A DETAILED LOOK-ON INTERIM BUDGET 2024-25!
Finance Minister Nirmala Sitharaman is all set to present the interim budget on February 1, 2024 to gather the necessary funds or resources. This will be Sitharaman’s sixth budget presentation since 2019. The upcoming budget will be an interim budget and not a comprehensive one due to impending Lok Sabha elections, likely scheduled during April-May. Once the election is completed, and a new government is formed, the full Union budget will be presented in Parliament. As the name suggests, an interim budget is a provisional measure designed to cover expenditures until a new government is elected. Thereafter, the full budget will likely be introduced by the newly elected government around July. Finance Minister Nirmala Sitharaman had earlier stated that there would be no significant announcement in the interim budget, indicating there may be a vote of account. A vote on account is designed to meet expenditure until a new government is sworn in after the upcoming elections.
The Union Budget 2023-24 showed more emphasis on job creation, infrastructure development, and the middle class. In a major relief to middle class, the government increased the income tax rebate limit from Rs 5 lakh to Rs 7 lakh under the new tax regime. It proposed to spend Rs 45,03,097 crore in the financial year. Out of the total expenditure, revenue expenditure was estimated to be Rs 35,02,136 crore (1.2 per cent increase from revised estimates of 2022-23). Interest expenditure was 41 per cent of revenue receipts. Capital expenditure was estimated to be Rs 10,00,961 crore, a 37.4 per cent increase from revised estimates of 2022-23. The increase in capital expenditure is driven by higher outlay on transport infrastructure and capital loans to states. Revenue deficit in 2023-24 was targeted at 2.9 per cent of GDP, which is lower than the revised revenue deficit of 4.1 per cent in 2022-23. Fiscal deficit in 2023-24 was targeted at 5.9 per cent of GDP, lower than the revised fiscal deficit of 6.4 per cent in 2022-23.
THE MAJOR ASPECTS OF THE INTERIM BUDGET 2024 COULD BE:
- Fiscal Consolidation:
With higher-than-budgeted revenue expenditure triggered through the first and likely second supplementary demand for grants in combination with lower-than-budgeted nominal Gross Domestic Product (GDP), it is widely expected that meeting the fiscal deficit target of 5.9 per cent of GDP for the current fiscal (FY24) could be a challenge for the government. There are expectations that the fiscal deficit will rise over 6 per cent of the GDP, more than the budget estimate of 5.9 per cent for the current fiscal. However, the government had executed confidence to achieve the fiscal deficit target of 5.9 per cent of the GDP in the current financial year.The government’s fiscal deficit at the end of November 2023 stood at Rs 9.06 lakh crore or 50.7 per cent of the full-year budget estimate. In absolute terms, the fiscal deficit – the difference between expenditure and revenue – was at Rs 9,06,584 crore during the April-October period of 2023-24. In the corresponding period last year, the deficit was at 58.9 per cent of the budget estimates of 2022-23. For 2023-24, the fiscal deficit of the government is estimated to be at Rs 17.86 lakh crore or 5.9 per cent of the GDP.
The Government of India received Rs 17.4 lakh crore (64.3 per cent of corresponding BE 2023-24 of total receipts) up to November 2023 comprising Rs 14.35 lakh crore tax revenue (net), Rs 2.84 lakh crore of non-tax revenue and Rs 25,463 crore of non-debt capital receipts. Non-debt capital receipts consist of recovery of loans and miscellaneous capital receipts. Total expenditure incurred by the central government was at Rs 26.52 lakh crore (58.9 per cent of corresponding BE 2023-24) during April-November 2023. Out of the total expenditure, Rs 20.66 lakh crore was on revenue account and Rs 5.85 lakh crore was on capital account. Continuing the path of fiscal consolidation, the government intends to bring the fiscal deficit below 4.5 per cent of GDP by 2025-26.
Job creation:
The Periodic Labour Force Survey Annual Report 2022-2023 released by the National Sample Survey Office (NSSO) showed that India’s unemployment rate for persons aged 15 years and above was recorded at a six-year low of 3.2 per cent during July 2022-June 2023. Joblessness or unemployment rate is defined as the percentage of unemployed persons in the labour force. Considering the importance of the availability of labour force data at more frequent time intervals, the NSSO launched the Periodic Labour Force Survey (PLFS) in April 2017. The reference period is from July 2022 to June 2023.
