Budget Musings
By Dhurjati Mukherjee
Finance Minister Nirmala Sitharaman will be presenting Union Budget 2024 for this fiscal amidst a lot of challenges, thereby outlining economic priorities for the next five years under the coalition government. Industry bodies and economic experts have put forth several crucial demands they hope will be addressed in the budget to spur growth, improve livelihoods, and simplify the tax structure. While there has to be a lot of focus on the agricultural and rural sector, there are other things that need her attention, which obviously means carrying forward essential reforms to attract manufacturing, specially growth of MSME sectors and those that are labour-intensive.
The present economic situation has shown that consumer spending is depressed, inflation is rising while the growth composition appears imbalanced. These were highlighted during the elections, which transformed a majority government into a coalition. The stress points are visible as sectors like small trade, hospitality, transport, storage and communication decelerated to half its growth rate in the previous year. These service categories are the biggest creators of informal and non-farm jobs, engaging a broad range of semi-skilled and unskilled workforce, including rural migrants. The facts are indeed alarming as the size of this combined segment has expanded by just 10 percent over 2019-20, growing an average 2.5 percent each year since.
Much of the supply-side growth comes from construction, another mass employer of casual labour. This has grown at around 13 percent on average in the last three years, more than double its re-pandemic trend. But even this activity has had little effect on consumer spending. The main challenge is that slower growth of disposable income coupled with food inflation has suppressed real rural wages and affected poorer sections. In fact, these contracted for almost two years due to persistent price pressures.
Considering the situation, the first decision of the new Cabinet was the announcement of a big expansion of an existing housing assistance scheme to build 30 million additional homes for rural and urban poor, expressing the government’s commitment to inclusive growth. But more such measures are needed, including increased budgetary allocation for the rural jobs scheme and various other such projects aimed at rural revitalisation. Rural infrastructure at the village level, specially in backward areas needs to be given proper thrust while health facilities at the block level need to be upgraded to tackle emerging diseases.
There are expectations that the budget is likely to give a boost to the affordable housing segment. The definition of affordable homes, it is expected, will be expanded along with tax breaks for developers and incentives for buyers. The ripple effect this sector can have on the larger economy is known to the government and specific steps to balance the interest of all stakeholders could be reflected in the budget. However, the share of affordable home in the overall supply fell to 18 percent this year from nearly 40 percent in 2019.
As regards the farm sector, at a recent meeting farm organisations and agriculture experts advised the finance minister to ramp up investment in agricultural research, rationalise fertiliser subsidies and develop infrastructure to enhance the sector’s resilience in climate change. The stakeholders called for a substantial increase in the budget allocation for ICAR from Rs 9500 crore to Rs 20,000 crore. Indian Chamber of Food and Agriculture (ICFA) Chairman, M.J. Khan emphasised the need to make massive investments in agriculture R&D growth and boost incomes.
Likewise, for farm export, agricultural economist Ashok Gulati and various farm bodies have urged the government to lift restrictions on exporting farm products like rice, wheat, sugar, and onions. These restrictions, imposed to control consumer prices, have impacted rural incomes. Over 45 per cent of India’s population relies on agriculture, and easing these restrictions could boost farmers’ earnings.
Meanwhile, it is heartening to note that the pressure on public finances has been greatly relieved by the fiscal windfall from the central bank, which approved a Rs 2.11 trillion dividend payout to the Central government last month. Thus, fiscal metrics will remain unspoilt while planned corrections in the public balance will continue. Moreover,RBI’s recent Financial Stability Report (FSR) has shown that non-performing assets (NPAs) of banks fell to a 12-year low of 2.8 percent at the end of March even as stress tests conducted by the central bank showed that the capital levels will remain above the regulatory minimum even under severe stress scenarios, while the net NPAs ratio fell to 0.6 percent.
If inflation can be checked, which obviously the RBI has been trying to do, the economy should have a smooth run. But the problems of the rural sector must be given special attention, which the government is aware of. There are expectations of an increase in state subsidies on rural housing to around 50 percent as compared to the previous fiscal’s Rs 33,413 crore, according to various sources and a recent report by news agency Reuters. This is part of the government’s plan to boost rural infrastructure spending, but the allocation must be substantial as village communication, i.e. building proper rural roads has been rather neglected compared to the vast needs while the focus has been on building and widening highways.
Similarly, job creation initiatives which appear to be a key component of the budget, allocation for rural jobs programme may witness an increase but anything below Rs 120,000 crore may not be sufficient to cover the full 100 days a year. It would indeed be a great job if a job scheme, say for 50 days a year, is introduced for the urban poor who could be gainfully used for different sorts of work, specially in municipalities, which are suffering for lack of personnel.
Apart from the rural sector, the other expectations of the budget include boosting consumption, lifting farm export restrictions and simplifying tax regimes. The Confederation of Indian Industry (CII) very aptly suggested tax cuts for India’s lower income brackets to increase disposable income and spur consumption. Although the Indian economy grew at an impressive 8.2 percent in 2023-24, consumption only grew at half that rate. In tune with current thinking, CII also recommended higher wages under the rural job guarantee scheme and increased cash handouts to farmers to support rural spending.
Industry bodies have also recommended simplifying India’s complex tax regimes. The Federation of Indian Chambers of Commerce and Industry (FICCI) has suggested streamlining the capital gains tax regime into two or three broad categories and reforming the GST system, proposing fewer tax slabs and the inclusion of currently excluded sectors.
The BJP-led NDA governmentwould have by now made a thorough analysis of the Lok Sabha results and shortlisted the reasons for being much short of the 400 plus mark as claimed. It is expected to be guided by the electorate’s verdict and the Budget could be a beginning. —INFA