Focus on employment, skilling, MSME and middle class; tax structure under new regime revised
New Delhi (TIP)- The Union Budget-2024 presented on on Tuesday, July 23, unveiled a concerted jobs push and a raft of schemes for young people ranging from internship guarantees to employment-linked incentives even as it laid out a bouquet of sops for critical allies and attempted to balance the exigencies of running a coalition with maintaining fiscal discipline.
Union finance minister Nirmala Sitharaman’s second-shortest budget speech, and her seventh overall, also focussed on changes in direct and indirect tax regimes – including a hike in long term capital gains tax for listed assets from 10% to 12.5% , the scrapping of indexation (which took inflation into account while calculating asset values) and introduction of a flat 12.5% rate for real-estate , the removal of the angel tax for all investors, and a sharp reduction in customs duties for items such as gold, silver and mobile phones, which will make these items cheaper for consumers.
She announced some tweaks in the new tax regime that will save taxpayers up to Rs 17,500 annually and a review of the income tax act, hinted that the government was moving towards next-generation reforms, and announced that the fiscal deficit stood at 4.9%, keeping India firmly on the fiscal glide path first announced three years ago.
“The #BudgetForViksitBharat ensures inclusive growth, benefiting every segment of society and paving the way for a developed India,” Prime Minister Narendra Modi said.
The budget largely steered away from populist announcements, although chunks of the 85-minute budget speech were devoted to schemes and sops aimed at Bihar and Andhra Pradesh, two states governed by allies Janata Dal (United) and Telugu Desam Party (TDP) whose support is crucial for the survival of the National Democratic Alliance (NDA) government.
Sitharaman announced a cluster of projects and packages – roads and highways, airports, flood control, irrigation schemes, tourist hubs, industrial nodes and power projects – totalling roughly Rs 59,000crore for Bihar, which goes to the polls next year.
For Andhra Pradesh, the finance minister announced Rs 15,000 crore for the construction of the state capital Amaravati and additional funds if required, completion of the Polavaram dam project and two industrial nodes. “Our government has made efforts to fulfil the commitments in the Andhra Pradesh Reorganisation Act. Recognising the state’s need for capital, we will facilitate special financial support through multilateral agencies,” Sitharaman added.
The Opposition flayed the budget, pointing out that not only did it not contain specific schemes for other states but also held little for Maharashtra and Haryana, two states ruled by the Bharatiya Janata Party (BJP) that are slated to go to the polls later this year. The Congress also alleged that two of the five schemes announced for young people were lifted from its manifesto.
“Kursi Bachao [save your chair] Budget. Appease Allies: Hollow promises to them at the cost of other states. Appease Cronies: Benefits to AA with no relief for the common Indian. Copy and Paste: Congress manifesto and previous budgets,” Leader of the Opposition Rahul Gandhi said on X.
But NDA members welcomed the announcements. “From the beginning, we had requested special assistance for Bihar. In response, they have announced help in several areas. We are doing a lot of work, and we will receive additional support in many aspects, which will be beneficial,” said a beaming Bihar chief minister, Nitish Kumar.
This was the first budget presented by the third iteration of the NDA, mere weeks after the BJP suffered a setback in the general elections and failed to garner a simple majority in the Lok Sabha. The party won 240 seats in the 543-member House, giving space to allies to make greater demands for their respective states.
The BJP’s sobering performance was attributed to slipping support among key demographics such as young people, women, marginalised castes and rural poor over bread-and-butter issues such as a crippling lack of jobs.
The budget sought to address this lacunae by unveiling nine priority areas for the government – productivity and resilience in agriculture; employment and skilling; inclusive human resource development and social justice;manufacturing and services; urban development;energy security;infrastructure; innovation, research, and development; and next-generation reforms – while maintaining fiscal prudence.
The sharpest focus was on young people. The government announced five schemes with an aggregate spend of around Rs 2 lakh crore for roughly 41 million people – it will pay one month’s wage up to Rs 15,000 in three instalments to every new person entering the workforce, incentivise employers up to Rs 3,000 a month for two years towards their EPFO contribution for new employees, offer a direct incentive to both employer and employee for their EPFO contribution for the first four four years, skill two million people over five years, and offer internship opportunities at 500 top companies for 10 million people over five years. The focus was on generating employment, a key grassroots grievance that hurt the BJP in the recently concluded polls. In addition to the five schemes listed above, the government also announced upgradation of 1,000 Industrial Training Institutes, government-backed skilling loans up to Rs 7.5 lakh and financial support for loans up to Rs 10 lakh for higher education in domestic institutions, making up its second thrust area – jobs.
Sitharaman made further commitments to women, including working women’s hostels and cheap loans. “For promoting women-led development, the Budget carries an allocation of more than Rs 3 lakh crore for schemes benefitting women and girls,” she said.
A third priority of the budget was maintaining fiscal discipline. It lowered its fiscal deficit target for the current year to 4.9% of the Gross Domestic Product, from the 5.1% target set in the interim budget in February and from 5.6% in the previous year. It lowered its gross borrowing target to Rs 14.01 lakh crore rupees but said it still plans to spend a record Rs 11.11 lakh crore rupees in capital expenditure on long-term infrastructure.
“The fiscal consolidation path announced by me in 2021 has served our economy very well, and we aim to reach a deficit below 4.5% next year. The government is committed to staying the course. From 2026-27 onwards, our endeavour will be to keep the fiscal deficit each year such that the central government debt will be on a declining path as a percentage of GDP,” Sitharaman said.
A revenue windfall this year has boosted the government coffers, giving it ample resources to boost spending while narrowing the fiscal deficit. The Reserve Bank of India paid the government a record Rs 2.1 lakh crore dividend this year, while tax revenues surged on the back of a stronger economy.
Taxes were a fourth key area. The government raised the short-term capital gains tax – on stocks held for less than one year – to 20% from 15%, and the long-term capital gains tax – for stocks held for over one year – to 12.5% from 10%. The step was seen as an effort to arrest the frenzy that has propelled the markets to record highs, a day after the economic survey sounded a word of caution on galloping markets. It caused a temporary slide in India’s benchmark indices but they recovered shortly after and ended the day flat.
Sitharaman reduced customs duties on items ranging from cancer drugs, mobile phones, chargers, seafood, gold, critical minerals and seafood. She also tweaked the new tax regime slabs and raised the standard deduction limit from Rs 50,000 to Rs 75,000. “As a result of these changes, a salaried employee in the new tax regime stands to save up to Rs 17,500 in income tax,” she said.
There were a string of other announcements – more funding for agricultural research, a movement towards small nuclear reactors and solar power for energy security, credit guarantee schemes and cheap loans for micro, small and medium enterprises, expanded urban housing, a new scheme for tribal people, and digitised land records – that hinted that the government was thinking about initiating next-generation reforms and a simplification of the tax framework.
But the four main priorities outlined the government’s immediate and medium-term outlook – resolve the lingering problem around too few new jobs, win back key demographics such as young people disillusioned over bread-and-butter issues, shun populism as much as possible by training focus on fiscal prudence, but also ensure that allies critical to its survival remain in good humor.