The Unemployment Rate (UR) in usual status for persons of age 15 years and above at the all-India level came down to 3.2 per cent in 2022-23 from 4.1 per cent in 2021-22. The UR was 4.2 per cent in 2020-21, 4.8 per cent in 2019-20, 5.8 per cent in 2018-19 and 6 per cent in 2017-18. The usual status means that the employment (status of a person) is determined based on the reference period of 365 days preceding the date of the survey. The statement on the data said that 2022-23 refers to the period of July 2022 to June 2023 and likewise for 2021-22, 2020-21, 2019-20, 2018-19 and 2017-18.
The Interim Budget is likely to focus on job creation. Finance Minister is likely to lay emphasis on Make in India to churn out jobs ahead of 2024 elections. There are expectations of some schemes or a roadmap to build and bolster the entrepreneurship culture that can promote self-reliance and go a long way in employment generation.
Subsidies
Subsidies on food, fertilisers and petroleum had been pegged lower by 28 per cent to Rs 3,74,707.01 crore for 2023-2024 (BE) from Rs 5,21,584.71 crore in 2022-23 revised estimate (RE). Out of this, fertiliser subsidy was estimated to fall to Rs 1,75,099.92 crore during 2023-24 (BE) from Rs 2,25,220.16 crore in 2022-2023 (RE). Petroleum subsidies was estimated to come down to Rs 2,257.09 crore in 2023-2024 (BE) from Rs 9,170.50 crore in 2022-2023 (RE). Food subsidy was estimated to fall sharply to Rs 1,97,350 crore in 2023-2024 (BE) from Rs 2,87,194.05 crore in 2022-2023 (RE). The government had pegged total subsidies on food, fertilisers and petroleum at Rs 5,21,584.71 crore in its revised estimate (RE) for 2022-23, as against the actual budget of Rs 4,46,149.24 crore in 2021-2022.
Food subsidy is provided to meet the difference between the economic cost of foodgrains procured by the government and their sales realisation at the PDS rate called central issue price (CIP) under the National Food Security Act (NFSA) and other welfare schemes. Similarly, the Centre provides fertiliser subsidies to manufacturers. The government fixes the MRP of urea being sold in the market. The difference between the selling price and production cost is provided as a subsidy. A nutrient-based subsidy is also being provided on non-urea fertilisers like DAP and MOP. In petroleum, subsidies are mainly provided on LPG.
Meanwhile, the Lok Sabha cleared a net additional spending of Rs 58,378 crore in the current fiscal ending March 2024, with a large chunk going towards MGNREGA and subsidy on fertiliser. Moreover, ahead of the 2024 general elections, the Union Cabinet gave its approval to extend the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), a free foodgrain scheme that benefits over 800 million people, for five years till 2029, starting from 2024. This will entail an estimated expenditure of Rs 11.80 trillion. With this, food subsidy bill is likely to increase in coming year. The petroleum subsidy could increase due to subsidised cooking gas cylinders for domestic uses.
External Sector
India’s overall exports (Merchandise and Services combined) in April-December 2023 are estimated to be $565.04 billion, exhibiting a negative growth of (-) 1.87 per cent over $575.79 billion in April-December 2022. Overall imports in April-December 2023 are estimated to be $634.39 billion, exhibiting a negative growth of (-) 7.24 per cent over $683.93 billion in April-December 2022. Besides, India’s overall exports (Merchandise and Services combined) in December 2023 is estimated to be $66.33 billion, exhibiting a negative growth of (-) 4.25 per cent over December 2022. Overall imports in December 2023 is estimated to be $71.50 billion, exhibiting a negative growth of (-) 7.18 per cent over December 2022.
