India’s final budget before the next Lok Sabha elections is the Interim Budget 2024–25, and Prime Minister Narendra Modi is probably going to concentrate on winning over voters.
According to Bloomberg, the current administration is anticipated to accomplish this through new spending plans while avoiding raising the fiscal deficit.
India’s economy, which has grown at a rapid rate to rank fifth in the world, has given the government an excess of tax revenue, which has helped it achieve its deficit reduction targets.
Finance Minister Nirmala Sitharaman, who is scheduled to unveil her sixth budget on February 1, is free to promote infrastructure investment and take steps to assist PM Modi’s primary election-related constituencies, which include young people, women, farmers, and the impoverished.
Despite the promising economic outlook, according to economists cited in the report, a spending binge is not anticipated in this interim budget.
Major announcements are unlikely, as Sitharaman had previously stated, because this budget is an interim measure until a new administration takes office.
What to expect in the budget
The speed of fiscal consolidation and future policy priorities are anticipated to be the main topics of discussion, according to Emkay Global Financial Services Ltd. economist Madhavi Arora.
Debt and borrowing: In order to reduce debt, the government has been gradually cutting the fiscal deficit, which reached 9.2% of GDP during the pandemic.
According to a report by Bloomberg, the target of 5.9% for the current fiscal year is probably going to be met and then further lowered to 5.3% in the following year.
Enhanced tax collection has contributed significantly to this year’s reduction in the budget deficit. According to HSBC Holdings Plc, income tax has increased by almost 30%, corporate tax has increased by 20%, and GST has increased by 10%.
According to HSBC economists, the government intends to stimulate the economy by increasing spending on infrastructure and cutting subsidies, even though it has committed to bringing the deficit down to 4.5%.
Although a Bloomberg survey predicts borrowing will reach about 15 trillion rupees ($180.5 billion) in the upcoming fiscal year, the bond market is becoming more concerned due to the increase in demand from abroad, especially since India is now included in global bond indexes.
Infrastructure spending: With a focus on ports, power plants, and highways, the government has raised yearly capital spending by almost one-third during the past three years. With the help of this tactic, economic growth was able to remain above 7%, making India the largest economy in terms of rate of growth.
Rural welfare: As the government reacts to last year’s steps to curb rising food prices, such as prohibiting exports of rice, wheat, and sugar, economists predict more funding for farmers.
Due to the unfavorable effects of low rainfall on crops and the rural areas where 65 percent of India’s population lives, the government has increased cooking gas and fertilizer subsidies and expanded its $142 billion free food programme to serve 800 million people.
According to analysts at Jefferies India Ltd., there could be an increase in social spending (excluding subsidies) of up to 8% in the upcoming fiscal year that begins in April. These programmes include housing for all, health insurance, and farmer income transfer. Analysts anticipate that welfare spending will increase.
Furthermore, there are hints that the government might create a social security fund specifically for workers in the informal sector, such as gig economy jobs.
Women voters: The Modi administration has increased cooking gas subsidies and provided them with lower-cost loans in an attempt to draw in more women voters.
QuantEco Research economists led by Shubhada Rao emphasized The upcoming budget will include additional measures to support women, such as potentially expanding the plan to provide free petrol cylinders to 7.5 million new beneficiaries over the next three years.
According to media reports, Finance Minister Sitharaman is also thinking about increasing the yearly payment to female landowner farmers.