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Finance Minister Nirmala Sitharaman broke the record of the former Prime Minister Morarji Desai by presenting her seventh consecutive Budget on July 23 for the fiscal year 2024-25.

But not for record breaking numbers, this year’s Budget was different in its core premises also with steady improving macroeconomic fundamental. The Budget encompasses socialistic flavour and emphasises inclusive growth with a focus on agriculture, employment and human resource development with social justice. The total expenditure is projected at Rs.48.21 lakh crore.

Comparing the performance of the global economy, which is still in the grip of policy uncertainties, Sitharaman claimed in her Budget speech that “India’s economic growth continues to be the shining exception and will remain so in the years ahead. India’s inflation continues to be low, stable and moving towards the 4 per cent target. Core inflation (non-food, non-fuel) currently is 3.1%. Steps are being taken to ensure supplies of perishable goods reach market adequately”

Backed by robust macroeconomic fundamentals, the Economic Survey 2023-24 has projected India's real GDP to grow between 6.5% and 7% in 2024-25. The Reserve Bank of India, in its June monetary policy, has earlier raised its real GDP growth forecast for the current financial year 2024–25 to 7.2% from 7% earlier. Indian economy expanded by 8.2% in 2023-24.

On the backdrop of such a positive economic outlook Nirmala Sitharaman presented the Budget for 2024-25. Her job this time was considerably easier with the economy growing rapidly, tax collections surpassing projections, stock markets scaling new heights and the corporate sector once again turning positive about the future growth projections.

This is the first budget of the new government and it defines the tone for what lies ahead and outlines policy priorities, areas where money will be allocated and schemes which will set India’s growth story.

And what will be FM’s priority agenda: Inclusive development and growth. FM appears satisfied that the government’s development programmes, in the last ten years, have targeted each and every household and individual, through ‘housing for all’, water at every home, electricity for all, cooking gas for all, bank accounts and financial services for all, in record time. The worries about food have been eliminated through free ration for 800 million people.

The Budget focuses on provisioning for the agricultural sector, the introduction of schemes related to employment, loan schemes, and announcements for financial support to the MSME sector, infrastructural development, and fiscal deficit projection at 4.9% with a commitment to reducing it down to 4.5%. 

The government’s new priority agenda will now revolve around nine priorities for generating ample opportunities — productivity and resilience in agriculture, employment and skilling, inclusive human resource development and social justice, manufacturing and services, urban development, energy security, infrastructure, innovation, research and development and next generation reforms.

Fiscal deficit target lowered

Two things are important to achieve inclusive development and higher growth: Fiscal consolidation and investment. In fact, the thrust of the budget has been fiscal consolidation. The overarching objective of the government is to reduce the budget deficit to 4.9% in the fiscal year 2024-25), down from 5.8% in 2023-24.

Aiming to reach a fiscal deficit level below 4.5%t of the GDP by 2025-26, Sitharaman has lowered the fiscal deficit target for 2024-25 to 4.9%, well below the 5.1% budget gap pegged in Interim budget for the current fiscal year.  FM aims to lower the fiscal deficit riding on buoyant tax revenue collections and the record dividend payout from the Reserve Bank of India, despite the government’s continued capex push that is crucial to shore up consumption and create jobs and help India achieve its aim to be world’s third largest economy by 2030. The RBI had announced a transfer of Rs. 2.11 lakh crore to the government, which is more than double the amount budgeted from the central bank and state-run lenders.

Centre’s net tax revenue collections in the revised estimates for 2023-24 on the other hand were Rs. 2.26 lakh crore more than that of the previous year. FM has projected the net tax collections to grow by another Rs. 2.59 crore in 2024-25 giving her enough windows to meet the deficit target. Interestingly, FM has not talked of public sector disinvestment. 

Modernising agriculture

The Budget places a strong emphasis on the agriculture sector. According to Sitharaman, over the next few years, ten million farmers will be introduced to natural farming. The government intends to enhance the production, storage, and selling of oilseeds and pulses to promote self-sufficiency. She also mentions working with states to support farmers in implementing digital public infrastructure. In essence, DPI is a collection of technological building blocks that, when governed in an open, transparent, and participatory manner, promote competition, innovation, and inclusivity at a scale. Centre will help the state governments implement Agri-DPI by collaborating with them.

Emphasising on the enhancement of agricultural productivity and resilience in the face of an adversely changing climate, the FM announced the release of 109 new high-yielding and climate-resilient varieties of 32 crops for farmers.

This is significant because despite a steady growth in agricultural production its share in total gross value added has declined over the years. The share hovered at around 18% during the last ten years, some fluctuations notwithstanding, but nosedived to 15% in 2022-23.

Among the nine priority areas of the Budget, agriculture came first. Not surprising, the concern is reflected in the projected decline in foodgrains production last year. The third advance estimates of the agriculture and farmers’ welfare ministry, total foodgrains production in 2023-24 was 328 million tonnes – two million tonnes lower compared to about 330 million tonnes foodgrains production in 2022-23. Two million tonnes decline in a year may not call for any serious attention but then Indian agriculture needs special attention to enable to feed its people.

With significant forward linkages, the agriculture and allied activities sector contribute significantly to the country's overall growth and development by ensuring food security. The Indian agriculture sector has been growing at an average annual growth rate of 4.6% during the last six years. To note, in recent years, India has also rapidly emerged as the net exporter of agricultural products. In fact, it is the biggest exporter of rice with more than 40% share of world export.

