The Indian financial community is abuzz with anticipation as Finance Minister Nirmala Sitharaman prepares to present the 2024 interim Budget on February 1st at 11 a.m. in the Lok Sabha. This interim Budget is a prelude to the comprehensive budget that will be unveiled post the upcoming general elections.
Budget 2024-25: Populist Moves or Pragmatic Plans?
Prime Minister Narendra Modi's government is poised to leverage this budget to appeal to voters through strategic spending, while focusing on maintaining fiscal stability. Nevertheless, it is prudent to temper expectations regarding any significant increase in spending. The Finance Minister has indicated that major new financial commitments are unlikely in this interim budget.
Deficit and Borrowing Trends
The Indian government has effectively reduced the fiscal deficit from a peak of 9.2% of the gross domestic product (GDP) during the pandemic to more manageable levels. Economists surveyed by Bloomberg anticipate that the government will meet its 5.9% deficit target for the current fiscal year ending in March and aim to decrease it further to 5.3% in the upcoming financial year.
This year's significant reduction in the budget deficit is largely attributed to a substantial increase in tax revenues. Compared to the previous fiscal year, income tax collections have risen nearly 30%, corporate tax by 20%, and GST by 10%. While the government has set a long-term goal to reduce the budget deficit to 4.5%, it is also reallocating more funds towards infrastructure and reducing subsidies. This shift in spending priorities is expected to positively influence the economic growth prospects.
Rural Economy & Welfare Initiatives
The upcoming interim Budget is likely to center significantly on rejuvenating the rural economy. Currently, this sector is struggling due to a reduced agricultural output, attributed partly to the El Nino phenomenon. Additionally, escalating input costs and rising inflation have adversely impacted rural consumption. The market will be keenly awaiting any announcements aimed at tackling the downturn in consumption and any announcements to this effect could potentially attract new retail inflows into equities.
The Modi administration has already increased subsidies on cooking gas and fertilizers and extended a free food scheme for 800 million people for five years, incurring a cost of $142 billion. Welfare spending is expected to rise, with popular initiatives like the farmer income transfer, housing for all, and health insurance likely to be expanded.
Focus on Infrastructure
In the last three years, the government has significantly increased capital expenditure by nearly one-third each year, focusing on the development of roads, ports, and power plants. This investment has been a key factor in supporting economic growth exceeding 7%, positioning India as the fastest-growing major economy.
Though the pace of infrastructure investment is anticipated to slow down, sustained investment in this domain is expected, especially in areas promoting Digital India, green hydrogen projects, electric vehicle (EV) proliferation, and the expansion of broadband services.
Climate Change Measures
In alignment with the objectives of COP28, the government is likely to invest in green hydrogen and other renewable energy technologies. Additionally, the electric two-wheeler industry may receive a boost under the FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) scheme. This would be aimed at enhancing affordability through extended tax exemptions for electric vehicles (EVs) in 2024 and beyond.
An anticipated aspect of the budget is the increase in housing subsidies under the "Housing for All" initiative. Launched by Prime Minister Narendra Modi in 2015, this scheme currently offers subsidies ranging from Rs 1 lakh for households obtaining bank loans for house construction, in addition to state government subsidies. With about 20 million rural households and 1.5 million urban households still without their own homes, it is expected that the upcoming budget will propose increasing the subsidy.
Where to Watch Budget 2024 LIVE
Finance Minister Nirmala Sitharaman's presentation of the 2024 budget will be streamed live on the official Parliament channel. Additionally, the complete budget documentation will be digitally available via the 'Union Budget Mobile App,' which supports both English and Hindi and is compatible with iOS and Android devices.
Live Coverage of the Budget on Liquide
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Prepare yourself for any unexpected moves as FM Sitharaman, in her landmark sixth budget presentation, outlines the government's financial plans and revenue expectations for the year 2024-25.
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