Finance Minister Nirmala Sitharaman on February 1, Thursday, announced an Interim Budget, striking a balance between the government’s achievements in the last 10 years and setting out a comprehensive plan for economic growth and fiscal prudence. Backed by the ‘Vote on Account’ clause of Article 116 of the Indian Constitution, an interim budget is like a financial pitstop during a government transition allowing it to get approval for crucial spending to keep things running smoothly in the interim, i.e. before the new government gets elected.
This was the last Budget presented by the National Democratic Alliance before the general elections shall take place in May 2024. Highlighting the achievements of the government in the past 10 years, FM outlined how loans worth ₹30 CR were disbursed to women, the unemployment rate went down by 2.8% and ₹ 1.4 CR youth have been upskilled. The government, amid a sharp slowdown in agricultural growth, relative underperformance of the rural economy and high food inflation, focused on fiscal consolidation and inclusive development as the budget showed a correction in the fiscal deficit being reduced to 5.8% of the GDP for FY24. This non-inflationary budget aims to bring down the borrowing costs of the government and lower retail inflation to its permissible levels.
The vision of 'Viksit Bharat' by 2047 has been elevated by increasing the capex outlay by 17% to 11.1 trillion. Using “Sabka Saath, Sabka Vikas'' as its mantra, the government covers diverse communities in terms of caste and class to promote social justice. By empowering 25 CR people, the government focused on ‘Garib Kalyaan’ by laying down programs like PM Awas Yojana, PM Gati Shakti and PM Jan Dhan emphasising a paradigm shift from poverty alleviation to empowering the poor. Women empowerment also remained as a focal point in this year’s budget with FM outlining recent reforms like one-third reservation of seats in Lok Sabha and State assemblies, outlawing triple Talaq and disbursing 34CR Mudra Yojana loans to women entrepreneurs. FM in her speech redefined GDP as Governance, Development and Performance which showed a change in the government’s approach towards the economy.
Unlike last year, there was no change in taxation and the budget remained quiet regarding divestments raising concerns by the masses, but the government did lay out their vision for a developed nation in the next 100 years of independence, the ‘Kartavya Kaal’.
INFRASTRUCTURE
The recent trend in budget figures underscores the growing importance of infrastructure. In alignment with this trajectory, the interim budget reveals an 11.1% increase in capital expenditure (capex), reaching ₹11.1 lakh crore, constituting 3.4% of GDP. This affirms the government's commitment to strategic investments, both public and private.
Notably, this year's budget zooms in on transportation infrastructure, with key programs targeting economic railway corridors—energy, mineral, and cement, Port-connectivity, and High-traffic density corridors. The aviation sector, having experienced significant growth, will continue expanding with plans to develop new airports, enhancing connectivity and boosting tourism.
The social infrastructure front also sees a spotlight, particularly in housing. The announcement to build an additional 2 crore houses under Pradhan Mantri Awas Yojana signals intensified focus, promising increased investments in the construction sector and a positive ripple effect across related industries.
GOING GREEN
With climate change moving to the forefront of every country’s agenda, the interim budget outlines a commitment to achieving ‘net-zero’ emissions of greenhouse gases by 2070 through key initiatives. The government propels renewable energy with viability gap funding for a one Gigawatt (GW) wind energy capacity. To kickstart the plan, the government plans to establish 100 million tonnes of coal gasification and liquefaction facilities by 2030. Mandatory blending of CNG and PNG with compressed biogas enhances sustainability in transportation and domestic use.
The government aims to foster economic synergies through initiatives promoting E-buses, strengthening the e-vehicle ecosystem, and endorsing bio-manufacturing. Emphasis on eco-friendly alternatives like biodegradable polymers, bio-plastics, and bio-pharmaceuticals aligns with sustainable development goals for a greener future.
ELECTRICITY
Doubling down on green ambitions, India's rooftop solar program sees a budget surge from ₹2,167 crore to ₹4,555 crore. Targeting wider household adoption, the initiative offers one crore homes 300 free electricity units monthly, leading to savings of up to ₹18,000 from free electricity and selling the surplus to distribution companies. This scheme creates a synergy between households and corporates, enabling the country to have productive infrastructure. This will also have a greater impact on economic growth through the creation of entrepreneurship and employment opportunities for the supply, installation and maintenance of solar energy systems. This can also boost the EV ecosystem as the charging stations with solar rooftop facilities are economically more viable than those with a grid.
