Union Finance Minister Nirmala Sitharaman will present the the Union Budget 2024 on Feb 1, 2024.
Credit: PTI File Photo
In the run-up to the Union Budget 2024, there has been plentiful speculation on what to expect of the outgoing Modi government. With Lok Sabha elections around the corner, the sixth budget to be presented by Union Finance Minister Nirmala Sitharaman will be an "Interim Budget" for the year 2024-25.
Technically, the budget presented is for the fiscal year starting on April 1, 2024 and ending on March 31, 2025. But traditionally, such a budget is usually a vote-on-account detailing the expenditure for the first few months of FY2024-25, till the new government comes to power after the poll results are out.
Post that, the incoming government will have the power to agree on or modify estimates in the new budget.
This makes the Interim Budget a tricky thing. Is the BJP confident enough to sweep the elections and thus unlikely to introduce major changes, instead focussing on fiscal consolidation, spurring growth and controlling inflation? Or will there be temptation to announce just a few sops to please voters?
India’s GDP growth in the July-September 2023 quarter was at 7.6 per cent, and in the first quarter of FY24, the economy grew by 7.8 per cent, thanks to strong domestic demand that offset the decline in the country's exports in the face of global economic slowdown. India’s retail inflation, measured by the consumer price index (CPI), surged to 5.55 per cent in November from 4.87 per cent in October 2023, but is still manageable. So the government certainly has the fiscal space to please at least a few key demographics among voters.
Here are what the experts are saying about what to expect:
No Tax rebates expected
Any increase in tax rebate under the new direct tax regime is unlikely. While there was speculation that the personal income tax rebate may be increased from the current Rs 7 lakh to Rs 7.5 lakh, this hope was dashed by a senior finance ministry official on January 9. “There is no such proposal,” the official told Moneycontrol on condition of anonymity.
Exemption on TCS
However, there is a high likelihood that the Modi government will announce an exemption from tax collected at source (TCS) on overseas credit and debit card spending by an individual, for up to Rs 7 lakh per financial year, if senior government officials are to believed. Such an announcement means there will be an amendment to the Income Tax Act that will be a part of the Finance Bill 2024.
Increase in Direct Tax growth rate
The budget, anticipating 'buoyancy' in the economy in the next one year will likely aim for a 10.5 per cent growth rate in direct tax, a senior government official told Moneycontrol. The term buoyancy captures the proportionate increase in tax revenues in response to a rise in national income. The net direct tax collection is budgeted at Rs 18.2 lakh crore for the current fiscal.
Railways bonanza
Finance Minister Sitharaman could provide higher capital allocation to the railway sector, as building infrastructure with an eye to better connectivity has been a priority for the government. The Railway Ministry was allocated a landmark amount of Rs 2.4 lakh crore in the Union Budget 2023-24. Another Rs 1.85 lakh crore has been allocated for capital expenditure in the current fiscal. Budget 2024 will most likely focus on two concerns — allocation of funds for safety measures and procuring new trains to address the escalating demand in passenger travel and augmenting existing infra to improve on-time arrival performance.
Women farmers to benefit
The agriculture sector is expected to continue to feel the love in this budget too. Over the last 10 years, the budget allocation to the sector rose fivefold, from Rs 22,652 crore in FY15 to Rs 1.15 lakh crore in FY24. Most experts agree that this trend will continue in Budget 2024. In fact, there is all but confirmed information that the government is planning to double the annual payout to landowning female farmers to Rs 12,000. This would cost the government an additional Rs 12,000 crore but will empower women, a key demographic in the upcoming election. Currently, under the 'Pradhan Mantri Kisan Samman Nidhi' programme, the government transfers Rs 6,000 annually to both men and women farmers. There might also be an additional push to increase digital adoption in the sector, encouraging the e-business model.
Focus on green energy
Deloitte has predicted that the government could spend on improving the energy sector, especially green and sustainable energy. But experts say that the allocation to oil PSUs might be lower in the coming budget. Some funds will be allocated but mainly to ensure that the fiscal deficit is under control.
Helping India reach its export targets
Union Commerce and Industry Minister Piyush Goyal on January 6 had expressed optimism that the country will meet its ambitious $2 trillion export target by 2030. This despite the fact that India’s overall merchandise exports had declined by 5.5 per cent year-on-year. While the interim budget isn't expected to have any big announcements, reductions of import duties might be a distinct possibility. Rahul Ahluwalia, Co-founder, Foundation for Economic Development, speaking to CXOToday, said, "Given the government’s focus on exports, we think that the budget will reduce tariffs to foster competitiveness and enable Indian industry to thrive globally.” Another possibility is the simplification of the Input Tax Credit (ITC) refund process for exporters and other measures to improve customs law compliance.
Capex boost
Continuing with the focus announced in previous Budget, the forthcoming interim Budget 2024-25 is likely to increase the outlay for capital expenditure. But by how much, is the question. Estimates vary from 10 per cent to 25 per cent. “We are optimistic about consumption and growth recovery for FY25. Capex utilisation has also been higher in many states this year,” an official told Business Today.
Key infrastructure agencies like the National Highways Authority of India and the Indian Railways continue to rely on Budget allocations. It is expected that the government will also continue providing long-term interest-free capex loans to states in FY25 to support economic activity nationwide. The budget may focus on allocations to create capital investment projects covering health and power, in addition to roads and railways, of course.