Synopsis: Finance Minister Nirmala Sitharaman is expected to balance fiscal consolidation with priorities like job creation and welfare measures in the Union Budget 2024-25. Following the NDA government's new Cabinet allocations, the Finance Ministry, led by Sitharaman, has already allocated Rs 1.37 lakh crore for tax devolution to states.
Sitharaman is expected to maintain a policy focus on fiscal consolidation, but job creation and welfare measures may dominate the Budget agenda.
Following the official announcement of portfolio allocations in the new NDA government Cabinet, ministries resumed their usual operations.
The Union Finance Ministry, led once again by Nirmala Sitharaman, has allocated Rs 1.37 lakh crore for tax devolution to states, with a late evening release issued on June 10.
For the Finance Ministry, maintaining a proactive stance is routine, as it must swiftly respond to domestic and international developments.
Sitharaman, who has served as Finance Minister since 2019 under NDA 2.0, is well-versed in the role.
She previously served as Minister of State for Finance between 2014 and 2017 in the first NDA government under Prime Minister Narendra Modi.
Minister of State Pankaj Chaudhry continues in his position.
Sitharaman is expected to formally assume her duties soon.
Union Budget 2024-25:
The top priority for the finance minister will be finalizing the Union Budget 2024-25, which is to be presented in a few weeks.
While the interim Budget's focus on fiscal consolidation is expected to continue, new themes addressing rural distress through welfare spending and boosting manufacturing investments for job creation will also be included.
Micro, small, and medium enterprises, facing challenges in funding and expansion, are also looking for support from the new government.
“With the cabinet formation complete, attention shifts to the Union Budget, expected in July. …Given the BJP's loss of majority, we might see changes in spending patterns compared to the Interim Budget,” noted Shreya Sodhani, Regional Economist at Barclays, on Tuesday.
“While maintaining an infrastructure-led capital expenditure focus, we anticipate an increase in revenue expenditure. There may be a push to increase spending on specific social sector schemes, particularly targeting rural consumption, as key scheme outlays have seen little change in the past two years,” she added.
Considering the government's solid starting position with a large RBI dividend and higher tax collection, the fiscal deficit target is expected to remain at 5.1% of GDP, with the borrowing program likely unchanged.
The middle class is hopeful for tax relief, with social media abuzz with calls for exemptions in the capital gains tax regime and higher tax exemptions for those remaining in the old income tax regime.
Focus on Growth:
Beyond immediate policy concerns, the finance minister must also navigate economic challenges, sustain economic growth, and curb inflationary pressures.
Despite a rapid post-pandemic revival, an uncertain global economic environment has kept export growth muted, requiring continuous attention from policymakers.
While the economy grew over 7% in the three years up to FY24 and is projected to grow by 7.2% this fiscal year, creating sufficient jobs for India’s growing workforce remains a critical mission.
A Busy Legislative Agenda:
The Finance Minister also has several pending legislative Bills that need to be finalized and advanced based on government priorities.
While major reforms on land and labor may not proceed immediately, numerous economic bills are in the drafting stage, including amendments to the Insolvency and Bankruptcy Code and Companies Laws.
Pending amendments to the Insurance Act, 1938, and the Insurance Regulatory and Development Authority of India, 1999, aim to further reform the sector.
The Ministry of Corporate Affairs is working on a draft Digital Competition Bill, which may soon undergo further consultations.
The Central Board of Indirect Taxes and Customs has invited suggestions on the draft Central Excise Bill, 2024, which will replace the Central Excise Act, 1944.
Goods and Services Tax:
As chair of the Goods and Services Tax Council, Sitharaman will address various issues.
Revenue from the GST regime has been steadily increasing.
A pending GST Council meeting is likely to be announced soon.
Online gaming companies hope the council will review the 28% tax on the sector and potentially provide relief.
Meanwhile, industry stakeholders hope the rate rationalization exercise, led by a Group of Ministers from the GST Council, will also advance.
In conclusion, Finance Minister Nirmala Sitharaman faces a multifaceted agenda as she prepares to navigate India's economic landscape.
Balancing fiscal consolidation with job creation and welfare measures will be crucial in the upcoming Union Budget 2024-25.
The ministry's ability to respond swiftly to domestic and international developments remains critical.
As the government aims to sustain economic growth and address inflationary pressures, it must also tackle pending legislative reforms and refine the GST framework.
With a solid starting position in government finances, there is cautious optimism that the upcoming budget will address key economic challenges while providing much-needed support to various sectors.
