Towards ‘Viksit Bharat’
The budget proposals are filled with initiatives and measures that are intended to make India a developed economy. Right implementation holds the key
The Union Budget 2024-25 presented by Finance Minister Nirmala Sitharaman is focused on an all-round growth and development of the Indian economy with employment, skilling, MSMEs, and the middle class as its key priority areas. In her initial comments, Sitharaman said India's economic growth will be a shining exception. "We are determined that all Indians regardless of religion and age achieve life goals and aspirations," Sitharaman said. The FM presented the first Union Budget of the Modi 3.0 government on 23rd July. This was her seventh consecutive budget.
Major Allocations
Acknowledging rural and farm distress, the FM announced an allocation of Rs 1.52 lakh crore for boosting agriculture. A significant incentive has been outlined to natural farming involving 10 million farmers and the facilitation of Digital Public Infrastructure (DPI) through digital crop surveys, land registry digitisation, and kisan credit cards in the budget speech.
Sitharaman also underlined an urgent need for boosting employment and skilling. The three employment-linked incentive schemes announced in the budget include one-month wage reimbursement for first-time workers up to Rs 15,000 and EPF reimbursements for both employers and employees in the manufacturing sector for four years. Additionally, EPF reimbursements for all sectors will be up to Rs 3,000 per month for two years, and 1,000 industrial training institutes will be upgraded alongside the launch of women skilling programmes, she said in her speech.
The Model Skill Loan Scheme has also been revised to offer up to Rs 7.5 lakh, while higher education loans in India will be supported up to Rs 10 lakh with a three per cent interest subvention.
Inclusive human resource development is addressed through the Purvodyaya initiative, which supports five eastern states (Bihar, Jharkhand, Bengal, Odisha, and Andhra Pradesh) by developing essential infrastructure, industrial corridors, and expressways. In addition, over 100 branches of the Indian Post Payments Bank will be established in the north-east region.
The manufacturing and services sectors will benefit from a new credit assessment model for MSMEs based on their digital footprint, with the turnover threshold for on-boarding on TReDS (an online electronic platform and an institutional mechanism for factoring of trade receivables of MSME sellers) reduced to Rs 250 crore.
Internship allowances have also been introduced in this budget, with training costs and 10 per cent of the internship allowance permitted to be used from companies' CSR funds. Which means the private sector is being prodded to share the burden of skilling and potential employment for eligible unemployed youth.
Infra & Energy Focus
Through the budget proposals, the FM has outlined the government’s continued push for urban development. Sitharaman said this will be encouraged by states lowering stamp duties for all property purchases, with further reductions for women-purchased property. The budget also includes rural and urban land digitisation involving GIS mapping, cadastral maps, and land registry, alongside the establishment of 100 weekly haats for street food hubs and Rs 10 lakh crore allocated under the Pradhan Mantri Awas Yojana Urban 2.0.
Infrastructure development has received significant attention with an allocation of Rs 11.11 lakh crore, representing 3.4 per cent of GDP. A market-based financing framework will be introduced, and Rs 1.5 lakh crore will be provided to states as a long-term interest-free loan, along with financial aid to select states for flood management and tourism development.
The Finance Minister’s speech stressed on energy security, making a slew of announcements related to the sector. The announcements captured the fine balance between energy security and its climate commitments as India targets net-zero emissions by 2070.
As India’s renewable energy grows in the overall mix, tackling its intermittency has become a growing concern, so as to provide round-the-clock power. The budget laid out provisions for a separate policy to boost electricity storage arising out of renewable sources through pumped storage. This would help in diversifying the storage mix as well, given that battery storage still remains expensive.
With coal-fired thermal power remaining the base of India’s energy mix, the government also laid its thrust on using the Advanced Ultra Super Critical (AUSC) technology in thermal power plants. A joint venture between NTP and BHEL will set up a full scale 800 MW commercial thermal power plant using this technology. This technology in thermal power plants will yield plant efficiency of 46 per cent compared to 38 per cent and 42 per cent of subcritical and supercritical sets respectively. It also reduces coal consumption/CO2 emissions by about 11 per cent as compared to super-critical plants.
In another bid to diversify India’s energy mix, nuclear energy found a special mention with focus on research and development of small and modular reactors and newer technologies. Most importantly, the government will collaborate with the private sector towards these developments.
“The budget focuses on all elements of the energy value chain – managing and reducing demand, encouraging resource efficiency, enhancing energy security at a national and citizen level, driving energy transition, and indigenising technologies like nuclear reactors. Most importantly, it focuses on streamlining climate finance and stimulating carbon markets,” said Sambitosh Mohapatra, Partner & Leader - ESG, Climate and Energy, PwC India.
Another noteworthy mention was about the hard-to-abate sectors such as steel and cement. A roadmap will be formulated for these sectors for their transition from ‘Perform, Achieve and Trade’ mode to ‘Indian Carbon Market’ mode.
“The cement industry is in alignment with the government of India’s net zero goals. The transition roadmap for 'hard to abate' industries to move from the 'Perform, Achieve and Trade' mode to the 'Indian Carbon Market' mode is a welcome step. The roadmap will further boost India’s energy infrastructure and encourage renewable energy adoption,” said Neeraj Akhoury, Managing Director, Shree Cement.
