Budget 2024 Explained Highlights: BJP acknowledges economic distress, need for Centre-state partnership

Revenue Secretary Sanjay Malhotra Wednesday said the changes in Long-Term Capital Gain Tax (LTCG) announced in the Budget bySitharaman will benefit most of the people investing in the real estate sector.

The Budget 2024 has reduced the LTCG from 20 per cent to 12.5 per cent but has done away with the indexation benefits.
The indexation allowed taxpayers to calculate gains arising out of the sale of capital assets after adjusting inflation.

A day after she presented the Union Budget 2024-2025, Finance Minister Nirmala Sitharaman on Wednesday sparred with Opposition leaders who alleged that the financial document ignored all states except for Bihar and Andhra Pradesh — a charge she termed as “outrageous”.

“If the speech does not mention a particular state, does it mean the schemes of the Government of India, the programmes of the Government of India, the externally-aided assistance that we obtain from the World Bank, ADB, the AIIB and so on, don’t go to these states? They go as per a routine,” she said.

The ask from the Union Budget was a policy framework that would encourage the private sector to expand capacity, generate employment and thereby pave the way for sustained, rapid growth.

From the growth perspective, the government, perhaps for the first time, acknowledged the problems in the economy, albeit indirectly. The government’s concerns showed in the announcement of a slew of measures targeted towards agriculture, employment, skilling, MSMEs, and even the tweaks in the direct tax regime. Read Rajeswari Sen's opinion

The Modi government's outreach to the middle class is an attempt to win back many in the BJP’s former base, who may have voted against it but may have begun to feel guilty that the party ended up losing its majority.

This suggests that the BJP has drawn the right lessons from the general elections, particularly regarding issues such as jobs, MSMEs and rural distress which it has been accused of ignoring. And has shown flexibility to make the concessions that rivals have accused it of being incapable of making. Read more

The biggest takeaway from the Budget was the continuing focus on fiscal consolidation with the targeted fiscal deficit going down to 4.9 per cent of the GDP. This figure is well ahead of the 5.1 per cent set in the interim Budget earlier this year. The reduced fiscal deficit target indicates the government’s continued focus on maintaining macroeconomic stability. Read Nilesh Shah's column

INDIA bloc MPs are protesting against the Union Budget 2024 outside Parliament today, calling it "discrimantory". The Opposition MPs have alleged that the Budget had nothing for states other than Bihar and Andhra Pradesh.

The allegations were raised after Nirmala Sitharaman made significant announcements for the two states led by key allies in the NDA government. The government has allocated Rs 15,000 crore for his dream capital Amaravati. Bihar’s Nitish Kumar, too, has reason to be happy given the announcements of expressways, airports and development of religious and cultural centres.

Nirmala Sitharaman announced that the government would develop a ‘climate finance taxonomy’ to enhance the availability of capital for climate adaptation and mitigation. This will help India achieve its climate commitments and green transition.

A climate finance taxonomy is a system that classifies which parts of the economy may be marketed as sustainable investments. It helps guide investors and banks in directing trillions toward impactful investments to tackle climate change. Here's what you should know

Agriculture being at the top of the government's list of priorities raised hopes of a significant allocation for improving productivity and increasing climate resilience.

The best way to do that would have been to focus on agri-R&D. It’s well known that the marginal returns of investing in agri-R&D are over 10 times – in other words, an extra investment of 1,000 crore will mean Rs 10,000 crore in terms of agri-GDP. Such an investment could have pushed agriculture towards a higher growth trajectory. But, the budget expenditure numbers don’t give such an assurance. Read Ashok Gulati and Purvi Thangaraj's Opinion piece

Over-centralisation in policymaking can undo even the best of policies when it comes to implementation since all implementation happens at the state level. The Budget speech showed acceptance that genuine change requires working along with states as partners instead of political opponents, with Sitharaman reiterating the need to work with states on reforms and development. “For promoting competitive federalism and incentivising states for faster implementation of reforms, I propose to earmark a significant part of the 50-year interest-free loan,” Sitharaman remarked. Read more

Thus far, the heavy lifting on investment in India has been undertaken by the public sector. However, given the fiscal and debt constraints, the investment baton will eventually have to be handed over to the private sector. The good news is that corporate balance sheets are the healthiest in years. The challenge is that firms need more demand visibility to invest with conviction. This is dramatically accentuated by events in China. Read Sajjid Chinoy's column.

Union Finance Minister Nirmala Sitharaman proposed to remove the indexation benefit available for calculation of any long-term capital gains presently available for property, gold and other unlisted assets. The government also proposed to rationalise capital gains tax on these assets at 12.5 per cent as against 20 per cent earlier that came with indexation benefit.

