Kolkata: With the Modi 3.0 government in place, all eyes are now eagerly set on the upcoming Union Budget 2024, which is expected to be tabled in July. Anticipation runs high among industries, farmers, taxpayers and the middle class alike, as they await potential boosts and tax reliefs from Union Finance Minister Nirmala Sitharaman.
Sitharaman has a tough task at hand. She will either have to stick to fiscal prudence or loosen her purse string. But, whatever she chooses, her priorities will remain the same, which is to boost growth without hurting inflation create jobs and improve income levels. India’s retail inflation, measured by the Consumer Price Index (CPI) eased to 4.75% in May from 4.83% in April 2024, according to the latest Ministry of Statistics and Programme Implementation data. The CPI last hit the lowest at 4.25% in May 2023.
Reserve Bank of India will not cut rates until inflation comes down below four per cent. Therefore, the borrowing cost will remain expensive and Sitharaman will have to work towards to bringing down inflation below four per cent. It is essential to sustain the capex momentum even though private investments are showing an upward trajectory.
There's an undeniable stress in the agriculture sector to deal with while consumption, particularly in rural areas needs an urgent revival. The FM will have to allocate more funds or come up with schemes to boost rural consumption. The budget will be tabled when the monsoon is expected to be there in full vigour. In June, the rains have been below normal as indicated by the Indian Met Department. If that trend continues, too, in July, then rural stress will increase and the FM will have to rethink how to address the issue in her Budget.
The BJP's election manifesto had talked about expanding the free health insurance programme to senior citizens, piped cooking gas connections, free food rations for the next five years, and free electricity to poor households, among others. It also mentioned a broader government push towards supply-side reforms, including higher infrastructure spending (both digital and physical), a manufacturing push and the creation of employment opportunities. But more programmes need to be rolled out covering education and health.
While doing so, Sitharaman will be watchful about the fiscal deficit. During the interim budget in February, Sitharaman set herself a 5.1% target for FY25, and thanks to more-than-budgeted tax revenues, rating agencies expect that the actual figure will be plenty handsome. The S&P Global Ratings even dangled the ratings upgrade carrot should India stick to fiscal consolidation in the next two years.
Non-tax revenue remains a challenge with the strategic disinvestment remaining a non-starter. There have been no big-ticket strategic sales after Air India, while a host of central public sector enterprises like Shipping Corporation and NMDC, are put on the waitlist.
While IDBI Bank is endlessly waiting for its suitor, the government needs to step up gas for the long-awaited strategic sale of other PSUs like Shipping Corporation and NMDC. Likewise, it needs to fast-track secondary market offers of different public sector enterprises to raise resources. However, the wheels seem to have come off regarding privatisation with the government not even uttering a word about it. Sitharaman may also have to think twice about selling state assets like Vizag Steel, which could irk its coalition partner TDP. The FM will have to be cautious while deciding disinvestment as there may be protests from the Opposition, who have become stronger now.
As for the taxpayer, the biggest grumble is about personal income taxes. While corporates got a breather with lower tax rates, individuals got only FM's half-a-heart during their first term. Sitharaman's second term will be a decider and how she emboldens the aspirations of the salaried class, who form a major portion of the country’s vote bank. It will also have an impact on the upcoming assembly elections in the states of Haryana, Maharashtra, Jharkhand, Delhi and Bihar.
