Interim Budget 2024 Stresses Growth, Reduction of Fiscal Deficit & Inflation

No, Finance Minister Nirmala Sitharaman did not runaway with the ball. This, for an interim budget and vote-on-account with its constraints and conventions.

Sounding, for all the world, like she was presenting the Economic Survey, not done this year because of the impending general elections, she slipped in as much self-advertisement for the government as she could, that would not attract special notice or criticism. Everybody kept their remarks short, from Sitharaman to the prime minister. Many other government big wigs didn’t speak on the interim budget at all, leaving it to the denizens enjoying the CII lounge.

Still, like a good shepherd, the government, acutely aware it has the fastest growing economy in the world now, intends to keep it safe, with all its gains intact. It also aims to keep all its emphases and thrust areas on course and has upped the ante slightly in all of them.  

There is an effort to broad-base the growth drivers to various other parts of the economy such as dairy farmers, fisheries, housing, 600 crores more for the hydrogen mission, 8,500 crores more to Solar, more aviation and aeroplane orders, more airports. This, in addition to the infrastructure main thrust areas of connectivity, roads, railways, bridges, metros, ports. Include therefore the people-friendly many yojanas, with several mentions of Nari Shakti with attendant incentivisation.

The BJP must be surveying the reception to such yojanas for efficacy -but for the media-reading public, much of it appears like a propagandist jamboree that somehow delivers more BJP votes. Playing it close to the chest is practically DNA to the top brass.

There is now a general call for greater private sector participation in various areas to introduce competitiveness, efficiency, design, style. But, apart from Adani, Ambani and Tata, we cannot be sure whether they will attend. Congress will carp on crony capitalism, but why don’t they get one of their own to come forward.  DLF, anyone?

The habit in the private sector, is to ask for interest reduction and other concessions, never mind what it does to the budget deficit. They could miss the bus of course, with the sarkar continuously doing all the heavy-lifting.

But, as Nadir Godrej said, the private sector will first build additional capacity, if required, in whatever they are involved in.  Unsaid is the fact that the last time the private sector went into infrastructure, the projects were stuck for funding, as were their bills. But this was when their favourite ideological UPA government was in-charge, corrupt but ruling, and  well before Modi Raj began in 2014.

Development of Lakshadweep has found mention here for both tourism and strategic reasons, this prominently, for the first time.

Manufacturing, slated to grow into another 5% of GDP, will get a basic, enabling thrust, with a large, Rs. 1 lakh crores for research and development (R&D), for the first time. Repayable in 50 years, making it practically a grant.

With automobiles accounting for about 50% of manufacturing in India, this R&D funding could come in handy for the development of components and other items in the value chain both for industry consumption and export. Companies like Volvo, Mercedes, Audi, BMW, Toyota, Suzuki, Hyundai, which are ensconced in automobile manufacturing and assembly in India, need to be further encouraged to become global hubs operating out of India. Will the government take Arvind Panagariya’s advice in July, and lower tariffs at least in line with the ASEAN countries?

The overall logistic costs are to be brought down from 14% to about 8% with the ongoing efforts of this government on road, rail, air, port infrastructure. This is commendable, dramatic, because it is now credible, and will have profound consequences on the confidence generated amongst foreign investors in India-based manufacture and export.

The stress on government capex continues, will another Rs. 11.1 lakh crores allocated.This was the biggest announcement, and is indeed less than the 13 lakh crores it would have been, if the momentum of the present fiscal was to be maintained into 2024-25. However, the sector accounts for almost 4% of GDP now, and is the main growth driver.  

The government is cutting its market borrowing programme in fiscal 2024-25 to reduce its debts, as the private sector investment increases, compared to before. This indicates greater confidence in the economy. Some of the government’s friends, big boys all, are not afraid.

Meanwhile the government’s fiscal deficit, at 5.9%, is to be reduced to 5.1% in 2024-25, en route to meeting the target of 4.5% in  FY 2025-26. Will this mount 5.1% lead to interest rate cuts? RBI Governor Shaktikanta Das, most likely, will not react to intentions, and wait for the attainment of 5.1% first.

All changes in direct and indirect taxes remain untouched for now, but the implication is that there may be some benefits announced in the full budget of July 2024.

Prominent mention of rooftop solar for one crore households to generate 300 units of free electricity, with connectivity to sell overages, has enthused the energy stocks such as IREDA, Websol Energy, Suzlon Energy and Sterling and Wilson. However, this initiative may do better in the countryside and new construction in smaller towns and cities. The technology associated with solar panels also needs to evolve.

Likewise Electric vehicle (EV) stocks rallied on the reiteration of adoption of EV in public transport. India is also working hard on green hydrogen technologies as an alternative to EVs.

Interestingly, divestment targets, after the success of returning Air India to the Tatas, have actually been reduced. There are more important things for the government to concentrate on, with a dramatic turnaround in many PSU stocks connected with aatmanirbhar initiatives and defence manufacturing.

The middle class will be helped to build their own houses or purchase their dwellings. But there is no indication that the government intends to ramp up the real estate sector in general, despite its potential of becoming a massive employer of skilled and unskilled jobs, if it goes up from the $ 120 billion at present to $ 1 trillion by 2030. Millions of people, men and women, from the rural surplus could be absorbed, apart from those who go into management, sales and so on. It would need incentives, loans, industry status.

Small disputed income tax demands, some going back to 1962, and subject of much contention, have been withdrawn for up to Rs. 25,000  till FY 2009-10 and Rs. 10,000 up to FY 2014-15. This is a welcome thing, but a curious and somewhat trivial item to introduce here.

Defence stocks, Railway stocks, declined somewhat, probably not excited by the steadiness of gait. Where are the huge bump-ups in expenditure? However, the announcements showed that investments are slightly enhanced and are continuing. Railways will get more trains. Defence manufacturing gets more money, the budget upped by 4.4 %.

Unexpected money is going into Solar, EV, Nari Shakti, middle class housing, and all this has been well received.  The large-scale induction of the female population into the work force could add 1 to 1.5% to the GDP. Can this be achieved in the period 2024-2029?

 

(1,184 words)

February 1^st, 2024

For; Firstpost/News18.com

Gautam Mukherjee