What is indexation benefit? It adjusts the purchase price of an asset for inflation, resulting in lower capital gain and hence reduced tax liability. 

Will the move to remove indexation benefit along with the new tax rate of 12.5% be successful? Well, it depends on the property price. Read here.

The Union Budget was silent on several aspects:

> The sluggish pace of private investments despite incentives from the government.

> Why private consumption is low

> Disinvestment of public sector

While the Budget has acknowledged certain challenges -- also outlined in the Economic Survey -- it also remained silent on some key issues. Read about them here.  

Excerpts from Rohit Lamba's column on Budget 2024: 

"It is not clear if the government understands that India’s current economic growth rate is overstated — it simply cannot be that consumption, jobs and inflation remain low even as growth is going gangbusters."

"The question endures because even while marketing the growth story externally, there is a gnawing fear that the truth is not even being spoken of internally."

"Beyond the myopia of a scheme here and a freebie there, it does not seem like the government has the consistency to see through fundamental structural changes in the economy." Read more 

A coalition government is in the saddle again. That was the underlying message of Union Finance Minister Nirmala Sitharaman’s seventh consecutive Budget on Tuesday, with BJP allies Nitish Kumar and N Chandrababu Naidu cornering a major share for their states. It was also a response to Mandate 2024 – and the lessons drawn from it.

Nitish and Naidu appear to have played their cards well in choosing hard cash to propel their development agenda for their states, rather than benefits such as lucrative Cabinet posts. Read Neerja Chowdhury's analysis

Addressing a press conference after presenting the Union Budget 2024, Finance Minister Nirmala Sitharaman said the 12.5% tax on long-term capital gains was introduced with an aim to “simplify approach towards taxation”. She added, “If anything, the average taxation has actually come down when we say it is 12.5%. We have worked out for each of the different asset classes…The point that we brought it down from below the average to 12.5% encourages investment in the markets”. 

Finance Minister Nirmala Sitharaman announced during her Union Budget speech that corridor projects will be built for the Vishnupad Temple at Gaya and the Mahabodhi Temple at Bodh Gaya in Bihar. These will be “modelled on the successful Kashi Vishwanath Temple Corridor, to transform them into world-class pilgrim and tourist destinations,” she said as part of her speech.

The Vishnupad Temple at Gaya and the Mahabodhi Temple at Bodh Gaya are cultural sites in the region. Bihar also holds significance in national politics, especially after the 2024 Lok Sabha elections.

Finance Minister Nirmala Sitharaman announced that the government would develop a ‘climate finance taxonomy’ to enhance the availability of capital for climate adaptation and mitigation. This will help India achieve its climate commitments and green transition.

A climate finance taxonomy is a system that classifies which parts of the economy may be marketed as sustainable investments. It helps guide investors and banks in directing trillions toward impactful investments to tackle climate change.

“Taxonomies are frequently used to set standards for classifying climate-related financial instruments (e.g., green bonds), but, increasingly, they serve other use cases where the benchmarking feature is viewed as beneficial, including in the areas of climate risk management, net-zero transition planning, and climate disclosure,” according to a report by the government of Canada.

The BSE’s 30-share index Sensex dropped over 1,200 points, or 1.6 per cent to a low of 79224.41 during intra-day trades and NSE’s Nifty fell 435.09 points, or 1.77 per cent to a day’s low of 24,074.2. However, both the indices recover later. Read more here.

Taxpayers falling in the highest tax bracket — those with a taxable income of Rs 15 lakh or more — will save Rs 7,500 on account of enhancement in the standard deduction limit under the NTR.

Read more here.

The Budget speech ended some time ago. We will continue to provide analyses and insights on the announcements on this blog. 

This Budget is about the Modi government wanting to secure both political and macroeconomic stability, plus probably wanting to cool what it sees as overheated markets. By giving special packages to Bihar and Andhra Pradesh, the government has sought to buy support from key allies, especially JD(U) and TDP, for the next five years.

No packages for Maharashtra or Haryana means the government is not too worried about near term state elections and its focus is more on the full five years of its term.

On economy, the Budget has stayed the course of the fiscal glide path of reducing deficits to the target of 4.5% by 2025-26. An increase in capital gains tax and securities transaction tax on F&O transactions are clearly aimed at pricking a possible bubble in the market. The economic survey yesterday hinted at this by noting that if equity market claims on the real economy are excessively high, it is a harbinger of market instability rather than resilience.

A manifesto promise of the BJP for the 2024 Lok Sabha elections, digitisation of urban land records was mentioned as one of the priorities in the urban development sector in the Union Budget. The Finance Minister said urban land records would be digitised with GIS mapping and an IT-based system for property records management would be established.

