Interim Budget 2024-25: Finance Minister to Present Interim Budget 2024-25, balancing populist measures and fiscal consolidation. Focus on capex growth, MGNREGA allocation, women empowerment, tax relief, affordable housing, and economic revival.
Finance Minister Nirmala Sitharaman is all set to unveil the Interim Budget for 2024-25 in a few hours. As per practice, the Centre will present a vote-on-account for the next financial year given that the general elections are scheduled around April-May.
Despite Sitharaman ruling out any “spectacular announcement” for her sixth budget since it is an interim one, there are expectations that the government will strike a balance between a few populist measures and fiscal consolidation.
Experts believe that while the interim budget will likely target measures to further empower women and provide higher allocation for the flagship rural job plan, capital expenditure could see relatively modest growth in its outlay as the Centre looks to keep a lid on its fiscal deficit.
Capex Conundrum
The budget estimate of Rs 10 lakh crore for capital expenditure in the current financial year marks a whopping 33.4 percent growth over the previous fiscal’s allocation. However, economists see a slowdown in the growth of the outlay for the next financial year as the central government will be looking to cut its fiscal deficit to adhere to the medium-term objective of 4.5 percent of the GDP by 2025-26.
In a note outlining their pre-budget expectations for 2024-25, ICRA said that it estimates a capex outlay of 10.2 trillion in FY25, “implying a relatively sedate on-year expansion of 10 percent compared to over 20 percent expansion seen in each of the post-Covid years”. The slowdown in capex growth is likely to have some bearing on economic activity and GDP growth, it added.
ICRA further said that a higher amount of capex vis-à-vis their expectation for 2024-25 would to an extent impinge on the government’s ability to meet the required fiscal consolidation.
According to a Moneycontrol poll, the Centre may look to lower its fiscal deficit to 5.3 percent of GDP in 2024-25 from 5.9 percent in the current financial year.
However, according to the Confederation of Indian Industry (CII), the Centre should increase spending on capex by at least 20 percent to Rs 12 lakh crore in the next fiscal. And although this would be lower than the growth rates witnessed in the last three years, it would be higher than the pre-pandemic annual growth rate of 12 percent seen between FY16 and FY20, the apex industry body said.
The allocation for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was Rs 60,000 crore for 2023-24, a steep cut from the previous year’s outlay of Rs 89,400 crore. Following this, the central government, on December 6, sought the Lok Sabha’s nod to spend an additional Rs 14,524 crore as part of its first batch of supplementary demands for grants.
There are expectations that unlike last fiscal, ahead of elections, the Centre will handsomely allocate this flagship rural job scheme.
According to Ramendra Verma, partner at Grant Thornton Bharat, MGNREGA has contributed significantly to rural employment and asset creation. The government, however, needs to address challenges related to payment delays, skill development, and programme implementation.
A recent media report said that the Centre could allocate around Rs 88,000 crore for the rural employment guarantee scheme in the interim budget for FY25. However, according to ICRA, the budgeted outlay is likely to be Rs 600 billion, to contain the fiscal deficit, and any additional outlay may be announced in the supplementary demand for grants later during the fiscal, as seen in the recent years.
Empowering women
In the Budget for the current fiscal, the finance minister had announced a new one-time small saving scheme for women called Mahila Samman Saving certificate, which will be available till March 2025 and offer a fixed rate of interest at 7.5 percent. Under this scheme, a deposit of up to Rs 2 lakh can either be made in the name of a woman or a girl child for a maximum of a two-year tenure.
The scheme also entails a partial withdrawal option to help women in emergencies, making it an important financially benefitting scheme for Indian women.
This second female-only small savings scheme after Sukanya Samriddhi Yojana, was one of the steps taken during the last Budget to fiscally empower women. And, for FY25, there are expectations of more measures focussing on women.
“Narishakti is expected to get more thrust in the interim budget as well as when the full budget comes into effect. In India, women’s contribution to GDP falls significantly behind the global average. And hence India has an opportunity to improve its GDP growth rate by up to 1.5 percentage points,” Grant Thornton Bharat’s Verma said.
According to Radha Goenka, director of RPG Foundation, the budget presents an opportunity to bridge the gap between policies and their on-ground implementation, particularly for women’s welfare.
