Interim Budget 2024-25 Expectations: designing for the Next Five Years?

Union Finance Minister Nirmala Sitharaman sets out a roadmap for sustainable growth

 

In her presentation of the Interim Budget 2024-25

In her presentation of the Interim Budget 2024-25, Union Finance Minister Nirmala Sitharaman charted a course for the nation’s economic trajectory over the next five years. In a departure from populist measures often associated with pre-election budgets, Sitharaman’s address focused on fiscal prudence and credible projections, emphasizing the importance of sustainable growth and equitable distribution of benefits.

Anticipation and Expectations

With the looming backdrop of the 2024 General Elections, there was widespread anticipation regarding the content of the Interim Budget. Despite assurances from the government regarding the absence of grandiose measures designed to garner votes, speculation persisted regarding potential announcements aimed at various constituencies.

The release of a mini Economic Survey just days before the budget presentation further fueled speculation. The survey projected India’s economy to reach the milestone of a $5 trillion valuation within the next three years, with aspirations to surpass $7 trillion by 2030. Highlighting the resilience of the economy over the past decade, the survey laid the groundwork for Sitharaman’s address.

A Vision for the Future

True to expectations, Sitharaman’s budget speech avoided flashy promises in favor of a pragmatic approach towards economic stewardship. Emphasizing sustained GDP growth of 6.5–7% and inclusive development, the budget prioritized capital expenditure and social safety nets for marginalized sections of society.

Key initiatives outlined in the budget included schemes to facilitate homeownership for the middle class, incentivizing renewable energy adoption through rooftop solar panels, and fostering innovation in emerging sectors through a substantial corpus for research and development.

Additionally, the government proposed the establishment of a high-powered committee to address challenges stemming from rapid population growth and demographic shifts. A significant allocation of funds as interest-free loans to states aimed at incentivizing reforms in critical sectors underscored the government’s commitment to governance at the grassroots level.

Analysts’ Perspectives

The budget’s emphasis on fiscal discipline and continuity of policy garnered praise from analysts. V. Anantha Nageswaran, Chief Economic Adviser, lauded the budget’s prudent projections and transparent approach. The focus on under-promising and over-delivering aimed at bolstering credibility in economic planning.

Projections and Targets

The Interim Budget set forth ambitious yet achievable targets for fiscal deficit reduction, GDP growth, and tax collection. Plans to lower the fiscal deficit to 5.1% of GDP by FY25 and subsequently to less than 4.5% by FY26 demonstrated the government’s commitment to fiscal consolidation.

Projections for nominal GDP growth at 10.5% for FY25, coupled with estimated tax revenue growth, indicated a bullish outlook for the economy. Confidence from tax authorities regarding the feasibility of collection targets further bolstered optimism surrounding revenue generation.

Taxation and Economic Stimulus

A notable aspect of the budget was the decision to maintain existing tax rates, deferring any significant changes until the full Budget in July. While this move was in line with tradition, expectations for relief, particularly amid rising inflation, persisted.

Analysts highlighted the importance of indirect stimuli such as cash transfers and employment generation over direct fiscal measures to sustain consumption growth. The forthcoming full Budget may address concerns regarding tax rationalization and sectoral allocations based on evolving economic conditions.

Looking Ahead

The Interim Budget serves as a precursor to the comprehensive fiscal roadmap expected to be unveiled in July. Building on the government’s achievements over the past decade, the forthcoming Budget aims to consolidate reforms and propel the economy towards sustained growth.

As the nation awaits the outcome of the upcoming elections, the Interim Budget provides insight into the government’s economic vision and priorities for the years ahead.

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FAQ

1. What is an Interim Budget? An Interim Budget is a provisional financial plan presented by the government typically ahead of elections or during a transitional period. It outlines expenditure and revenue estimates for the upcoming financial year until a full Budget is presented.

2. What were the key highlights of the Interim Budget 2024-25? Key highlights included a focus on sustainable growth, social welfare schemes, capital expenditure, and fiscal consolidation. Initiatives such as incentivizing homeownership, promoting renewable energy, and encouraging innovation were prioritized.

3. What were the projections for GDP growth and tax revenue? The Interim Budget projected nominal GDP growth at 10.5% for FY25, with optimistic targets for tax revenue collection. Gross tax collections were estimated to grow by 11.5%, with direct and indirect taxes expected to increase by 13.1% and 9.4%, respectively.

4. Why did the government refrain from altering tax rates in the Interim Budget? Maintaining stable tax rates was deemed essential for fostering stability and simplicity in the tax regime. Any review of tax rates was deferred until the full Budget in July to allow for comprehensive deliberation and stakeholder consultation.

5. What can be expected in the full Budget scheduled for July? The full Budget is expected to delve deeper into policy measures, sectoral allocations, and tax reforms based on evolving economic conditions. It may also address long-pending issues such as tax rationalization and customs duty tariffs.

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Key Budgetary Figures (FY 2024-25)

Category	Amount (in Rs. Crore)
Total Budget Size	47,70,000
Allocation for Capital Expenditure	11,10,000
Projected Fiscal Deficit	5.1% of GDP
Nominal GDP Growth	10.5%
Gross Tax Revenue Growth	11.5%
Direct Tax Revenue Growth	13.1%
Indirect Tax Revenue Growth	9.4%

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As the nation prepares for the upcoming elections, the Interim Budget sets the stage for a comprehensive fiscal roadmap aimed at steering India towards sustained prosperity and inclusive growth.