India's Union Budget 2024-25: Balancing Growth, Investment, and Fiscal Prudence

Budget 2024: Don't tweak what works

Founder-chairperson, India Sanitation Coalition, and former CEO, HSBC India It's widely expected that GoI will adhere to the committed fiscal glide path in this budget, even though social spending may go up, helped by robust tax collections and RBI's dividend cheque of more than ₹2.1 lakh cr. Continuing capex early in the budget cycle has been a hallmark of this government, which will likely continue. Key focus areas should include: Jobs: Political compulsions and inclusive growth require increased focus on jobs. Job-intensive sectors like tourism, food and agriculture processing, and social infra to provide water and sanitation, education, and healthcare will aid inclusive growth. Tax incentives for these sectors for capital goods, skilling programmes and specific allocations from startup funds and finance will support their growth. Given GoI's mantra, incentives to encourage women-led development should find support in the budget. R&D: Increased focus on encouraging R&D and innovation by effectively operationalising the ₹1 lakh cr R&D fund announced in the interim budget would be welcome. Incentives to create innovation clusters by co-locating private sector, academia, investors and R&D institutions will encourage collaboration, and outcomes that can be commercialised. Areas that will benefit the nation with enhanced capability and capacity include water and sewage treatment, recycling and delivery of water, conservation of lakes and water bodies, smart mobility, life sciences, RE and AI. Competitiveness: Creating competitive industries that provide high-quality, affordable goods requires lowering logistics costs from 13% to 8% of GDP, reducing taxes on capital goods, and easing the establishment of businesses and operations. Budgetary allocations for world-class industry parks, as seen in Dubai and China, will derisk and shorten the time to start a manufacturing plant. Shared infra aids monitoring, regulation and green practices, by sharing RE, recycling and wastewater recovery costs. Green financing: India's green transition will require incentives and financing. The budget must facilitate this journey. The absorptive capacity of allocated funds needs attention, as released funds often remain unused by states and gram panchayats despite community needs. Monitoring and releasing funds against outcomes remain critical to ensure the proper utilisation of funds. Green mobility: EVs and charging infra will benefit from incentives. FAME has played a vital role in enabling EV price subsidisation and aiding purchase. The new policy is awaited with bated breath. The big push on EVs is heartening. But policy has seen hurdles and requires consistency in promise and implementation. Could charging infra be treated as an essential item with lower taxes and incentives for those who set it up? Investing in railway modernisation and improving signalling and tech to increase throughput on existing tracks will support our efforts to expand rail infra. Real estate: The sector is booming, driving growth in its supply chain of construction materials, household equipment and products. In the interim budget, Nirmala Sitharaman announced additional 2 crore houses in the next five years to PM Awas Yojana-Urban. The industry is experiencing a noticeable contrast between premium and affordable housing sectors. Buyers are swiftly snapping up premium units, while affordable housing faces challenges in generating demand. Creating supply where needed, and building to a high environmental standard with attention to recycling water, sewage treatment and energy efficiency is critical given the scale of building activity. Capital markets: According to an Axis AMC study, 91 IPOs in the last 15 months have raised ₹80k cr, highlighting a vibrant domestic equity market. This success enables PE funds and promoters to exit easily with decent returns, encouraging fresh investments. However, only 20% have gone into capex, and 15% have gone to financial institutions to augment their lending capacity. Finance will not hinder growth and investment. We need consumption and demand to drive investment in growth capital. Debt markets will benefit from including India in the JPMorgan index. Some money has come in, and more will be invested in the next 8-10 months. Encouraging investment in our capital markets must remain a vital focus of this budget and policy over the next few years. We could drive the price of affordable capital for startups down from the 20% currently available to rates more like those prevalent in China, Israel and the US. Let's not tinker with what's working, but increase thrust in areas that need attention, applying the lens of environment-friendly and inclusive growth. The writer is chairperson, Rothschild & Co

