Budget 2024-25: Will it pick the cues from the Economic Survey or carry through the themes of the maiden budgets from the last two terms?

Finance Minister Nirmala Sitharaman will be presenting the Union Budget for 2024-25 today, her sixth full budget and the first one in the third term of the Narendra Modi government. The broad themes of the first Budgets of the previous two terms of the government reflected an acknowledgement of the nature of the political mandate in the respective general election and then sought to shape the economic and welfare agenda in line with the key issues and challenges facing India’s economy. In that sense, this Union Budget may not be too different.

In 2014, then Finance Minister Arun Jaitley announced over two dozen schemes, many with a token allocation of around Rs 100 crore. The 2014 Budget also launched initiatives — Digital India, Skill India, Jan Dhan Yojana, Pradhan Mantri Krishi Sinchayee Yojana, and Beti Bachao, Beti Padhao Yojana among others. It aimed to signal the new government’s drive to live up to the electorate’s hopes through these promises. That Budget, in more ways than one, tried to acknowledge every section that lent its support to the BJP and helped it come to power.

The Modi government’s first Budget after returning to power in 2019 with an even bigger mandate than in 2014 was by and large incremental. While it did little to stoke private investment and consumption demand, that Budget adhered to a prudent fiscal roadmap. Key announcements included raising FDI caps in key sectors like aviation, media, and insurance, raising income tax for the super-rich, and shoring up non-tax revenue through disinvestment of government stake in public sector enterprises.

Cut to 2024, the Economic Survey has listed in some detail the challenges that the Indian economy must contend with, as well as the themes and action points that are bound to determine the trajectory of the Indian economy over the coming years—an important period given the government’s ambitious aim to make India a developed economy by 2047. In her Budget speech today, Sitharaman could be expected to touch upon some of these.

In an acknowledgement of the impact of high food prices on the overall inflation, the Survey made a case for changing the Reserve Bank of India’s inflation targeting framework by excluding food inflation. The Survey pointed out that higher food prices are often supply-induced, not demand-induced, and deploying short-run monetary policy tools may be “counterproductive”.

“Hardships caused by higher food prices for poor and low-income consumers can be handled through direct benefit transfers or coupons for specified purchases valid for appropriate durations,” the Survey said.

The Survey called for higher private sector investment, something that has been flagged consistently by the government over the past few years, but has not materialised. Stating that public investment has sustained capital formation in the last several years even as the private sector shed its “balance sheet blues”, Chief Economic Advisor V Anantha Nageswaran said that India Inc should now “receive the baton from the public sector” and sustain the investment momentum in the economy.

The Survey also called upon the private sector to step up its role in employment generation, terming it the “real bottom line” for the private sector. The Survey also underscored the need for a higher level of private sector financing and resource mobilization for infrastructure creation.

On MSMEs, while the Survey acknowledged that efforts to formalise them are making some progress, heavy compliance burden and difficulty in accessing finance continue to be the major challenges. Suggested interventions include deregulation, ensuring support systems to develop MSME projects and their bankability and adequate financing arrangements, targetted facilitation and incentivisation of employment-intensive MSME segments, and progressively easing the compliance requirements with a single-window mechanism for clearances.

With regard to the farm sector, the Survey advocated efforts to encourage production patterns and practices consistent with agro-climatic characteristics and natural resources, and underscored the need to step up investment in technology, production methods, marketing infrastructure, and reduction in post-harvest losses.

“Trade protectionism, resource-hoarding, excess capacity and dumping, onshoring production and the advent of AI (artificial intelligence) are narrowing the scope for countries to squeeze out growth from manufacturing and services. That is forcing us to turn conventional wisdom on its head. Can the farm sector be the saviour?” Nageswaran said in the preface to the Survey.

“A return to roots, as it were, in terms of farming practices and policymaking, can generate higher value addition from agriculture, boost farmers’ income, create opportunities for food processing and exports and make the farm sector both fashionable and productive for India’s urban youth,” he added.