The phrase "Interim Budget" seems to allude to an intermediary step in the continuum towards a repetition by same persona. Budgets are mostly aspirational than pragmatic. And one has to take them with a pinch of salt. The Interim Budget for FY 25 is commendable solely on the ground that it was presented on floor of parliament. Many of us would recall the occasion when budget was not presented at all by a government.
Any which way, the interim budget was on expected lines. We had, in our pre budget sharing with our esteemed readers, brought out certain facets which went on to be proven right essentially. Big ticket announcements were noticeably absent which made many wonder whether ideas have run dry or there is no current felt need for anything brilliant. Most economists have found the budget more plain jane than striking. Leaving everything to the final installment seems to be a bit of procrastination.
We have attempted to explore the interim budget on certain salient points. The President of India had a day before the presentation had said that the government priorities would rest on four key pillars - "Youth, Woman Power, Farmers, Poor. While the Finance Minister redefined "GDP"; as Gross Development Product (GDP) - "Governance, development and performance". The intentions were indeed laudatory and phraseology brilliant the overall product though left many with mixed feelings. The goals seem to be too nebulous and the paths lack precision. Historically, the current government has had only a modicum of success in these areas and despite strong resolutions failed in execution. The conventional GDP growth as seen in the Reserve Bank of India(RBI) Survey of Professional Forecasters, in June 2023 mentioned, Real gross domestic product (GDP) growth forecast for 2023-24 at 6.0 per cent while for 2024-25 the growth was projected at 6.4 per cent. While Union Finance Minister highlighted India’s robust economic performance during the interim budget, boasting three consecutive years of 7% growth. The Reserve Bank of India (RBI) has of course now raised its forecast for India’s gross GDP to 7% for the current financial year, following strong growth in the second quarter. Looking ahead, the nominal GDP growth for the fiscal year 2025 is assumed to be 10.5%3. There may be some debate on actual numbers but more or less India's GDP growth seems to be on a relatively stable trajectory, which is good news. Obviously a budget is an exercise in balancing the earnings vis a vis spending and ensuring the least deficit. This time round, in the interim budget, the government has disclosed that it aims to reduce the fiscal deficit target to 5.1 per cent of GDP in the upcoming fiscal year and reducing it to 4.5 per cent in FY26. This may be a tall task, say many economists. Unfortunately, governments in India have developed an appetite for meeting the budgetary deficits by selling family silver. These are certainly not meant for boosting short term revenue shortfalls rather are long term value propositions. If one is to go my conventional wisdom earnings would accrue from Taxes (both direct and indirect) and other revenues (say dividends etc.).
Interestingly, there has not been any significant changes in the Corporate Tax regime; while IT and GST are continued to be paid by all citizens. These two have emerged as the biggest source of income for the government. According to a media report, Direct, Indirect taxes comprise 63 Paise of every rupee in Government Coffer. 28 Paise from borrowings and other liabilities, 7 Paise from non-tax revenue like disinvestment and 1 Paise from non-debt capital receipts, according to the interim Budget 2024-25 documents. Of the total, 36 paise will come from direct taxes which include corporate and individual income tax. Income tax will yield 19 paise, while corporate tax will account for 17 paise. Thus one can see that the contribution of Corporate Tax is lesser than Individual Income Tax. All admit that GST collections have become more healthy.
Therefore one allegation that the government faces is that it is out to squeeze the middle class salaried taxpayer and the common man than big corporates. Often a justification is given that lower Corporate Taxes would invite great investments from the private sector but that is certainly not ben the case so far. Not much investment is seen by the private players especially in the infrastructure structure. Thus the lowered Corporate Taxes do not seem to have brought the intended results. Anyway, the government aims to raise Rs 21.99 Lakh Crore from direct taxes and Rs 16.31 Lakh Crore from indirect taxes in fiscal year 2025. As normally happens, all common citizens look forward to some announcement on reduction of Income Tax or revisiting the slabs.