On the indirect taxation front, the budget provided for exemption of basic custom duty (BCD) on capital equipment for solar manufacturing and the removal of the exemption on solar glass. The move is expected to give further impetus to domestic manufacturing.
“The budget has further strengthened the energy transition journey by expanding the list of exempted capital goods for manufacturing domestic solar cells and panels. This will boost domestic manufacturing of solar cells and panels, further secure supply chain and help India achieve its target of 280 GW of solar power by 2030,” said Amit Jain, CEO and Country Manager ENGIE, India.
Boost for Employment
The budget announced a comprehensive strategy to boost employment through the ‘Employment Linked Incentive' initiative encompassing three distinct schemes designed to enhance job creation and support both first-time employees and employers in the manufacturing sector. Collectively, these schemes represent a significant financial commitment by the government, with an overall outlay of Rs 107,000 crore, aimed at stimulating employment growth and fostering a more dynamic workforce.
Scheme A: First Timers aims to provide direct financial assistance to first-time employees registered with the Employees' Provident Fund Organisation (EPFO). Under this scheme, eligible employees will receive a direct benefit transfer equivalent to one month's salary, up to Rs 15,000. The eligibility criteria include a salary limit of Rs 1 lakh per month. The total budget allocated for this scheme is Rs 23,000 crore.
Scheme B: Job Creation in Manufacturing targets employers with a proven track record of EPFO contributions over the past three years. To qualify for the incentive, employers must hire at least 50 employees or 25 per cent of the previous year's workforce, whichever is lower, and ensure that all new hires are fresh to the workforce. This incentive will be shared with employees over a four-year period. The scheme has been allocated a total outlay of Rs 52,000 crore.
Scheme C: Support to Employers focuses on reimbursing employers for their EPFO contributions. Employers will receive Rs 3,000 per month for two years for each additional employee earning up to Rs 1 lakh per month. These reimbursements will be provided quarterly, contingent on job creation exceeding 1,000 jobs. The total budget for this scheme is Rs 32,000 crore.
Strong Economic Indicators
The Indian economy is on the right growth path, as evidenced by a remarkable 8.2 per cent GDP growth in FY24. Looking ahead, the economy is projected to sustain robust growth of 6.5–7 per cent in FY25. Additionally, the fiscal deficit is expected to decline to 4.9 per cent of GDP in FY25, down from the previous estimate of 5.1 per cent, with a target to reach below 4.5 per cent by FY26. This fiscal prudence is accompanied by a moderation in CPI inflation, which dropped to 5.4 per cent in FY24 from 6.7 per cent in FY23. Forecasts suggest it could further ease to 4.5 per cent in FY25 and 4.1 per cent in FY26.
“Balancing fiscal consolidation with the need to increase expenditures is another critical aspect of the budget. Over the past three years, increased fiscal space from buoyant tax revenues has allowed for higher allocations to various spending programmes. This budget continues that trend, using additional resources for both fiscal consolidation and increased spending,” said Mehul Pandya, Managing Director and Group CEO, CareEdge.
Foreign investors have increasingly viewed the Indian economy as a lucrative destination, attracted by its strong growth prospects and stable financial environment. The Reserve Bank of India has maintained policy rates at a steady 6.5 per cent since February 2023, providing stability to the financial system. Despite a 2.3 per cent decline in merchandise exports, the economy saw a compensatory 4.8 per cent increase in services exports in FY24. This positive trade performance contributed to narrowing the current account deficit to 0.7 per cent of GDP.
Foreign Direct Investment (FDI) remained a strong pillar of support, with gross inflows amounting to $70.9 billion in FY24, a slight decrease from the previous year. Notably, FDI inflows into the infrastructure and power sectors doubled, reflecting investor confidence in these critical areas. Moreover, India emerged as a top destination for AI-related FDI, attracting 122 projects in 2022.
The nation’s forex reserves hit a record high of $652 billion in June 2024, equivalent to 11 months of import cover, closing at $645.6 billion in FY24. India's stock market capitalisation to GDP ratio achieved the fifth position globally, and the National Stock Exchange’s investor base tripled to 92 million over the past four years.
The Indian rupee demonstrated resilience, being the least volatile currency among its emerging market peers, depreciating just 3 per cent in FY24.
Industrial growth surged by 9.5 per cent in FY24, with significant contributions from the manufacturing and construction sectors. This impressive performance underscores the strong foundation of India’s economic resurgence, paving the way for sustained growth and development in the years ahead.
Tax Rationalisation Measures
Sitharaman proposed a number of measures to streamline the tax architecture. A comprehensive review of the Income Tax Act is planned within six months, aiming to make it more concise and easier to understand. While there is no change in the corporate tax rate for domestic companies, the base corporate tax rate for foreign companies will be reduced from 40 per cent to 35 per cent. For individuals opting for the new regime, tax slabs will be revised, resulting in overall savings of Rs 17,500, and the standard deduction will be increased to Rs 75,000.
The equalisation levy of 2 per cent will be withdrawn from 1 August 2024. From 1 October 2024, the consideration on the buy-back of shares will be taxable in the hands of shareholders. The holding period for the classification of assets as long-term or short-term capital gains will be streamlined, with a new capital gains tax rate prescribed from 23 July 2024. TDS rates for specified payments will be rationalised, and prosecution for TDS defaults will be relaxed if payment is made within the specified timeline.