Union Budget 2024-25

Dr B. Yerram Raju, Ph.D., from Andhra University is a banker turned economist having worked with the SBI for nearly three decades. He was Senior Faculty and Dean of ASCI for nearly 8years and International Man of the Year of International Biographical Society, Cambridge in 1992. He was also Chair Professor of Economics at the LBS National Academy, Mussoorie on deputation from the SBI for a year and half. LESS ... MORE The ensuing budget raises many expectations amidst the Viksit Bharat. The dividends of huge infrastructure spending and realty push are likely to see visibility. All said and done, budget is at best an expectation. At the end of every fiscal year, we see several union ministries coming up with unachieved budgets allocated to them. Global uncertainties, rise in commodity markets, accelerated cyber crime that is draining out the savers and investors of their well-earned pie amidst the vast expanding digitalisation, climate change challenges and CoP - 26 commitments on carbon reduction and accounting for carbon credits as a resource for the future, are all challenges that leave less room for Nirmala Sitharaman to contain the fiscal deficit. Politically, the multi-party challenges her demands of the states within the ruling NDA. For want of proper monitoring mechanisms and in the absence of a project monitoring and evaluation department at the central and state government levels, we see lags in implementation of all the infrastructure projects. All the political parties in their anxiety to win the voters, made many promises that demand huge social sector outlays in the budget. We have been witnessing the camouflaged employment figures obfuscating the reality and the unending food inflation that has left the central bank no option but to continue the stability of interest rates. On top, we see a surge in the wholesale price index at more than 3 percent. Such a scenario is certainly uncomfortable for the Union Finance Minister Nirmala Sitharaman to push the budget outlays meeting everyone's expectations. Setting priorities become, therefore, imperative. In this short piece, I will touch upon agriculture, micro and small manufacturing enterprises, banking, and the strategic initiatives for reducing the cost of doing business and enhancing ease of doing business. Agriculture According to the Agricultural Statistics put out by the Union Ministry, per capita consumption of cereals has come down from 12.72kg in 199-2000 to 9.61kg in 2022-23 in rural areas and 10.42kg to 8.05 kg correspondingly in urban areas amidst the increased production of cereals by 1.5 times during the last two decades. Demands on land for various purposes other than agriculture are seeing an uptick. 4% of the world's water resources in India should be shard by the rising population crossing 17% of the world's population. This ipso facto calls for strategic plans for increasing productivity per unit of land and per unit of water. States would not like to lose their hold on these resources that left many river waters in riparian status. All the efforts of compromise for decades are eluding. Further, workforce dedicated to agriculture is showing a decline. Hence, recourse to technology in agriculture becomes important. Application of nano technology, reduction in the use of pesticides, fertilisers and optimal use of water, aerial spraying of fertilisers, use of robots and mechanical harvesting implements, and other mechanisation require incentivisation apart from ensuring that the farmers' production and lives are insured appropriately and adequately. Farmers continue to agitate for MSP for all that they produce which is infeasible and impracticable. At the same time, small and marginal farmers, tenant farmers should have income ready to spend in the season, because during the season, his income is locked in either soil or silo. While agriculture is a concurrent subject under the Constitution of India, States' resources are also under strain due to the compulsive and competitively populistic social expenditures. A robust policy for agriculture becomes a necessary agenda and a statement to this effect should come from the Budget speech this year. At the same time, the Budget for the farm sector could give substantial allocations crossing the barrier of 2 percent of the total allocations incentivising technology applications by the farmers - AI, nano fertilisers, natural farming, marketing, transportation of the farm commodities, exports, qualitative production, and assured direct benefit transfer to ensure cash in the hands of the farmer at the beginning of the crop season. If the share of agriculture and allied activities in the Gross Value Addition, it is necessary to incentivise agro-based industries, packing, packaging, labelling, and branding that will push their consumption to the desired levels. Allied activities that have export potential could be incentivised for quality and branding. Micro and Small Enterprises (MSEs) I have mentioned elsewhere that no enterprise would be started with an eye on employing persons but on production of goods and services for profit. At the same time, the manufacturing MSEs are seen as engines of employment growth. Per crore of rupees investment in them would require on average six to eight persons in MSEs while employing the same numbers in medium and large would be requiring on average Rs.50-75cr. Hence, employment orientation, skill development and re-skilling, up-skilling, technology deployment periodically would require incentives and such incentives should be fiscal and not financial as delivering the former would be transparent and accountable. Further, land cost for establishing MSEs is touching roof in every state. Hence, these enterprises should have preference in land allocation if they establish in clusters and go in for flatted industrial infrastructure. Waste recycling, de-carbonisation, and branding should be incentivised fiscally related to their turnover. Manufacturing startups and scaling up from micro to small and small to medium should be incentivised. The schemes meant for their growth should be related to land, labour (skilling, re-skilling, up-skilling), insurances and guarantees need streamlining. Law of proportionality demands that the micro and small should be separated and the schemes meant for them should be converged in a manner that they are related to the factors of production. Every scheme should have details of delivery points and a sunset clause. All incentives should be through fiscal concessions and fiscal holidays as obtaining in Korea, Malaysia, Philippines, China, Germany etc. Small Enterprises Administration Act may be announced to make the Business Development Services (BDS) are delivered with ease, accountability, and productivity-enhanced methods. Banking It is time that the FM constitutes a Committee to re-examine the priorities in the so-called priority sector allocations and dispensations. Sectorally, they are delivered with accounts as target and not as either the farmers or MSEs. When the latest technologies like AI and ML are increasingly adopted by the Banks, there is a need to ensure that the priorities have full relevance to the Financial Inclusion, financial literacy and making regulatory compliance easy for the less-endowed. PSBs, large private sector banks have their focus on delivering online rather than engaging with the client and lend responsibly to the marginal and small farmers, tenants, MSEs in manufacturing sector. It is desirable to bring institutional reforms that would be win-win for the banks and the clients. More the mergers less will be the access to the small sector client. Agriculture and MSEs are sectors that need credit with extension services and such engagement require proximity of banking/NBFCs to the areas and persons the banks lend. This is possible by strengthening the cooperative banks, Small Finance Banks, and Rural Banks. In fine, this budget should be more than numbers and highly reform oriented and delivery-packed.