“Strengthening infrastructure for childcare and elderly care can help address the primary care burden on women and promote equal opportunities by levelling the playing field. Insights from global models highlight the effectiveness of fostering public-private partnerships. The government can consider such a model to make digital resources accessible and support women to leverage opportunities to improve their socio-economic well-being,” Goenka added.
Tax Relief
The government is anticipated to benefit from higher-than-budgeted revenue receipts this fiscal, primarily led by an impressive growth in direct taxes. With the interim Budget slated to be unveiled in a few hours, many expect relief on personal income taxes ahead of elections. Speculations are rife that the personal income tax rebate may be increased from the current Rs 7 lakh to Rs 7.5 lakh in the vote-on-account.
VK Vijayakumar, chief investment strategist, Geojit Financial Services indicated that the interim budget may not feature any “spectacular announcements”, relief on income tax for lower income tax slabs is likely.
In the Union Budget for 2023-24, the Centre had raised the threshold for income-tax rebate from Rs 5 lakh to Rs 7 lakh for assessees opting for the new direct tax regime. Even the basic exemption limit in the new tax regime was Rs 3 lakh, from Rs 2.5 lakh earlier. This was largely seen as a move to make the new tax regime more attractive by providing greater rebates.
Industry lobby CII has suggested linking exemption limits and rebates of personal income tax with inflation.
The standard deduction was brought back in Budget 2018 with a cap of Rs 40,000. The limit was increased to Rs 50,000 to incentivise individual taxpayers. The benefit of such standard deduction was extended to the new tax regime in Budget 2023.
“Given the high rate of inflation and the increase in living expenses of salaried individuals over the past few years, the standard deduction of Rs 50,000 is very low. As a result, periodic revisions to standard deduction are essential to account for the rising cost of living for the salaried class,” Akhil Chandna, partner at Grant Thornton Bharat LLP, said in an article for Moneycontrol on January 18.
Moneycontrol, on January 9, reported that the government may announce exemption from tax collected at source (TCS) on overseas credit and debit card spending by an individual, for up to Rs 7 lakh per financial year, in the interim budget.
Affordable Housing
The Pradhan Mantri Awas Yojana (PMAY) got a massive push in last year’s budget with the outlay for the scheme increased by 66 percent to over Rs 79,000 crore for the current fiscal.
Launched in June 2015, PMAY aims to provide pucca houses with basic amenities to all eligible urban beneficiaries. It also seeks to resolve the urban housing shortage among low and middle-income groups and promote homeownership among women.
Shabala Shinde, partner at Grant Thornton Bharat, says that as India aims to become a $7-trillion economy by 2030, demand for affordable housing will increase. This would require urgent policy and fiscal incentives are needed to boost both demand and supply.
“The affordable housing sector’s contribution in overall sales has dropped from 40 percent in 2019 to 20 percent in 2023, requiring a revitalised effort. Key demands include, extending the PMAY scheme, redefining affordable housing, and enhancing interest deduction to motivate homebuyers,” Shinde said.
A new home loan interest subsidy scheme for low and middle-income groups has also been in the works. This scheme is expected to replace the discontinued Credit Linked Subsidy Scheme (CLSS), a sub-scheme of PMAY(U).
Atul Monga, chief executive and co-founder of Basic Home Loan, expects the Budget to announce the implementation of the interest subvention scheme for urban housing. This scheme, which aims to provide subsidised home loans was introduced in October and is currently pending cabinet approval.
“This scheme aims to provide an annual interest subsidy ranging from 3 percent to 6.5 percent on loans up to Rs 9 lakh. This move is expected to boost the demand for home loans significantly, aiding a vast segment of urban homebuyers, particularly those in lower-income groups, and revitalizing the housing market,” he added.
On the fiscal side, the Union and state governments need to work in tandem to accelerate public investments in housing, says Hari Nayudu, an economist at NIPFP, adding that though there are dedicated Centrally Sponsored Schemes for housing, some hurdles need to be addressed to achieve affordable and sustainable housing in India.
“Simplify tax and administrative laws on housing and real estate, focus on land monetisation, land title digitalisation and urban planning,” Nayudu added.
Industry body CII has recommended hiking the allocation for Pradhan Mantri Awas Yojna as well
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