While no such indulgence has been announced in the Budget, the tongue in cheek declaration(threat) seems to be that one should be grateful that it has not been increased. Though a grudging concession that there will be no tax liability for taxpayers with income up to Rs 7 Lakh, has been made. Another favorite current dispensation seems to be Capital Expenditure. This has become the buzzword for galvanizing the economy. Offering a vision for the next five years of unprecedented growth, it has been
announced that a whopping Rs 11.1 Lakh Crore Capital Expenditure is earmarked for the next fiscal year. It's an 11 per cent increase from the current fiscal year. But as has been seen, in the past, for Capex, there is heavy dependence on Government Expenditure & PSUs. Private sector is yet to go for it in a big way while demanding all the benefits which accrue from it. A related issue as also a source of grave concern is that governmental support for Capex by PSUs is sometimes abruptly withheld. For the education sector in 2023-24, the highest-ever allocation of Rs1.12 lakh crore against FY 2022-23 budget allocation of Rs 1.04 lakh crore has been done. FY 2023-24 budget included Rs 68,804 crore allocation for school education, Rs 44,094.62 crore allocation for higher education and Rs 37,453 crore allocation for the Samagra Shiksha Abhiyan (SSA). The Finance Minister also stated that the government’s Skill India Mission has successfully trained 14 million youth, upskilled and reskilled 5.4 million individuals and established 3,000 new Industrial Training Institutes (ITIs). But many say what's the use of skilling when these youth do not find employment? Either the skills are not market oriented or not many jobs are available. We are sure that it's a bit of both. Even the huge rush for foreign education is primarily for getting jobs. Agreed Israel has accorded for some construction workers South Korea seems to have gone back on its promise to engage labour from India. It has brought the debate on unemployment to the centre stage. May pundits are questioning the huge funds allocation for skill development, when matching efforts for ensuring jobs to those imparted the skills, is not there. This is a real sore point for many and opposition parties have often underscored this issue. There are some exemptions for startups and extension of Tax Sops for soverign wealth funds for startups till March 2025 announced in the budget. But one needs to see the overall picture as well for startups. Although there is a lot of talk of ease of doing Business in India, it currently stands at 63rd position among 190 nations in the World Bank ’s ease of doing business ranking. Despite many of the economic reforms of the current government, it failed to achieve the target of being at the 50th place. It has been promised that 40,000 normal Railway bogies will be converted to Vande Bharat standards. A 1 Lakh Crore corpus will be made available with 50 year interest free to e3ncourage the private sector to scale up Rooftop solarization and free electricity is promised upto 300 units to 1 crore households. Not short on coining new words, FDI is now First Develop India; it was stated that India while stating that inflow during 2014 to 2023 has received a Foreign Direct Investment (FDI) inflow of $596 billion since 2014, which is double the inflow between 2004 and 2014. And for sustained FDI negotiations are on for bilateral investment treaties with foreign partners. Though nothing further is spelled out. There is of course allocations made for Railways for better connectivity, health sector, setting up of new medical colleges, dairy farming, blue economy (aqua culture) etc. in the budget. These are some of the highlights we thought to share with the readers. One thing though which needs to be pointed out is the propensity of the current government to resort to sale of PSUs for meeting revenue commitments and averred claim for total exit of the government from businesses. The dividends given by the more profitable ones are forgotten in the cacophony by officials and ex officials who fail to see the actual value which these strategic companies bring to the table. This quick fix approach needs to be examined afresh, especially in light of experiences of other nations. While BPCL failed to find a buyer in the last round, there is much talk of IDBI being the next target. This may be fine but there is no talk for sale of HEC, constituents of erstwhile Fertilizer Corporation of India, Bridge & Roof, PDIL, MTNL, EIL, AI Engineering Services etc., all one sees is the desire for putting profitable PSUs on the chopping block. The interim budget , all in all, is a conservative one, much scope is left for additions and alterations. Well for the common man its all "Que Sera, Sera." Certainly not for them to see the future.
By Sidhartha Mukherjee
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