This would help urban local bodies increase their property tax collections, improving their finances. Property tax reform and increased collections have been recommended by the 15th Finance Commission and are prerequisites for cities to avail of certain funds from the Centre.

The standard deduction has been proposed to be hiked from Rs 50,000 to 75,000 and the deduction on family pension from Rs 15,000 to 25,000. In direct tax, the FM tweaked the slabs under the new tax regime in a manner that could potentially help taxpayers see a net gain of around Rs 17,500 in a year.

Finance Minister Nirmala Sitharaman says that the government will develop a 'taxonomy' for climate finance to enhance the availability of capital for climate adaptation and mitigation, which will support India’s climate commitments and green transitions.

Taxonomies help provide a framework that classifies economic activities based on their environmental sustainability. This helps streamline climate finance towards sustainable businesses. The European Union, South Africa, and Canada have their own climate finance taxonomy.

With the effects of climate change increasingly visible around us, climate finance has become an important part of mitigation efforts. It refers to large-scale investments required for actions aiming to mitigate or adapt to the consequences of climate change. it has been a bone of contention between low income countries and developed nations.

FM Nirmala Sitharaman announces a Rs 1,000 crore venture capital fund to give a push to the space economy, towards the goal of five-fold expansion of the sector in the next ten years.

In the four years since the space sector was opened up, the government has been working on providing policy and scientific support to the industries. This is the first time financial assistance is likely to be provided. While India is one of the leading space-fairing country, its share in the global space market stands at around 2%.

The space sector was opened up to private players in 2020 with the vision of capturing the global market, while the Indian Space Research Organisation (ISRO) could work on scientific missions such as Chandrayaan-3, Aditya-L1, and Gaganyaan.

To enhance revenue generation, a hike in Long Term Capital Gains tax has been announced, from 10% to 12.5%. The jump in equity investments and profit booking by investors of late is likely behind the move. 

Short-term capital gains tax on certain assets is also set to be increased to 20%

In a bid to enhance domestic value addition in gold and precious metals jewellery, customs duty on gold and silver is to be reduced to 6% and to 6.4% on platinum. 

The FM also announces a “comprehensive review” of the Income Tax Act to make it concise and easy to read and cut litigation. This will be completed in six months.

Finance Minister Nirmala Sitharaman announces an investment of Rs.10 lakh crore for the construction of 1 crore houses in cities under Pradhan Mantri Awas Yojana-Urban 2.0, of which Rs.2.2 lakh crore would be under Central assistance over five years.

As PMAY-U is set to end on December 31 this year, the Cabinet had approved 1 crore new houses in the first meeting of the third term. The Finance Minister also announced allocation for interest subvention for affordable houses, something which was announced by Prime Minister Narendra Modi in his Independence Day speech in 2023.

For meeting financing needs of the economy, the government will bring out Financial Sector Vision and Strategy Document to prepare the sector in terms of size, capacity, and skills. This will set the agenda for the next five years and guide the work of the government, regulators, financial institutions, and market participants.

Bihar gets the biggest share of the tourism pie. Union Finance Minister Nirmala Sitharaman announces that the Vishnupad temple in Gaya, a revered Hindu site, and Mahabodhi temple in Bodhgaya, among the most important Buddhism related sites visited by many international tourists, will get world class facilities and tourism infrastructure corridors on the lines of the recently completed Kashi Vishwanath temple corridor, in Prime Minister Narendra Modi's constituency.

Along with that Rajgir to be developed as a major tourism site keeping in mind its significance for Hindus, Buddhists and Jains. Nalanda, besides being developed as a centre of learning, will also be developed as a tourism hub.

The ministry had recently announced the change in its approach from circuit-based tourism to destination-based tourism, wherein overall development of one destination will be taken up, such as tourism facilities, infrastructure, connectivity and other related aspects. The state of Bihar is the winner here with three of its destination finding space in the Budget announcement. Besides Bihar, Odisha will also get funding for overall development of tourism sites, a state that BJP recently won after more than two decades of BJD regime.

The government has allocated funds for collaborative research and development with the private sector on small modular nuclear reactors (SMRs). Additionally, it has pledged support for Advanced Ultra Supercritical (AUSC) thermal power plants. A joint venture between NTPC Ltd and Bharat Heavy Electricals Ltd is slated to commission an 800 MW commercial plant utilising AUSC technology. 

This cutting-edge approach promises higher efficiency and lower emissions compared to conventional coal-fired plants. The Finance Minister announces a policy for developing pumped hydro storage is under consideration. Pumped hydro is a technology used for large-scale energy storage, which can help balance grid fluctuations.