How FM Sitharaman can design India's long-term investment growth portfolio for a Viksit Bharat

The upcoming Union Budget must prioritize long-term growth strategies, addressing structural issues for India to emerge as a developed economy by 2047. Focus areas include rural health enhancement, sustained infrastructure investment, job creation across sectors, human capital development, fiscal discipline, and nurturing sunrise industries like renewable energy and AI, ensuring inclusive growth.With the economy recording high GDP growth and the General elections having just concluded. it is an opportune time for the Government to focus on long-term growth strategy in the upcoming Union Budget. The Government should look at resolving some of the structural issues facing the economy to pave the path for India's emergence as a developed economy by 2047. Agriculture is the backbone of India's economy with a large proportion of India's workforce (46%) dependent on the sector. However, agriculture productivity is very low in India, resulting in poor rural income. Measures to improve productivity in the agriculture sector, through adoption of latest technology and improving rural infrastructure, will help improve rural income. Appropriate skilling of rural workforce and enabling them to move to manufacturing and services sectors will also help to reduce the large reliance of rural workforce on the agriculture sector. The focus on rural welfare schemes should continue in the upcoming Budget. A concerted effort on improving rural health is an important pre-requisite as India moves towards its aspirations of a developed economy. This will also help in broad-based consumption recovery in the economy. The government has been relying on capex as a growth propeller in the last few years. The government capex to GDP increased to 3.2% in FY24 from 1.5% in FY18. In the last two years, the Centre also budgeted interest free loans amounting to Rs 2.3 trillion to state governments for capital expenditure. Given the strong multiplier effect of capex, the government's focus on capex should continue. Improvement in infrastructure is much required to improve India's global competitiveness and attract increased FDI. India is in the unique position of a large working age population (68%), when most developed economies are struggling with aging population. However, to truly reap the demographic dividend, India needs to create enough job opportunities. Push to manufacturing sector through appropriate schemes will help create more jobs. The world is looking at China plus one strategy, hence Indian manufacturing sector needs to grab this opportunity. As the world looks at diversifying its supply chain, the government should facilitate growth in labour intensive export sectors like textile, apparel, leather, gems and jewellery, auto-ancillary. At the same time, the government should not lose sight of the inherent advantage India has in knowledge-based services sectors like Information Technology and Global Capability Centres (GCCs). Growth potential of other labour-intensive service sectors like travel, tourism, healthcare and hospitality also needs to be harnessed. While creating job opportunities, it is also important to skill the workforce adequately to be absorbed in the workforce. The General Government (Centre+ State) spending on social services (primarily health and education) increased to around 8% of GDP in FY23 from 6.7% of GDP in FY18. The government should further increase the spending on health, education and skilling. Schemes like Skill India needs to be invigorated, with increased focus on vocational education. While the government should continue focus on capex and look at measures to boost consumption, they should not lose sight of the fiscal deficit target. We expect the government to set a fiscal deficit target of 5% of GDP for FY25 (marginally lower than Interim Budget target of 5.1%) and move towards achieving fiscal deficit of 4.5% of GDP by FY26. India's general government debt has shot up to a high of 83% of GDP in FY24, resulting in high interest burden. With sovereign rating agencies watching the government's debt trajectory, the focus on fiscal consolidation should continue. The government should focus on sunrise sectors like renewable energy, electric vehicles, artificial intelligence, green hydrogen, semiconductors and biotechnology. Given the huge opportunity, the budget should explore measures to facilitate growth in these sectors. The Union Budget should be used as a pedestal for moving towards the country's long-term objective of sustainable and inclusive growth. Even while ensuring high growth momentum is maintained, the government needs to ensure that the benefit of this growth percolates to all income categories. (Rajani Sinha is Chief Economist, CareEdge Ratings)