HEALTH
The government's focus on bolstering health infrastructure and preventive measures involves encouraging vaccinations for girls aged 9 to 14 to prevent cervical cancer. Plans include establishing more medical colleges using existing hospital infrastructure. The U-WIN platform manages immunization, with expanded efforts through the Mission Indradhanush campaign. Notably, the Ayushman Bharat scheme now extends healthcare coverage to ASHA workers, Anganwadi Workers, and helpers. While promising, the success of these decisions depends on their effective implementation.
TAXATION
The budget's focal point for the common man, taxation, sees no alterations in direct and indirect taxes, signalling government confidence amid impending elections. To ease the burden, the finance minister proposes withdrawing outstanding direct tax demands up to ₹25,000 for FY 2009-10 and up to ₹10,000 for FY 2010-11 to 2014-15, enhancing the ease of living for taxpayers. Additionally, tax benefits for startups, sovereign wealth or pension funds, and specific IFSC units extend to March 31, 2025, fostering continuity and growth. The corporate tax rate sees a positive shift, reducing to 22% for existing domestic companies and 15% for new manufacturing companies, aligning with the government's push for manufacturing sector encouragement.
AGRICULTURE
The government has had success with past schemes, such as the Pradhan Mantri Kisan Sampada Yojana and the Pradhan Mantri Formalisation of Micro Food Processing Enterprises Yojana, which have effectively supported farmers and the food processing industry. As a result, the government plans to introduce further public and private investment in post-harvest activities. Under the PM Formalisation of Micro Food Processing Enterprises scheme, the government has increased the allocation from ₹639 crores to ₹880 crores. Additionally, after the success of Nano Urea, the government plans to focus on the application of Nano-DAP in all agro-climatic zones. The allocation for the Fertilisers Department in this budget is ₹1,65,150.81 crores. The Atmanirbhar Oilseeds Abhiyan strategy helps gain Atmanirbharta on oil seeds. This step aims to promote self-reliance in the oil market, as India currently imports around 150 lakh tonnes of edible oil, which is 60 per cent of its domestic consumption. Lastly, a comprehensive program for dairy development will be formulated.
IMPACT OF THE REPORT CARD
General Elections
The FM while announcing the budget expressed her confidence about coming into power for the third time after the general elections. The budget, notably lacking major populist moves, may wield limited influence on elections, aligning with the government's steadfast political-economic strategy. It accentuates welfare measures and narrative-building, underscoring the commitment to garner diverse demographic support. Strategically, it addresses societal concerns, particularly targeting farmers, women, and youth, preempting potential caste-based political exploitation. The government's emphasis on social justice and effective governance aims to solidify backing, employing initiatives like the Lakhpati Didi scheme. The budget, with its strategic governance approach, navigates diverse social issues, preventing divisive caste-based politics. While showcasing a thoughtful strategy, its direct impact on election outcomes remains uncertain, given the multifaceted dynamics in the political landscape.
Boost in Growth
The government's budget strategy centres on propelling economic growth through increased private sector investments, infrastructure enhancement, and renewable energy initiatives. By reducing central government borrowings, the budget aims to boost private sector credit availability, leveraging expected economic growth and favourable conditions. While emphasizing the private sector's role in driving growth, funds are allocated for critical infrastructure and initiatives like subsidizing rooftop solar panels and promoting biogas blending. Concerns linger about addressing challenges like underperforming private consumption and labour market disparities. Success depends on navigating political challenges, addressing resource deficiencies, and fostering an environment conducive to sustained economic expansion.
Nudging Reforms
The budget prioritizes sustainable, long-term solutions, adjusting tariffs and incentivizing investments in crucial sectors. Collaborating with state governments and addressing demographic challenges reflects a commitment to inclusive growth. Countercyclical fiscal policies indicate a pragmatic approach to managing economic fluctuations. Focusing on targeted reforms, the budget seeks to lay the groundwork for sustained economic development, positioning India towards becoming a developed nation by 2047.
Fiscal Prudence
The interim budget's emphasis on fiscal discipline, consolidation, and formal sector participation underscores the government's commitment to robust growth. Relying on revenue, reducing subsidies, and maintaining prudent fiscal management aim to create an environment for sustained expansion. Success hinges on external economic stability, with geopolitical shocks posing potential risks. The overarching objective is clear: to drive significant growth while ensuring responsible fiscal management.
Authors: Anant Kumar, Neha Agarwal, Sai Advaith Kandi, Sanvi Khandelwal
Illustrator: Japneet Singh