Finance Minister Nirmala Sitharaman announces the fourth phase of Pradhan Mantri Gram Sadak Yojana (PMGSY) to connect 25,000 habitations with all-weather roads. This was one of the items on the 100-day agenda of the Ministry of Rural Development (MoRD) in the new NDA government. 

The first phase of the PMGSY was launched on December 25, 2000, by the then NDA government headed by Prime Minister Atal Bihari Vajpayee. The second phase of PMGSY was launched in 2013. After these two phases, another component of the PMGSY — Road Connectivity Project for Left Wing Extremism Affected Areas (RCPLWEA) — was launched in 2016 to construct rural roads in the LWE-affected areas.

The third phase of the PMGSY was launched in 2019. So far, about 8 lakh km of rural roads have been constructed under the scheme.

Finance Minister Nirmala Sitharaman announces the Pradhan Mantri Janjati Unnat Gram Abhiyan scheme for improving the conditions of tribal communities. The government will adopt a saturation coverage approach for tribal families in tribal majority villages and in aspirational districts, the FM says. This new scheme will cover 63,000 villages and benefit five crore tribals. 

This is the second new scheme announced for tribal welfare by the Centre within a year. Last November, the Centre launched the Pradhan Mantri Janjati Adivasi Nyaya Maha Abhiyan (PM-JANMAN) scheme with a total outlay of Rs.24,104 crore to improve socio-economic conditions of the Particularly Vulnerable Tribal Groups. PVTG groups are marked by a “Pre-agricultural level of technology, low level of literacy, economic backwardness, and a declining or stagnant population” according to the government’s criteria.

PM-JANMAN comprises of provision of homes, road connectivity, improvement in telecommunication, provision of drinking water, construction of hostels, and health, electricity infrastructure.

The announcements pertaining to Bihar about infrastructure development, building of an industrial corridor, and facilitation of external loans will please the JD(U), BJP's second biggest ally in the NDA. (JDU) has been asking for special status for Bihar for the past several years. Following the formation of the new Narendra Modi government, the party’s national executive passed a resolution seeking special status or "special package" for Bihar. 

The announcements are significant as Bihar goes into polls next year amid the dwindling popularity of Nitish Kumar. The BJP-JDU combine hopes the announcements will give it the much-needed fillip ahead of the polls. One of the reasons that the JDU settled for two minor ministerial berths was because it wanted its support to the BJP to translate into a special financial package for Bihar.

Earlier in her speech, the FM said a National Cooperation Policy for systematic, orderly development of the cooperative sector will be brought about. This announcement is significant as the present policy is over 20 years old. The existing cooperation policy was formulated in 2002. Soon after the Cooperation Ministry was carved out from the Ministry of Agriculture and Farmers Welfare in July 2021, Cooperation Minister Amit Shah had said that a new policy will be released. The Ministry had also formed a National Level Committee for drafting the New National Cooperation Policy on September 2, 2022. The committee is headed by Suresh Prabhu.

The Budget so far has seen a big push to Andhra Pradesh and Bihar, in keeping with the coalition pressures. The Telugu Desam Party (TDP) of Chandrababu Naidu has 16 MPs while the Nitish Kumar-led Janata Dal (United) has 12 in the 293-MP-strong NDA coalition ruling at the Centre. 

Efforts have been made to fulfil the commitments in Andhra Pradesh Reorganisation Act, the FM says. "Recognising the state's need for capital, we will facilitate special financial support through multilateral agencies. In the current FY, Rs 15,000 crore will be arranged with additional amounts in future years. Rs 15,000 crore allocated for development of Amravati as AP's capital.

She also speaks of financial aid to Bihar: "We will support the development of an industrial nod at Gaya in Bihar. It will catalyse the development of the eastern region. We will also support the development of road connectivity projects- Patna -Purnea expressway, Buxar- Bhagalpur highway, Bodhgaya- Rajgir-Vaishali- Darbhanga and an additional two-lane bridge over river Ganga in Buxar for Rs 26,000 crores."

The FM announces the government will launch a comprehensive scheme to provide internship opportunities in the top 500 companies to 1 crore youth for 12 months. 

There will also be multiple mechanisms to facilitate the continuation of credit to Micro, Small and Medium Enterprises (MSMEs) facing stress, in an acknowledgement of the multiple headwinds faced by the sector. In the Indian economy, MSMEs contribute around 30% of the GDP, 48% of exports, and provide employment to more than 110 million in rural and urban areas.

