Strategic Investments and Inclusive Policies An Analysis of Interim Budget 2024-25

Dr. S P Sharma

The Interim Union Budget for 2024-25 has lowered the fiscal deficit target to 5.1% of GDP, a move that is poised to attract substantial Foreign Direct Investment (FDI) and position India as a USD 100 billion FDI destination. This budget, aligned with the vision of Viksit Bharat @ 2047, emphasises fiscal consolidation, aiming to further reduce the fiscal deficit to 4.5% in 2025-26. The government's targeted focus on empowering the underprivileged, youth, farmers and women, combined with a significant increase in capital expenditure and various sectorial initiatives, is expected to make economic growth more inclusive and job-oriented. For FY 2024-25 the total expenditure and the fiscal deficit is estimated at Rs. 47.6 lakh crore and Rs. 16.8 lakh crore respectively. The government has continued the focus on infrastructure development with an increase of 11.1% in the Capex (from Rs. 10 lakh crore to Rs. 11,11,111 crore). The continued focus on infrastructure development will not only create state-of-the-art infrastructure but also boost the aggregate demand in the country. The infrastructure projects will be able to deploy more and more skilled, semi-skilled and unskilled workers, triggering significant multiplier effects. The budget's strategic allocations, such as the establishment of a corpus of Rs 1 lakh crore for tech-driven innovation, extension of tax benefits for startups and the announcement of major economic corridors, including the India-Middle-East-Europe Economic Corridor, highlight a comprehensive approach to catalysing research, innovation and overall economic development. Additionally, initiatives like PM Schools for Rising India, Skill India Mission and healthcare expansions under Ayushman Bharat showcase a commitment to holistic development, education and public health. The budget's transformative measures are set to propel India towards a sustainable green economy, addressing multidimensional poverty and fostering 'Sabka Saath, Sabka Vikas, Sabka Vishwas' for the nation's collective progress. In the pursuit of balanced economic development and inclusive progress, the budget outlines several measures spanning diverse sectors. The decision to maintain existing tax rates, both direct and indirect, coupled with the extension of tax breaks for startups, marks a positive stride toward supporting businesses and entrepreneurs. This commitment to tax stability fosters an environment conducive to economic growth. Moreover, the government's focus on improving taxpayer services and expanding the tax base underscores its dedication to simplifying tax compliance processes. A corpus of Rs 1,000 billion will be created with a 50-year interest free loan to encourage private sector participation (including educational institutions), to scale up research and innovation significantly in sunrise domains. This will enhance the university and industry linkages as industry will be able to involve researchers from the university for indigenous development of innovations, development of incubation, facilitating India's enhanced participation on the Global Innovation Index.

The Central Government will assist states in developing aspirational districts and blocks, including generating economic opportunities The government further intends to introduce a new scheme to further promote the mantra of 'Atmanirbharta' in the field of deep-tech for defence purposes. The budget places a strong emphasis on infrastructure development, with a substantial Capex outlay and a revised fiscal deficit target. Initiatives like the decongestion of high-density rail corridors and the conversion of train bogies into high-speed ones contribute to the modernisation of the rail network. The allocation of interest-free loans to states for tourism promotion and the development of Lakshadweep is a commendable step towards boosting the tourism sector. The UDAN Scheme's success and its expansion will further enhance regional connectivity, emphasising the importance of air connectivity in driving economic growth. In the agriculture sector, the promotion of post-harvest investment and support for dairy farmers signal a proactive approach to agricultural growth. The government's efforts to control diseases and provide crop insurance underscore its commitment to the welfare of the farming community. The extension of healthcare facilities under Ayushman Bharat to Asha and Anganwadi workers, coupled with plans to set up hospitals in all districts, demonstrates a dedication to improving healthcare accessi-bility. Additionally, the vaccination program for cervical cancer and the housing plan for the middle class contribute to holistic development.

The budget reflects a forward-looking approach by focusing on green and renewable energy sources and integrating them into main-stream usage. Increased participation of women in higher education, Mudra loans for women entrepreneurs and skill development initiatives for youth underscore the government's commitment to empowerment. The emphasis on social security, social inclusion and the 'Reform, Perform and Transform' mantra further aligns with the goal of inclusive growth. Looking ahead to the full budget in July 2024, there are suggestions to further strengthen the financial landscape. A 100 percent tax exemption for protection products, including health insurance, home insurance, personal accident covers and term life insurance, could encourage more individuals to prioritise personal protection without impacting government's GST revenue. Additionally, the establishment of a universal health insurance scheme for those below the poverty line would enhance inclusivity in insurance cover-age. Substantial increase in the expenditure budget for disbursements under Production Linked Incentive (PLI) schemes (covering Electric Vehicles, auto components and air conditioners) indicates successful grounding of investment proposals. The PLI scheme has significantly boosted the trajectory of manufactured production and exports, which is visible from the growth of the manufacturing and exports.

Addressing emerging uncertainties like pandemic and climate related catastrophes, the proposal for parametric insurance and pandemic pools can mitigate risks and ensure financial protection for a significant portion of the population. Mandating employers to provide health insurance coverage for their employees, with premium payments exempted from income tax, would further expand insurance coverage without straining the government's resources. The 'Indian Economy - A Review' presented by the Ministry of Finance also depicts a promising future scenario. Drivers of India's growth have seen the calibrated policy reforms including, Make in India programme, Production Linked incentives, New Public Sector Enterprise (PSE) Policy for Aatmanirbhar Bharat,  re-capitalisation and merger of Public Sector Banks (PSB) and amendment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest (SARFAESI) Act 2002 to enacting the Insolvency and Bankruptcy Code 2016 (IBC), decriminalising minor economic offences under the Companies Act of 2013, progressive reforms introduced by the government for the Micro, Small and Medium Enterprises (MSME) sector and extensive use of techno-logy and digital platforms among many others.  There is a growing consensus that the Indian economy is poised to attain a growth rate of 7% or higher for the fiscal year 2024, with projections suggesting the potential for sustained real growth at the same rate in the subsequent fiscal year, FY25. If the prognosis for FY25 turns out to be accurate, it will mark the fourth consecutive year post-pandemic during which the Indian economy has achieved a growth rate of 7% or more.

The Union Budget 2024 sets the stage for a resilient financial ecosystem that supports sustainable growth and inclusive development. The govern-ment's commitment to various sectors, coupled with proposed recommendations for the upcoming budget, reflects a proactive approach to address-ing contemporary challenges and fostering a better tomorrow. As the nation moves forward, the continued collaboration between the government and various stakeholders will be crucial for realising the vision of a prosperous and inclusive India.

(The author is Chief Economist Deputy Secretary General, PHD Chamber of Commerce and Industry. Assisted by Dr. Mansi Vinaik, Economist Deputy Secretary and Mansi Nautiyal, Research Assistant, PHDCCI. Feedback can be sent to feedback. employmentnews@gmail.com)

Views expressed are personal.