The Interim Union Budget 2024: What You Need To Know!

ALL-ROUND, ALL-PERVASIVE, AND ALL-INCLUSIVE

सर्वांगीण, सर्वस्पर्शी और सर्वसमावेशी

Introduction:

The recently presented Interim Union Budget 2024[1] provides a sneak peek into the fiscal roadmap for India until a full-fledged budget is introduced in July 2024. This interim budget is a constitutional necessity in an election year when a change in the executive might occur after the polls. Unlike a simple vote on account, an interim budget not only addresses the financial requirements for the transitional period but also allows for revisions in tax rates. This article explores the key highlights and potential impacts on economic growth, offering a nuanced understanding of the fiscal policies outlined.

Social Sector Spending:

The interim budget allocates substantial funds to social sector spending, focusing on ten major schemes, including MGNREGA, National Health Mission, National Education Mission, Pradhan Mantri Krishi Sinchai Yojna, and Pradhan Mantri Awas Yojana. Together, these schemes amount to nearly INR 4.3 lakh crore, constituting 12% of the Government of India’s primary expenditure in FY25. This emphasizes the government’s commitment to inclusive development and social welfare.

Fiscal Consolidation:

The budget prioritizes fiscal consolidation, aiming to reduce the fiscal deficit to GDP ratio by 70 basis points to 5.1% in FY25. This move is expected to facilitate a lowering of interest rates, thereby encouraging private investment. Striking a balance between fiscal prudence and growth, the interim budget reflects a strategic approach to economic management.

Growth Outlook:

The interim budget projects a nominal GDP growth of 10.5%, coupled with a real growth rate of 7%. The underlying assumption for the implicit price deflator (IPD)-based inflation is set at 3.3% for FY25. This optimistic growth outlook sets the stage for a strengthened economic performance in the coming fiscal year.

Tax Revenues:

With a budgeted growth rate of 11.5% in FY25 for Gross Tax Revenue (GTR), the government aims to boost its revenue sources. Buoyancy in direct taxes is expected to contribute significantly, potentially surpassing the budgeted figures. Any additional revenues can be directed towards augmenting capital expenditure growth, indicating a pragmatic fiscal approach.

Expenditure Priorities:

The interim budget outlines restrained growth in revenue expenditure (3.2% in FY25), aiming for fiscal discipline. Capital expenditure growth, although lowered to 16.9% in FY25, is partially offset by interest-free loans to states for their capital expenditure. This strategic approach aims to balance the need for infrastructure development while maintaining fiscal prudence.

KEY POLICY HIGHLIGHTS:

Research and Innovation: A corpus of INR 100,000 crore is earmarked to provide a 50-year interest-free loan, fostering long-term financing options for private sector research and innovation in sunrise domains.

Green Energy: The budget sets ambitious targets, aiming for Net Zero by 2070. Viability gap funding is allocated for offshore wind energy, coal gasification, and liquefaction projects. Additionally, phased mandatory blending of compressed biogas (CBG) in natural gas is mandated for transport and domestic purposes.

Electric Vehicles (EVs): The government plans to expand and strengthen the e-vehicle ecosystem by supporting manufacturing and charging infrastructure. The budget encourages greater adoption of e-buses for public transport networks through a payment security mechanism.

Railways: To enhance logistics efficiency and reduce costs, three major economic railway corridor programs are announced under PM Gati Shakti, focusing on energy, mineral, and cement corridors, port connectivity corridors, and high-traffic density corridors.

Attracting Foreign Investment: With an FDI inflow of US$596 billion during 2014-2023, the government aims to sustain foreign investment by negotiating bilateral investment treaties. The India-Middle East-Europe Economic Corridor is anticipated to be a game-changer for India’s economic landscape.

Viksit Bharat Reforms in States: A provision of INR 75,000 crore as a 50-year interest-free loan is designated to support state governments in implementing Viksit Bharat reforms.

Bio-manufacturing and Regenerative Practices: A new scheme for bio-manufacturing and bio-foundry is introduced, promoting environmentally friendly alternatives such as biodegradable polymers, bio-plastics, biopharmaceuticals, and bio-agri-inputs.

Agriculture and Food Processing: The government focuses on promoting private and public investment in post-harvest activities, including aggregation, modern storage, efficient supply chains, primary and secondary processing, and marketing and branding.

Corporate Tax: The interim budget extends the sunset date for claiming exemption in specified incomes to 31 March 2025. Notable highlights include the extension of tax holidays for start-ups, withdrawal of tax demands, and amendments to tax collection at source (TCS) rates.

Indirect Tax: The budget introduces changes in the Input Service Distributor mechanism, mandating the distribution of input tax credit on services for any offices of the same legal entity through ISD. Additionally, penalties are proposed for non-registration of machines used in the manufacture of tobacco and tobacco-related products.

Real Estate and Housing: In line with the ‘Housing for All’ objective, the budget introduces a housing scheme for the middle-income class, enabling them to buy or build their own houses. An additional 2 crore houses are planned under the Pradhan Mantri Awas Yojana (Grameen) in the next five years.

Startup Sector: The interim budget offers relief to the startup sector by extending the time limit for incorporation of eligible startups, claiming profit-linked tax deductions under Section 80-IAC. The investment window for eligible investments by sovereign wealth funds and other entities is also extended.

Energy Sector: The budget prioritizes the strengthening of the e-vehicle ecosystem, incentivizing manufacturing and charging infrastructure. Rooftop solarization is targeted to provide 1 crore households with up to 300 units of free electricity every month. Viability gap funding is allocated for offshore wind energy, and initiatives are outlined to reduce import dependence on coal.

Technology and Innovation: Significant allocations are made for the development of semiconductor and display manufacturing ecosystems, production-linked incentive schemes for electronics manufacturing and IT hardware, and the establishment of a INR 1 lakh crore corpus for encouraging innovation in sunrise domains. A new scheme is set to launch for strengthening deep-tech technologies for defense purposes.

Telecom Industry: In a significant move towards fostering domestic industry growth, the budget allocates increased funds to the Domestic Industry Incentivisation Scheme, including the Production Linked Incentive (PLI) scheme. The budgetary allocation witnesses a notable upswing from INR 515 crore to INR 1,911 crore, aiming to incentivize and propel competitiveness within the domestic telecom sector.

Furthermore, a commendable 28% surge in budget allocation has been directed towards the capital infusion in Bharat Sanchar Nigam Limited (BSNL). This substantial increase is poised to catalyse BSNL’s technological upgradation and restructuring efforts, thereby creating extensive opportunities for domestic manufacturers to actively contribute to the sector.

Conclusion:

The Interim Union Budget 2024,[2] while serving as a transitional financial plan, lays the groundwork for economic resilience, innovation, and sustainable development. With a focus on fiscal consolidation, growth-oriented policies, and strategic investments, the budget aims to propel India towards a brighter economic future. As the government navigates the transition period, the policies outlined in the interim budget provide a roadmap for a holistic and inclusive approach to economic governance.

[1] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2001136

[2] https://www.indiabudget.gov.in/doc/bh1.pdf