However, they face issues such as limited access to credit. The Economic Survey released yesterday noted that reducing the compliance burden on MSMEs through subnational deregulation alongside balancing trade and security concerns with China is vital for the sector’s growth.

Finance Minister Nirmala Sitharaman announced that a digital crop survey will be conducted, covering 6 crore farmers across 400 districts beginning in the ongoing Khareef season. The announcement is significant as it will overhaul the crop area and production estimation system. Last year, the Centre had asked States and Union Territories (UTs) to automate/ digitise the process of area enumeration /Girdawari of crops at the field level by adopting the survey. In fact, a pilot project was rolled out across 12 states.

Andhra Pradesh and Bihar, two states having important political implications with the results of the 2024 general elections, are mentioned. Rs 15,000 crore is to be allocated for development of Amravati as Andhra Pradesh's capital. Telugu Desam Party chief and Andhra Pradesh Chief Minister N Chandrababu Naidu said last month that Amaravati would be the state capital, after Hyderabad ceased to be the common capital for AP and Telangana earlier this year.

Money is to be raised from multilateral funding agencies and routed through the Centre, the FM says. 

There is a big agriculture sector push in the Union Budget. FM Sitharaman says 1 crore farmers will be initiated into natural farming over the next few years. The government will also look to strengthen production, storage, and marketing for self-reliance in pulses and oilseeds.

She also speaks of facilitating the implementation of digital public infrastructure for farmers in association with states. DPI essentially is a set of technology building blocks that drive innovation, inclusion, and competition at scale, operating under open, transparent and participatory governance. In partnership with state governments, the Centre will facilitate the rollout of agri DPI.

A digital crop survey for Khareef crops (such as rice) using DPI will be conducted in 400 districts, and details of 6 crore farmers and their lands will be brought in.

Further, 6 crore farmers will be brought into the farm and land registry and Kisan credit cards will be provided.Govt will also come out with a National Cooperation Policy for the systematic, orderly development of the cooperative sector.

In her speech, the Finance Minister says India’s inflation continues to remain low, stable and moving towards the 4 per cent target, while core inflation is at 3.1 per cent. Core inflation is a measure arrived at by subtracting the prices of fuel and food. 

She also speaks of 5 schemes to facilitate employment, including skilling for 4.1 crore youth with an allocation of 2 lakh crore. There is a focus on employment, skilling, SMEs and the middle class. An allocation of Rs 1.48 lakh crore for education, employment and skilling has been made. 

FM Nirmala Sitharaman begins speaking in the Lok Sabha and notes the general elections' results. She also highlights the global economic scenario. 

Recommended solutions: One of the central pillars of the past two Narendra Modi governments has been the determination to reduce the role of government in the economy and incentivise the private sector to take over the dominant position. In doing so, the government had hoped that the private sector would create jobs. The survey reiterated that hope. It also spoke of the Farm sector as the saviour of the economy, an alternative view to traditional economic theories. To this end, it advocated building up state capacity for sustaining and accelerating India’s progress.

The Survey’s diagnosis: The environment for foreign direct investment (FDI) to grow in the coming years is not highly favourable. High interest rates in developed countries have not only raised the cost of funding, but also increased the opportunity cost to invest in developing countries like India. There is also a challenge from China in terms of India's dependence on Chinese imports. The threat of AI was also flagged, along with the fact that the Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until 2030 in the non-farm sector to cater to the rising workforce.

On the face of it, the Union Budget appears to be the single biggest economic news event in any year. It is expected that as the size of the Union Budget increases, the higher government expenditure will push the economy forward.

While the Union Budget once may have been significant in size compared to individual Indian states, this is no longer true. The size of the Union Budget is now smaller than the combined budgets of all the state governments. For instance, in the financial year 2022-23, the Union government was expected to spend Rs 39.5 lakh crore while all the states put together were expected to spend Rs 47.6 lakh crore — 20% more than the Centre.

Job creation is necessary in a country like India, which has a short window to take advantage of its demographic dividend. The young population should be given employment opportunities to deal with economic and social distress. According to some experts, long-term investments are also crucial to enhance the population's capacity-building. Watch:

Beneath the jungle of jargon, a Budget is essentially an exercise where the government tells the Parliament (and through it, the whole country) about the health of its finances. This means coming clean on three main things: income, expenditure and borrowing.

Read more on the basics of a Budget in this explainer. 

Hello and welcome to the Explained live blog on the 2024 Union Budget. As Finance Minister Nirmala Sitharaman will present the Budget in Parliament, senior editors at The Indian Express will break down the Budget for you, giving a real-time analysis and explanation of the announcements. Do click on the linked stories in this blog for full-length explainers on related topics.