But given that the next budget will be due in just over six months, the current budget, it can be argued, has a limited shelf life.
UNION FINANCE Minister Nirmala Sitharaman’s sixth full-fledged budget — the first in the Narendra Modi-led government’s third term — does not adequately address the three major problems confronting the Indian economy: Investment, employment and consumption. It performs a holding operation instead of presenting a coherent economic framework to deal with these pressing concerns as well as the more long-term structural impediments to growth. Whether the lack of policy boldness or reform impetus in the budget has to do with the BJP being unable to secure a majority in the recent national elections isn’t clear. The budget’s focus seems to be more on the Modi government’s efforts to cement its stability by securing the support of key allies, especially the JD(U) in Bihar and TDP in Andhra Pradesh.
Both states have been provided significant financial assistance. This includes Rs 15,000 crore to AP for the development of its capital Amaravati and the early completion of the Polavaram irrigation scheme, and a new 2,400 megawatts power plant, along with projects for road connectivity, flood control, airports, medical colleges and religious tourism for Bihar. Of course, a fiscal stimulus like this for Bihar has positive cascading effects. But there’s no escaping the politics behind this economics — no wonder that other states are calling it out.
WITHIN THESE constraints — many of them self-imposed by a dispensation used to governing without the pulls and pressures of coalition compulsions — the budget has specific positives. It stays the course on fiscal consolidation. The finance minister has targeted the Centre’s fiscal deficit at 4.9 per cent of GDP in 2024-25, a significant reduction from 5.6 per cent last year. Sitharaman has also restated her intention to bring down the deficit to below 4.5 per cent by next year. More importantly, the government aims to keep the annual deficit from 2026-27 at levels that ensure that its debt-GDP ratio is on a declining path.
This commitment to macroeconomic stability — also extending to low inflation and current account deficit — is necessary for long-term sustainable growth. Equally welcome are the proposals to abolish the angel tax for all investors in the start-up ecosystem, lowering of the corporate tax rate on foreign companies from 40 to 35 per cent, and further incentivising of the shift to the new income tax regime sans exemptions. The budget has raised the capital gains tax, on both short- and long-term assets, and also the securities transaction tax rate on futures and option trades in securities. This was in line with the Economic Survey noting that financial assets are “claims on real goods and services” and “it is a harbinger of market instability” if these are excessively high. The government believes, based on the evidence, that the markets are overheated and asset price inflation, whether in equities or real estate, could present a new source of macroeconomic instability. The stock markets didn’t take kindly to the announcements initially, but recovered during the day. Ultimately, it is earnings, not irrational exuberance, that should drive prices.
THE ECONOMIC Survey had outlined the “real” challenges facing the country — the need to create an estimated 78.5 lakh jobs annually and the private sector not investing enough to enable the same. The government may have done its bit in capital spending, which is budgeted at Rs 11.11 lakh crore or 3.4 per cent of the GDP in 2024-25. But the augmented public investment is yet to really crowd-in private sector investments. The latter has not taken the baton, which alone can sustain a virtuous cycle of investments, job creation, income generation and consumption.
The budget does not offer a way out of the conundrum. What it has is a patchwork of proposals: Providing a one-month wage of upto Rs 15,000 to all new entrants in the formal workforce; reimbursing employers up to Rs 3,000 a month for two years for their contribution to the employees’ provident fund; and a monthly allowance of Rs 5,000 for those doing a one-year internship at the top 500 companies. These schemes, however, do not tackle the primary problem of why corporates aren’t investing in the first place — hard to believe how a financial transfer to those who have got jobs will create jobs.
Fixing that will call for steps to assuage genuine risk concerns of companies, investments in education and skill development, and factor market reforms. The budget has no big ideas that will inspire investor confidence or set in motion a process that will prepare the next generation for the disruptive changes that lie ahead. At best, it does no great damage. That is not what one would expect from the first budget of a government that claims a historic mandate in its third term.
But given that the next budget will be due in just over six months, the current budget, it can be argued, has a limited shelf life. Hopefully, by then the government would have learnt to work constructively with its coalition partners as well as manage a resurgent Opposition. That will then enable it to present a more ambitious economic plan that a country with a growing young population with rising aspirations desperately needs. That’s the hope.