Trade deficit – the difference between imports and exports – stood at $188.02 billion in the April-December of 2023 as against $212.34 billion in April-December 2022. Despite a global slowdown, the India managed to narrowed its trade deficit. The exports are struggling on account of demand slowdown in Western countries. The Red Sea crisis will also hurt exports in the coming months as exporters are holding up consignments. The situation around the Bab-el-Mandeb Strait, a crucial shipping route connecting the Red Sea and the Mediterranean Sea to the Indian Ocean, has escalated due to attacks by Yemen-based Houthi militants. Due to these attacks, the shippers are taking consignments through the Cape of Good Hope, resulting in delays of almost 14 days and also higher freight and insurance costs.
Due to falling exports and ongoing Red Sea crisis, the government is likely to take some firm steps with respect to exports and imports. There are expectations that the government will remove some exports duties to promote exports and aid economic growth. The simplification of the Input Tax Credit (ITC) refund process for exporters can also be in focus in the upcoming Interim Budget as current disparity between the documentation requirements of the Foreign Exchange Management Act (FEMA) and GST is a significant hurdle.
GDP
The National Statistical Office (NSO), Ministry of Statistics & Programme Implementation, in its First Advance Estimates of National Income, 2023-24, said that the Indian economy is likely to grow by 7.3 per cent in the 2023-24 fiscal against 7.2 per cent a year ago, in line with good performance by mining and quarrying, manufacturing and certain segments of services sectors. The NSO estimates are higher than the 7 per cent gross domestic product (GDP) growth projection of the Reserve Bank of India (RBI) for the current fiscal. The Indian economy grew 7.7 per cent in the first half (April-September) of FY24.
Real GDP or GDP at Constant (2011-12) Prices in the year 2023-24 is estimated to attain a level of Rs 171.79 lakh crore, as against the Provisional Estimate of GDP for the year 2022-23 of Rs 160.06 lakh crore, released on May 31, 2023. Nominal GDP or GDP at Current Prices in the year 2023-24 is estimated at Rs 296.58 lakh crore against the provisional estimate of GDP for the year 2022-23 of Rs 272.41 lakh crore. The growth in nominal GDP during 2023-24 is estimated at 8.9 per cent compared to 16.1 per cent in 2022-23. The growth in gross value added (GVA) at basic prices is pegged at 6.9 per cent this fiscal, down from 7 per cent in 2022-23.
In the interim budget, there are expectations that the government will raise annual GDP estimate following the RBI’s recent revision in growth forecast. Recently, the RBI adjusted its projection for the current fiscal year to 7 per cent, up from the initial estimate of 6.5 per cent. The government’s focus on advanced digital technology adoption via expanded Production Linked Incentive (PLI) schemes and human capital investment is vital. As India navigates economic uncertainties, a balanced interim budget coupled with prudent fiscal policies is essential to maintain growth momentum, ensuring a robust economic future for the nation.
Inflation
Retail inflation based on Consumer Price Index (CPI) inched up to a 4-month high of 5.69 per cent in December 2023, mainly on account of higher food prices. The CPI was at 5.55 per cent in November 2023 and 5.72 per cent in December 2022. In July 2023, inflation touched a high of 7.44 per cent. The December inflation remains within the RBI’s comfort zone The RBI has been tasked by the government to ensure retail inflation remains at 4 per cent with a margin of 2 per cent on either side. Retail inflation in the food basket was at 9.53 per cent in December 2023, up from 8.70 per cent in the preceding month and 4.19 per cent in the year-ago month.
Inflation based on wholesale price index (WPI) surged to a nine-month high of 0.73 percent in December 2023 as against 0.26 percent in November 2023, due to increase in prices of electricity, machinery & equipment, pharmaceuticals, medicinal chemical & botanical products and electrical equipment. WPI inflation was 5.02 percent in December 2022. At 0.73 percent, it is the second month in a row that wholesale inflation has printed in above zero. However, for 2023-24 as a whole, average WPI inflation remains in the deflationary zone.
The government is hopeful of achieving 4 per cent retail inflation target for FY24. RBI is committed to bring inflation down to the targeted 4 per cent. Despite India’s optimistic outlook for this year, the persistent elevation in retail inflation cannot be overlooked, given that the figures continue to surpass the upper limit set by the RBI. There are expectations that the government to outline measures to increase consumption while simultaneously managing inflation.
