Budget 2024-25: Fiscal consolidation, tax sops and new challenges

Now, coming to the buyback of shares, the investors will be taxed accordingly to dividend payments, increasing the tax burden on the investors. Hitherto, after the amendment, the investors in higher tax slabs will carry a higher tax burden and need to shell out more tax; subsequently, the markets will see fewer buybacks from the industry since its inception for listed companies in 2019. 

The government took a stance to consolidate on the fiscal deficit front and take austere measures to trim the fiscal deficit target for FY25 to 4.9% of GDP against the 5.1% target stated during the interim Budget in February. The road ahead largely depends on the net direct and indirect tax collections. Though the direct tax collections are inspiring, the GST collection, which stood at Rs. 1.74 trillion in June 2024, signals slow growth to 7.7%, notably less than the 12.4% and 10% increase recorded in April and May, respectively, and if the collection falls in 2nd and 3rd quarter will impact both on the borrowings from debt market and managing fiscal deficit which the government is planning to reduce the fiscal deficit to 4.5% or less by FY26  and the other side is the already existing burgeoning debt and the new target to raise 14.01 lakh crore borrowing marginal lesser than the interim budget figure will see changes in dynamics borrowings with falling net tax incomes causing additional burden. Further, the Budget remained practically silent about the discourse on disinvestment. 

The other task will be managing inflation, which is relatively stable. Still, the precious bouts of inflation resulted from the pass-through of rising crude oil prices and appreciating dollars caused by the geopolitical conditions. Given the global instability and geopolitical conditions, reigning inflation looks somewhat challenging due to the country’s dependence on oil imports and seasonal volatility in Agri-commodity production. Though the Budget had a broader outlook toward growth, and some of the states have received a lot of attention in the current Budget, becoming the third largest economy will require identifying states that will take the onus of becoming $1 trillion in itself down the line which will demand strong fiscal consolidation among the states and creating an ecosystem that breeds the potential for industrial growth and financial support both from the state and the center, and it is only time to unfold. 

By Prof. Ameet Kumar Banerjee, XLRI Jamshedpur

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