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This being the first Budget of the NDA II, a coalition government, somewhere there was a lingering fear of a tilt towards populism by the centre esp. in the wake of recent populist announcements by some state governments. With this budget, the risk of an exaggerated pivot to high welfare spending has been allayed.
The Budget reiterates its intense focus on key medium-term priorities. The priorities include boosting job creation, advancing skilling, rural economy, a laser-sharp focus on fiscal consolation and remaining steadfast on capital expenditure-led growth with a promise to maintain strong fiscal support for infrastructure over the next 5 years.
One of the biggest standout features of this budget is its focus on soft infrastructure by harnessing the power of human resources and the demographic dividend. There is a new ELI scheme (employment-linked scheme) that will complement the PLI (production-linked scheme). The government will provide one month's wage to new entrants in all formal sectors and is expected to benefit over 2 crore. The Govt will also reimburse EPFO contributions of employers. There are also measures to address the skilling gap ie there is a plan to provide skilling of over 20 lakh youth and one thousand ITIs are to be upgraded. The budget has proposed rental housing for industrial workers in PPP mode. There are also steps to facilitate higher participation of women via women-friendly measures. All of these measures backed with an allocation of Rs 1.48 lakh crore, will help alleviate the problem of lack of skilled labour for India Inc. It will create an employable workforce and also indirectly help spur consumption demand via income augmentation. It will help address, to an extent, the skew towards the capital-intensive nature of employment by creating more jobs and will also spur the formalisation of the labour force. The abolition of the Angel tax will give a fillip to start-up activity and will also help augment job creation. Reinforcing the softer infrastructure theme, the health ministry allocation has also been upped 13 per cent YoY.
Secondly, the emphasis on hard infrastructure remains. Given that FY25 is going to be a truncated year ie the first quarter being impacted by election and govt formation etc, the allocation of Rs 11.1 lakh crore seems prudent and more importantly shows faith in the capital expenditure-led growth strategy. The budget also announced Investment-ready “plug and play” industrial parks with complete infrastructure in or near 100 cities, in partnership with the states and private sector, by better-using town planning schemes. Twelve industrial parks under the National Industrial Corridor Development Programme are also envisaged. Importantly, phase IV of PMGSY will be launched to provide all-weather connectivity to 25,000 rural habitations.
Third, there is also an attempt to put some money into middle-class pockets by way of lower standard deductions in the new tax regime for salaried employees and also some rejig in the income tax slabs. The deduction limit was also raised for employers' contributions to the National Pension Scheme. Also, there are measures to spur simplification of taxation as well as rationalisation of the capital gains tax regime via changes in tax rate and the holding periods along with a hike in STT for the F&O segment – some things that did not go down well with the equity markets.
Finally, the commitment to fiscal consolidation and greater marksmanship remains one of the biggest standout stories of the budget under the current finance minister. While rolling targets for the next two years have not been provided, the Government remains on the broad glide path to reach a fiscal deficit to GDP level below 4.5 per cent by FY26. More importantly, the one-off RBI dividend bonanza and the revenue buoyancy have been used to lower the fiscal deficit aggressively to 4.9 per cent from the earlier target of 5.1 per cent – meaning a reduction of 90 bps in just one year. The revenue and primary deficits will also see a reduction of 100 & 70 bps respectively during the same period, which is commendable. Total revenue expenditure is expected to grow by 4.8 per cent over the revised estimate (RE) of FY24 with major subsidies (Food, Fertiliser and Petroleum), seeing a decline of 8 per cent YoY inFY25.
The fiscal deficit, which is the gap between total expenditure and total revenues of the government, will now come down from a post-pandemic peak of 9.2 per cent in FY21 to 4.9 per cent in FY25. The revenue deficit that accounted for 70 per cent of the fiscal deficit in F19 will reduce to 46 per cent of the fiscal deficit showing a better and more productive use of borrowings. In continuing relief to bond markets, the gross and net borrowings are slated to be lower YoY. Importantly, the nominal growth rate assumption has been maintained at 10.5 per cent and hence leaves room for some positive surprise on the revenue side.
Thus, with the continuity of its commitment to capital expenditure, continuing fiscal consolidation and adding the dimension of harnessing softer infrastructure, the budget will help solidify resilience and help sustain India’s economic growth outperformance amid global economic and geopolitical uncertainties.
