reduce it to 4.5% by the next fiscal year.
• The budget outlines a Fiscal Glide Path to keep the debt-GDP ratio in check, emphasizing the need for flexibility to respond to global uncertainties.
• The government aims to deepen the Corporate Bond Market, offering longer-term funding alternatives for corporates.

Food Inflation and Financial Market Regulation

• Addressing food inflation, the budget emphasizes developing Climate-resilient Crops and Achieving Self-sufficiency In Key Crops like pulses and oilseeds.
• To mitigate market instability, it raises capital gains taxes on financial assets, discouraging speculative investments and aligning with the Economic Survey’s caution against equity market exuberance.

Next-Generation Reforms and Direct Tax Code

• The budget speech highlights Next-generation Reforms aimed at Factor Markets and economic efficiency gains, advocating consensus-building between the Centre and states.
• Plans include Digitizing Land Records, reducing stamp duties for properties purchased by women, and facilitating labor skilling and compliance ease.
• A comprehensive Review Of The Income Tax Act within six months aims to simplify and reduce disputes, with further reforms anticipated in customs duties and the National Pension Scheme (NPS).

Financial Sector Vision and Strategy

• A financial sector vision and strategy document is proposed to address the financing needs of the economy, crucial for both government and private sector investments.
• Enhancements to the bankruptcy framework and debt recovery mechanisms are also on the agenda to strengthen and expedite debt recovery processes.

Coalition Dynamics and Employment Generation

• Post-2024, the budget focuses on maintaining the National Democratic Alliance (NDA) cohesion, critical given the BJP’s reliance on allies like Janata Dal (United) and Telugu Desam Party (TDP) for a parliamentary majority.
• The budget prioritizes resources for states like Bihar and Andhra Pradesh to secure ally support, even at the potential cost of losses in BJP-ruled states.
• Recognizing the diminishing political returns from asset-based welfare programs, the budget shifts towards job creation in the private sector. It proposes subsidizing job creation, facilitating skill enhancement, and sharing salary burdens for new recruits.
• This approach, inspired partly by the opposition’s manifesto, targets generating 7.5-8 million jobs annually, aligning with the Economic Survey’s recommendations.

Challenges and Future Prospects

• The budget’s employment generation focus aims to cultivate a new base of beneficiaries in the labor market before the 2029 elections.
• However, this strategy hinges on a demand-deficient private sector’s participation and overcoming the prevailing preference for government jobs among job seekers.
• The budget also contends with opposition pushes for reforms rollback, such as the Agnipath Scheme and increased reservations for OBCs in government jobs.
• The Government’s hopes rest on these employment-focused policies to generate sufficient political traction for upcoming state elections and beyond.

Conclusion

The Union Budget 2024-25, though modest in immediate reform announcements, lays the groundwork for substantial developments in the coming year. By prioritizing macroeconomic stability, fiscal prudence, and structural reforms, the government aims to navigate global uncertainties and position India for sustainable, long-term growth.