Vote-on-account, Before The Big-Vote
The upcoming Union Budget presentation is a vote-on-account, indicating minimal announcements, as articulated by the Honourable Finance Minister during industry engagements. The comprehensive 2024 budget will follow, post-election results.
The current government has demonstrated a distinct approach in its handling of Union Budgets, steering clear of populist measures. Instead of opting for immediate financial outcomes, the emphasis has consistently been on strategic policies and long-term structural focus. The government has, when necessary, announced policies throughout the year rather than limiting key decisions to the annual budget. This strategic and measured approach indicates a commitment to fiscal prudence, and therefore, expectations remain that the forthcoming budget will adhere to the established pattern, prioritising enduring structural changes over short-term populist measures.
Despite the relative strength of the Indian economy vis-à-vis global counterparts, it confronts sustained challenges arising from geopolitical complexities and adverse economic conditions globally. Notwithstanding its resilience, the economic landscape remains marked by persistent challenges, notably in the realms of food inflation and rural sector growth. A prudent approach is imperative, considering the repercussions of fluctuating global oil prices and the dynamics of geopolitical narratives coupled with prevailing global protectionist trends. The forthcoming Union Budget presents an opportunity to address ongoing concerns and establish a foundation for economic growth.
Anticipated in this vote-on-account, is a reinforcement of India's steadfast dedication to prudent fiscal management through its policies. Confronted with economic intricacies and uncertainties on the global stage, maintaining financial stability and fostering sustainable growth necessitates an unwavering and resolute stance. Deviating from this rigorous fiscal approach poses the risk of compromising the substantial economic progress achieved through diligent efforts.
Despite the nature of a vote-on-account, there is an expectation of a positive government sentiment aimed at fostering economic consumption to sustain the upward trajectory of the "electoral economy," influenced by campaign-linked expenditures. The extent of the mandate in the upcoming national elections may dictate substantial reforms in simplifying the taxation structure within the Union Budget. Presumed is a thorough exploration of this direction through substantial research and discussions over the last two government terms.
Ensuring medium-term growth necessitates an expansion of capital expenditure. Given the volatility in global crude prices, expediting efforts to transition towards alternative fuel sources becomes increasingly paramount. The government's critical emphasis on embracing advanced digital technology, manifested through expanded Production Linked Incentive (PLI) schemes and investments in human capital, holds pivotal importance. This is particularly notable considering India's workforce is anticipated to surpass China's by the year 2025.
Further, the corporate sector anticipates the Reserve Bank of India (RBI) to uphold interest rates until the mid-year as a measure to control inflation. Although steadfast control over interest rates supports long-term economic growth, it concurrently presents challenges for companies seeking capital raising.
The forthcoming budget is expected to significantly prioritise the promotion of 'Make in India,' possibly involving revisions to customs duty rates and the implementation of phased manufacturing plans customised for specific sectors. The government's emphasis on growth strategies is unmistakable, as demonstrated by enhancements in road connectivity, advancements in transportation infrastructure, and the localisation of imports. These strategic focus areas are set to continue and may witness an escalation in budgetary allocations.
Traditionally falling behind in healthcare investment, India requires urgent enhancement, particularly in the light of the lessons learnt from the pandemic. Anticipated are proactive measures, including incentives linked to healthcare service delivery and quality assessment, aimed at attracting increased investments. The industry would welcome initiatives encouraging the adoption of health insurance.
With India's heightened focus on clean energy objectives, the renewable energy sector is keenly awaiting measures in Union Budget 2024 that foster indigenous development, facilitate technology transfer, and incentivise local manufacturing initiatives.
The upcoming budget is expected to introduce policies aimed at ensuring that earnings of senior citizens have lesser or no tax. Currently, senior citizens under the old income tax regime enjoy an exemption limit of Rs 3 lakh, while it is five per cent under the new tax code. Despite senior citizens over 75 being exempt from filing tax returns, the income tax remains deductible by the paying bank for those with pension and interest income. The basis for a tax-free status argument is that given the absence of a social security cover, pensions should either be made tax-free or be allowed a deduction for the principal component, as the pension premium is already funded through taxable income.
The annual anticipation from the Union Budget includes an expectation for an increase in standard deductions and expanded deductions for home purchases. Aligned with the government's emphasis on affordable housing, incremental incentives could be incorporated. In the era of rising electric vehicle (EV) ownership, extending higher tax incentives for EV owners could expedite the transition to a market with a larger proportion of EVs.
The empowerment of women and the encouragement of increased workforce participation can act as catalysts for GDP growth. Tailored credit schemes supporting women's entrepreneurial ventures, coupled with policies fostering gender equality, have the potential to empower women to actively pursue entrepreneurial endeavours, particularly within SMEs and MSMEs.
To facilitate this, MSMEs require improved access to finance, simplified tax slabs, and streamlined compliance processes. The industry's deficiency in not having formally regulated SROs (Self Regulatory Organisations) impedes its skill enhancement for competitiveness and export attractiveness. While the previous budget allocated funds to the RAMP scheme, on-ground outcomes underscore the need for the establishment of SROs to overcome bureaucratic hurdles. A newer developmental mindset is essential for credit access to SMEs and MSMEs, which currently face limitations with incremental lending increases annually, as a banking sector checklist.
While steering clear of populist budgetary measures, the imminent vote-on-account provides a strategic opportunity to intensify focus on pivotal sectors such as women’s empowerment, gender equality, agriculture, and MSMEs. In the lead-up to the elections, addressing these segments proves politically astute, aligning with broader societal and economic interests. Offering incentives in these areas not only demonstrates prudent electoral strategy but also strategically places critics in a challenging position.
Opposition to measures supporting women, gender empowerment, agriculture, or MSMEs could be perceived as contrary to popular sentiments and societal well-being. This approach facilitates a nuanced and politically advantageous alignment of policies with the electoral landscape.
Dr. Srinath Sridharan - Policy Researcher & Corporate advisor. / X : @ssmumbai
