FM Nirmala Sitharaman’s 2024 Budget has its share of positives, but fell short of being ‘historic’
The first Budget of the Modi 3.0 government has its share of hits and misses. Falling short of being ‘historic’ from an economic-reforms perspective, it still contains enough forward-looking steps to make it growth supportive. Thanks to a surge in tax receipts and a large surplus transfer from the RBI, the fiscal deficit for FY24 came it at 5.6%, lower than the projected 5.8%. For FY25, the FM has set the target at 4.9%, and expects to bring it down to below 4.5% next year. She has also deftly balanced higher capital-gains tax rates with simpler rules across investment categories; and lowered the effective tax outgo for the middle classes. Foreign investors will like the end to the dreaded Angel Tax, and taxpayers in general the lower TDS rates and some rationalisation around tax disputes. Infrastructure continues to receive strong budgetary support, and the FM has avoided going down the populist route.
Bihar and AP got the funds they wanted, though not special category status
Bihar and Andhra Pradesh will, as predicted, receive significant new funding, but for earmarked infrastructure projects rather than from being accorded the opaque ‘special category’ status. Drawing lessons from the election results, the government has made formal-sector job creation, particularly in manufacturing, a huge priority area, with a range of incentives for the private sector to invest and hire. Whether this yields the intend results, however, remains to be seen.
Bangladesh’s regime change could have a serious fallout on India
In the near term, India will be occupied with Bangladesh’s political crisis and a deteriorating situation in the Middle East. The vacuum left by Sheikh Hasina’s swift downfall may get filled by opposition parties far less inclined towards India. The hope, though, is that clever diplomacy and shared economic interests will allow the two countries to stay aligned rather than having Bangladesh drift China’s way.
The economy remains on a robust growth track, though
India’s July macroeconomic numbers remained broadly on trend from previous months. The HSBC PMI indices for services (60.3) and manufacturing (58.1) both fell marginally (20 bps each) from their June levels but stayed well above their long-term averages. GST e-Way bill issuances stayed at near-record levels (100 million) in June while GST receipts rose by over 10% in July. On the other hand, IMA’s quarterly Business Confidence and Performance Index (BCPI) dipped 2 points over its April level, to 63.2, signalling weaker macroeconomic as well as business conditions. Significantly, though, most respondents expect the economy to gather strength between now and October. Exports (2.6%) and imports (5%) both grew in the low-single-digits in June, but non-oil exports rose by a faster 7.7%. New car registrations grew by 3.2% and that for CVs by 7-9% in July, but two-wheelers jumped by 17%, pointing to a nascent rural recovery.
Inflation crept up again, FII flows surged, but will likely drop again this month
Retail inflation again crossed the 5% mark in June, led by a 9.4% rise in food prices, while FII inflows surged to USD 5.8 billion in July, building on the previous month’s USD 5 billion. Global uncertainties, though, may cause a trend reversal in August, pulling the rupee down. All eyes will be on the Fed’s early-September meetings.
| Fiscal year starting 1 April | 2020-21 | 2021-22 | 2022-23 | 2023-24 | 2024-25 |
| GDP mp (FY12 series), real growth, % | -6.6 | 8.7 | 7.0 | 8.2 | 7.0 |
| Inflation - WPI, yr avg (FY12 series), % | 1.2 | 12.8 | 9.6 | -0.7 | 4.0 |
| Inflation - CPI, yr avg (FY12 series), % | 6.2 | 5.8 | 6.7 | 5.4 | 4.8 |
| RBI lending (repo) rate, yr-end, % | 4.00 | 4.00 | 6.50 | 6.50 | 6.00 |
| Rupee to US$1, RBI Ref Rate, yr-end | 73.5 | 75.9 | 82.2 | 83.4 | 85.0 |