Finance Minister Nirmala Sitharaman is set to present the first full Union Budget of the newly formed NDA Government on 23rd July 2024. This budget will outline the government's comprehensive plan on fiscal management for this financial year (2024-25), building upon the fiscal consolidation and continuity of tax laws outlined in the interim budget presented in February.
Expectation is that the government may continue with indicated allocation of funds for Capex in interim budget and social welfare schemes. This optimism is fueled by the RBI's recent windfall dividend distribution (you can refer to our “Health of your Wealth – May 2024” blog for more details regarding RBI’s dividend payout to Government)., which has provided a boost to the government's finances.
However, the challenge of balancing the expectations of coalition partners may also influence the allocation of funds. Despite these challenges, hopes are about the Govt’s continuous priority on infra projects and social programs, driving economic growth and development.
Fiscal consolidation is expected to be a key focus in the Budget, with an emphasis on revenue spending to boost consumption demand. Also, with an aim to achieve a balanced fiscal position, reducing the deficit and creating a foundation for sustainable economic growth.
Expansion and enhancement of the PLI scheme to cover more industries and encourage domestic manufacturing.
The Budget 2024 is expected to boost labor-intensive sectors like agriculture, textiles, and construction through supportive schemes. Affordable housing and tourism initiatives will also get a push, while PLI schemes will be expanded to more sectors. Government capex and funding for MSMEs and startups will increase, promoting youth employment.
As per a report by the Income Tax department, personal income tax (PIT) collections have outpaced corporate income tax (CIT) collections, with PIT growth at 32% and CIT growth at 12%. Specifically, PIT collections stood at Rs 3.46 lakh crore, up 21.41% year-on-year, while CIT collections were Rs 2.10 lakh crore, up 12.47% year-on-year. Given the significant contribution of individual taxpayers, the government should consider providing some marginal tax relief to direct taxpayers, acknowledging their substantial contribution to the country's tax revenues. This move would not only provide relief to individual taxpayers but also boost consumer sentiment and drive economic growth.
Govt may tweak / hike standard deduction limits from existing Rs.50000/- due to spike in “inflation of healthcare and education expenditure”.
No significant change in corporate tax structure and Govt should provide stability in the policies.
FY 2023-24 has been a great year in terms of direct tax collection and GST collection. Quantum of borrowings would now be a function of GDP growth presumption, expected inflation, targeted tax collections and announcement of subsidies. It will be interesting to see the fiscal deficit target as a percentage of our GDP post the lumpy dividend from RBI.
Even if the Budget does not see changes in income tax slabs, GST rates, or significant new allocations, the major focus will be on the government's capital expenditure (capex) and fiscal deficit number. These two metrics is to be closely watched as they will indicate the government's commitment to fiscal prudence and Apart from these two metrics, budget is basically a non-event nowadays.
As per interim budget, There is a marginal tapering of spike in government capex expenditure in infrastructure and defence manufacturing. However, still the quantum of allocation is relatively high and Govt should minimum continue the interim budget numbers on capex spends.
Overall, The Union Budget 2024 is expected to be a growth-oriented budget, focusing on fiscal consolidation, boosting consumer spending, and enhancing production-linked incentives.
However, as the first full budget of the newly formed NDA government, which is a coalition of parties led by the BJP, the decision-making process would have been more complex and collaborative than in previous budgets, requiring a delicate balance of various stakeholders’ expectations, unlike the interim budget and previous budgets during their earlier terms.
