Election Outcome Budget: Firm grip on fiscal, but first Budget of NDA III silent on reforms

But if the Budget is to be judged by just one number, Sitharaman shines through by keeping a tight leash over the fisc, which has been the one steady theme across the two terms of the NDA government.

For 2024-25, she estimated the fiscal deficit at 4.9 per cent of the GDP even if it’s largely because of RBI’s dividend bonanza of Rs 2.1 lakh crore. The Finance Minister also promised a declining trend in government debt-GDP ratio going ahead.

The markets were not sure how to read the Budget. The benchmark 30-stock Sensex was marginally up when Sitharaman started the speech but plummeted 1,200 points as she announced hikes in the long term capital gains tax and the securities transaction tax on futures and options. It, however, ended the day more or less flat at 80,429 points.

With 28 MPs of TDP and Janata Dal (United) helping the BJP – down by 63 seats from 2019 and 32 short of a majority – return to the Centre, the Budget almost came across as a payback platform.

From support for multilateral funding of Rs 15,000 crore to Andhra Pradesh this year to Rs 47,400 crore for development projects in Bihar, the Budget reflected the ruling party’s political imperatives too.

In an echo of what the Opposition had promised in its manifesto on the employment issue, the Budget announced three new Employment-Linked Incentive schemes, which come now as an addition to the Production-Linked Incentive scheme. The PLI scheme was criticised for rewarding companies in 14 sectors for achieving higher sales turnovers, without necessarily boosting jobs.

Sitharaman provided Rs 10,000 crore to the labour ministry towards the ELI schemes for first timers, job creation in manufacturing, and support to employers for additional jobs. She also allocated Rs 2,000 crore to the Ministry of Corporate Affairs towards internship opportunities for 1 crore youth over five years in the top 500 companies.

Sitharaman also did away with the “angel tax”, which had constrained the start-up ecosystem from raising capital. It also sought to tamp down the recent exuberance in the stock markets by raising the securities transaction tax on futures and options segment, which has been a cause of concern for financial regulators.

She also did away with indexation benefits on capital gains upon sale of real estate and gold, and rasied the long term capital gains tax to 12.5 per cent from 10 per cent. But her personal income tax tweaks bring  Rs 17,500 in annual tax savings for the salaried.

Though it was the third NDA government’s first Budget, it did not spell out a cogent and ambitious reform programme. Sitharaman, however, did allude to it in her list of nine priorities. In its eleventh year, the NDA government said it would formulate an ‘Economic Policy Framework’ to delineate the overarching approach to economic development and set the scope of the next generation of reforms for facilitating employment opportunities and sustaining high growth.

Much of these, however, are largely in the domain of states; and the NDA government in its previous terms too tried to push these through. Sitharaman did note that these reforms required “collaboration between the Centre and the states and building consensus, as development of the country lies in development of the states”. That is easier said than done given how Opposition states have reacted to the way the Budget has singled out the two allies.

The first Budget of the NDA government in its third term is distinct from the Budgets in the first years of its previous two terms. In 2014, it was about the freshness of ideas such as Jan Dhan and Beti Bachao, Beti Padhao, plus at least a dozen schemes with token allocations of Rs 100 crore each, which was in a way a thanksgiving to those who elected the BJP to power.

The second term, which saw Narendra Modi return to power with a bigger mandate of 300-plus, took key policy decisions including FDI caps in aviation and media, and a big disinvestment push.

After the Budget, Prime Minister Narendra Modi said it ensured inclusive growth, benefiting every segment of society and paving the way for a developed India. “The ELI scheme will create crores of jobs… The first salary of the first job of a youngster will now be borne by the government. Working in top companies under the scheme, the young interns will find new avenues of possibilities,” he said.

In its estimates, the Budget for 2024-25 did not deviate from the interim Budget presented on February 1. Sitharaman has projected a 11 per cent increase in tax revenues for the current year, almost similar to the previous year.

The Finance Ministry expects to forego Rs 29,000 crore from its direct tax giveaways and Rs 8,000 crore from indirect tax cuts, and mobilise Rs 30,000 crore from the various tax measures. Net-net, this will result in revenue foregone of Rs 7,000 crore.

Despite a 8.5 per cent increase in the Budget size to Rs 48,20,512 crore, Sitharaman hopes to cut the fiscal deficit by 0.7 percentage points to 4.9 per cent of the GDP in 2024-25.

The Budget estimates a 10.5 per cent nominal growth rate in the current financial year. While the Budget estimates a nominal GDP growth rate of 10.5 per cent for the year, an average inflation of 4.5 per cent as projected by RBI would suggest a real GDP growth rate of around 6 per cent.