AGRICULTURE AND FARMERS’ REFORMS
The agriculture sector, which is the largest informal sector of the Indian economy, will be the major focus of the budget. The Ministry of Agriculture and Farmers Welfare in its the first advance estimates for the production of major Kharif crops in the 2023-24 season, anticipated food grain production in the country to exceed 1,485 lakh metric tonnes. Area under Rice which is the major Kharif crop is estimated to be higher by around 2 lakh hectare over previous year final estimate and by around 4.5 lakh hectare over average Rice Area. Its production is also estimated to be higher by about 1 lakh tonnes as compared to average Kharif Rice production.
Other cereal crops area such as Kharif Maize and Jowar is also estimated to be higher as compared to previous year as well as average area under these crops. Kharif Maize production is estimated at 224.82 lakh metric tonnes (LMT) as compared to average production of 213.51 LMT registering an increase of about 11 LMT. For 2023-24, production of Kharif Nutri/coarse cereals is estimated at 351.37 LMT which is slightly higher than the average coarse cereals production of 350.91 LMT. The production of Shree Anna is estimated at 126.55 LMT during 2023-24. The production of Tur is estimated at 34.21 LMT, which is around similar to the last year’s production. Further, the area under Urad is estimated at 30.73 lakh hectares which is approximately similar to the last year’s area of 30.98 lakh hectares. However, total Kharif pulses production for 2023-24 is estimated to be lower than previous year due to climatic conditions. Total Kharif pulses production during 2023-24 is estimated at 71.18 LMT. Total production of sugarcane is estimated at 4347.93 LMT which is higher than average sugarcane production of 4222.55 LMT.
During the pandemic years of 2020-21 and 2021-22, the share of Gross Value Added (GVA) of agriculture and allied sectors in the economy was 20.3 percent and 19 percent, respectively. As the other sectors of economy bounced back, the share of agriculture came down to 18.3 percent in 2022-23. So, there is need to provide measures to increase digital adoption, ensure ease of doing business and investment support. Finance Minister Nirmala Sitharaman is expected to allocate additional funding to the Agriculture Accelerator Fund, in the upcoming Union Budget 2024-25, aimed at stimulating entrepreneurial activity in rural India. As many as 348 startups received financial support of Rs 31 crore in 2023-24 so far under the Agriculture Ministry’s programme to promote entrepreneurship and innovation in the farm sector.
GST STRUCTURE
The gross Goods and Services Tax (GST) revenue collected in the month of December 2023 is Rs 1,64,882 crore out of which CGST is Rs 30,443 crore, SGST is Rs 37,935 crore, IGST is Rs 84,255 crore (including Rs 41,534 crore collected on import of goods) and cess is Rs 12,249 crore (including Rs 1,079 crore collected on import of goods). Notably, this marks the seventh month so far this year with collections exceeding Rs 1.60 lakh crore. The government has settled Rs 40,057 crore to CGST and Rs 33,652 crore to SGST from IGST. The total revenue of Centre and the States in the month of December 2023 after regular settlement is Rs 70,501 crore for CGST and Rs 71,587 crore for the SGST.
The revenues for the month of December 2023 are 10.3 per cent higher than the GST revenues in the same month last year. During the month, the revenues from domestic transactions (including import of services) are 13 per cent higher than the revenues from these sources during the same month last year. The average monthly gross GST collection of Rs 1.66 lakh crore in the April-December period (first 9-months) of this year represents a 12 per cent increase compared to the Rs 1.49 lakh crore average recorded in the corresponding period of FY23.
In the upcoming budget, the government is likely to aim at keeping healthy growth targets for GST Collections as in the current fiscal collection of GST may be more than it expected, with a continuous rise in the monthly mop-up. Besides, the technology and gaming sectors are expecting potential advantages from the upcoming vote-on-account and Interim Budget. Meanwhile, NAREDCO demanded other budgetary support and relaxations including allowing input tax credit (ITC) under GST and incentives for rental housing in order to achieve the housing-for-all target.
