Highlight:
- The budget is focused on continued growth
- Real GDP growth expected at 7.3% in 2023-24
- India projected to become the 3rd largest economy by 2027
India’s Finance Minister Nirmala Sitharaman had clarified that the Interim Budget 2024 was going to be a ‘vote on account’ with no big-ticket announcements, owing to the election year. The focus remained on continued growth amid global geopolitical uncertainties and working towards enhancing the GDP powered by Governance, Development and Performance.
Progress over the past decade
In keeping with tradition, the interim budget was preceded by a report titled “Indian Economy – A Review,"1 summarizing the highlights of the Indian economy in the past decade. The report emphasized transformative changes made for ease of doing business, including the introduction of GST, simplified tax regimes, expedited processing of income tax returns, revamped reporting under corporate law, enactment of the Insolvency and Bankruptcy Code, 2016, and increased transparency in the banking system. These changes, along with others, have boosted confidence, widened the tax base, and led to record tax collections for the government.
It was further highlighted that the last decade has been very progressive for the country, with FDI inflows doubling to USD 596 Billion during 2014-23 from the previous decade and the average real income of the people also increasing by 50%. It was also announced that the government will release a white paper detailing the progress of the economy since 2014– indicating the confidence of the current government in having delivered on their initial promises and boosting transparency.
Economic performance2
India’s real GDP is expected to grow at 7.3% this year, in line with upward revisions from RBI in recent months, prompted by a strong Q2 of FY 2023-24. The fiscal deficit for FY 2023-24 was revised to 5.8% as against the estimated 5.9%. The budget estimates for FY 2024-25 have pegged the fiscal deficit at 5.1%, keeping with the target of 4.5% set for FY 2025-26.
Key announcements: Maintaining course and facilitating growth
This budget was not completely devoid of any policy announcements, with the objective remaining to build on the strong foundation from past years. The FM announced an increase of over 11% in capital expenditure outlay on infrastructure, being 3.4% of the GDP. Key economic railway corridors were also announced to further expand the reach of railways and their benefit to industry and the common public.
There is also a strong thrust given to R&D and innovation, with a corpus of INR 1 lakh Crore (i.e. INR 1 Trillion) set aside to promote private investment in sunrise technologies. A new scheme will also be announced for strengthening deep-tech technologies for defence purposes, which has seen a 4.5% increase in allocation from last year.
Numerous green initiatives were announced to fulfill the government's 'net-zero by 2070' commitment. These include viability gap funding for wind energy, mandatory blending of biogas and natural gas for transport and domestic use. Proposals also include setting the capacity for coal gasification and liquefaction by 2030 to reduce imports of critical items like methanol and ammonia. The government is dedicated to expanding the e-vehicle ecosystem by supporting manufacturing, charging infrastructure, and promoting greater adoption of e-buses for public transport. Additionally, a new scheme for bio-manufacturing and bio-foundry will provide eco-friendly alternatives for materials with a wide range of industrial applications, aiming to widen access and further boost acceptance among the general public.
Regarding taxes, the proposals involve withdrawing specific petty direct tax demands for identified periods to ease tracking and litigation efforts, benefiting over 10 million taxpayers. On the GST front, there is a proposal to mandate the distribution of GST credit for common input services. Additionally, a penalty is suggested for manufacturers of goods like Tobacco and Pan masala in case of non-compliance with specified procedures in GST.
The budget announcements left Indian taxpayers wanting more, anticipating relief on the personal tax front, including enhanced deduction limits and rationalized income slabs. India Inc. hoped for an extension of the concessional tax rate for newly established manufacturing operations (under section 115BAB) and clarifications to address litigation risks post-recent landmark judgments. Corporates were optimistic about GST rate rationalization for EV-related components and customs duty adjustments on the indirect tax front. Despite this, there is still hope for relief in the final budget post-elections.
IMEEC: revolutionizing global trade
The India-Middle East-Europe Economic Corridor (IMEEC) was also referenced by the FM and touted as a game changer for bolstering world trade. Tabled during India’s presidency of G20 with an MoU for development signed in September 2023, the IMEEC will connect western Indian ports to Europe via the Arabian Gulf through a network of rail and ship routes. The IMEEC could potentially increase trade speed by 40% along with reduced costs, thereby driving existing trade and manufacturing and strengthening food security and supply chains. The IMEEC remains a crucial agenda item for participating nations, and it would be important to track how this initiative progresses in the coming months.
Future outlook
The FM stated that India is well positioned for unprecedented growth and development over the next 5 years, owing to its strong performance over the past, thereby inspiring confidence in the economy. As per a Global Financial Agency, India is likely to become the third-largest economy in 2027 and it is also estimated that India’s contribution to global growth will rise by 200 basis points in 5 years. It is also anticipated that India can become a USD 7 trillion economy by 2030. The resilience demonstrated by the Indian economy, as well as the factors discussed above are expected to contribute towards the goal of a ‘Viksit’ i.e. developed Bharat by 2047.
- Himanshu Parekh, Partner and Head of Tax (West), KPMG in India
Footnotes
1. Issued by the Department of Economic Affairs, January 2024
2. Source: Indian Economy – A Review, January 2024