And what did FM do to enhance “Productivity and resilience in Agriculture”, the first priority area of the Budget? She allocated Rs. 1.52 lakh crore to agriculture and allied sectors, an increase of 5.3% from the allocation of Rs 1.44 lakh crore in the previous budget.

In reality, even after a more than 5% rise, the allocation to agriculture and allied sector, which affects a majority of the country's population, was only 3.15% of the total Budget - down from 5.44% in 2019-2020. This is after a year of bad monsoons dragged down agricultural growth from 4.7% in 2022-23 to 1.4% in 2023-24, necessitating greater government support for the sector.              

New job creation schemes

Higher farm growth may benefit the rural economy, but the biggest economic challenge for the government at large is growing unemployment. According to economists polled by Reuters last June, tackling India's chronic joblessness will be the biggest challenge for the government over the next five years, even as the country remains the world's fastest-growing major economy.

Despite growing at the fastest pace among major peers, the economy has failed to generate enough jobs for its large and expanding young population, the survey argued.

The government seems to have taken the issue of job creation seriously this time around. FM has promised in her budget speech that “in this budget, we particularly focus on employment, skilling, MSMEs, and the middle class. I am happy to announce the Prime Minister’s package of 5 schemes and initiatives to facilitate employment, skilling and other opportunities for 4.1 crore youth over a 5-year period with a central outlay of Rs. 2 lakh crore”. 

The government will implement three schemes for ‘Employment Linked Incentive’, as part of the Prime Minister’s package. These will be based on enrolment in the EPFO, and focus on recognition of first-time employees, and support to employees and employers.

Scheme A will provide one month wage to all persons newly entering the workforce in all formal sectors. The direct benefit transfer of one month’s salary in three installments to first-time employees, as registered in the EPFO, will be up to ₹15,000.

How many jobs these schemes will actually create is anybody’s guess. But the rapid penetration of Artificial Intelligence (AI) in construction and other labour intensive sectors could hurt Sitharaman’s job agenda. The growing concern over AI was echoed in the Economic Survey, 2023-24. The document expressed worries over AI possibly impacting workers across skill-sets and thereby affecting India's economic growth rate. "The advent of Artificial Intelligence casts a huge pall of uncertainty as to its impact on workers across all skill levels – low, semi and high," the Survey said.

Trust on MSMEs renewed

It’s no secret that the MSME sector employs the larger number of workers in India. As of December 2022, approximately 1.28 crore MSME registered industries employed 9.31 crore people including 2.18 crore women employees, based on the most recent data from the portal of Udyam.

Recognising the potential of the MSME sector, FM has given special attention to the sector, particularly labour-intensive manufacturing, through financing, regulatory changes, and technology support. This focus is seen as vital assistance for the survival and growth of the sector.

The Budget has proposed a new credit guarantee scheme to facilitate term loans for MSMEs to purchase machinery and equipment without requiring collateral or third-party guarantees. This scheme will operate by pooling the credit risks of these MSMEs, with a separately constituted self-financing guarantee fund providing each applicant with guarantee coverage of up to  Rs. 100 crore, although the loan amount may be larger.

Industry representatives expect the announced measures, including the enhancement of MUDRA loan limits and the introduction of a new credit guarantee scheme, to incentivize financial entities to lend to small entrepreneurs while ensuring broader financial inclusion and stability.

Another significant futuristic move of FM is “to enable MSMEs and traditional artisans to sell their products in international markets, E-Commerce Export Hubs will be set up in public-private-partnership (PPP) mode. These hubs, under a seamless regulatory and logistic framework, will facilitate trade and export related services under one roof.” 

Capex increased to Rs. 11.11 lakh crore

And if FM has given special priorities to farm growth, job creation or human resource development, she has kept her faith on infrastructure building to drive growth. It serves to improve the effectiveness and efficiency of the entire supply chain network by lowering transportation costs and simplifying operations. Investment made over the years in building and improving infrastructure has had a strong multiplier effect on the economy. “We will endeavour to maintain strong fiscal support for infrastructure over the next 5 years, in conjunction with imperatives of other priorities and fiscal consolidation”, FM has claimed. She has provided Rs. 11.11 lakh crore for capital expenditure in this year’s budget. This is about 3.4% of GDP, a little more than that of last year’s figure of 3.2%.             

Sitharaman has proposed that investment in infrastructure by the private sector will be promoted through viability gap funding and enabling policies and regulations. A market-based financing framework will be brought out, she said.

That the Modi government considers infrastructure building as the growth engine of the economy is evident from the sharp rise in capital expenditure over the years. In four years, between 2020-21 and 2024-25, the government’s capital expenditure has gone up by two and half times from Rs. 4.1 lakh crore in 2020-21 to Rs.11.1 lakh crore in this year’s budget.

The removal of the angel tax is expected to enhance the startup ecosystem, fostering entrepreneurial growth. The reduction of corporate tax on foreign companies from 40% to 35% will boost investment enabling manufacturing-led growth for the country. This could be a good move as FDI inflows to India has fallen drastically in last two years – down from $84.84 billion in 2021-22 to $71.35 billion in 2022-23 and further to $ 70.95 billion last year (Source: DPII)

If foreign companies got tax relief, so did the country's individual taxpayers, albeit, trivial. FM has announced some marginal tax relief and tweaked tax slabs for those opting for the new income tax regime. To honour the support of the coalition partners she extended huge financial largesse to Bihar and Andhra Pradesh earlier. And for middle class salaried taxpayers she raised the standard deduction -- a flat deduction from the total salary earned by an employee in a year before calculating the applicable income tax rate by `25.000.