CURRENT ACCOUNT DEFICIT
India’s current account deficit (CAD), which represents the difference between the total amount of money sent abroad and money received from overseas across the economy, declined sharply to 1 per cent of the GDP or $8.3 billion in the second quarter (July-September) of this financial year (FY24), mainly due to lower merchandise trade deficit and growth in services exports. The CAD was 3.8 per cent of GDP or $30.9 billion in the July-September quarter in 2022-23. CAD was $9.2 billion or 1.1 per cent of GDP in the first quarter (April-June) of the current financial year 2023-24. Services exports grew by 4.2 per cent on a y-o-y basis on the back of rising exports of software, business and travel services. Net services receipts increased both sequentially and on a y-o-y basis.
In the first half of the fiscal, CAD moderated to 1 per cent of GDP from 2.9 per cent of GDP in the year-ago period, on the back of a lower merchandise trade deficit. During the July-September quarter (Q2), net outgo on the primary income account, primarily reflecting payments of investment income, increased to $12.2 billion, from $11.8 billion a year ago. Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to $28.1 billion, an increase of 2.6 per cent from their level during the corresponding period a year ago. In the financial account, net foreign direct investment witnessed an outflow of $0.3 billion, as against an inflow of $6.2 billion in the second quarter of 2022-23.
Despite the steep surge in commodities such as crude oil, natural gas, vegetable oil, and fertilisers on which India is heavily import dependent, the CAD was at a manageable 2 per cent in FY23. There are expectations that CAD will narrow in the FY24 over FY23. One of the factors supporting this is rupee’s real effective exchange rate which has been remarkably stable over the past five years as the RBI has dampened volatility. This year the rupee has been less volatile against the dollar than even against the yuan. The rise in exports post-pandemic has given India’s current account the necessary buffer.
OUTLOOK AND EXPECTATIONS
Finance Minister Nirmala Sitharaman is set to present the interim Budget for the fiscal year 2024-25 in the Lok Sabha on February 1. Everyone will be watching for the Finance Minister to potentially unveil a number of populist policies. The expectations and recommendations of the majority of industrial and economic bodies have been sent; the remaining ones will follow in the next few days. In order to encourage individual taxpayers, the standard deduction was reintroduced in Budget 2018 and enhanced to Rs 50,000 from its initial maximum of Rs 40,000. This benefit was expanded to include the new tax structure in Budget 2023. Owing to substantial inflation and rising living expenses for those on salaries, the existing standard deduction of Rs 50,000 is considered insufficient. Therefore, it is essential to regularly modify the standard deduction to account for the rising costs incurred by the salaried class. Moreover, Sitharaman is likely to announce some measures to boost consumption and rural economy while keeping in mind inflation. The government’s focus may be on PLI Scheme to attract investments in key sectors and boost domestic manufacturing to reduce dependence on imports.
Ahead of the elections in 2024, it is anticipated that the administration will significantly expand the farmer welfare program. In the interim budget, the government must include a few more tax breaks under the previous tax system. There are expectations that the limit of rebate may be increased to at least Rs 7 lakh in order to bring parity with the new tax regime. Also, that the government may announce an exemption from tax collected at source on individual overseas credit and debit card spending. There is expectation of further reduction in corporate tax rates as direct and indirect tax collections are showing a robust trend. This would be keeping in line with the glide path the government has spoken about in the past. A tax reduction at this point would encourage business sentiment as a whole and would be an investment towards stronger tax collections in the future. Moreover, small industries are expecting some relief on aspects like GST, exports & imports duties.
In terms of sectors, the Indian energy sector is optimistic that natural gas and green hydrogen, cleaner fuels, will take center stage in the upcoming budget. While the oil and gas sector is keeping an eye on certain reforms for city gas distribution (CGD) players to raise natural gas consumption in the nation, the power sector is watching announcements to encourage the use of renewable energy. Moreover, the real estate sector is anticipating key reforms to stimulate demand and boost investment in the sector, including providing lower GST rates, and simplified taxation structure for Real estate investment trusts (REITs). The gaming industry is hopeful that the interim budget will address key concerns including tax incentives for game development and strengthened regulatory frameworks and campaigns promoting responsible gaming.
