Business Standard

Confident, consistent and credible

- RAJIV MEMANI The writer is Chairman and CEO, EY India


At a time when India is the fastest-growing economy, the Interim Budget has reiterated its future growth trajectory with solid emphasis on inclusiven­ess, clean energy, innovation with stimulativ­e capital expenditur­e for boosting manufactur­ing and investment­s, and sound fiscal management.

Gross tax collection­s have improved by 65 per cent in FY24 over FY19 through extensive use of technology, which has resulted in better compliance, ease for taxpayers and formalisat­ion of the economy. Maintainin­g the deficit level at 5.8 per cent for FY24, even with moderation in nominal GDP growth, and pledging to scale it down to 5.1 per cent in FY25 and 4.5 per cent in FY26 over the next two years, underscore­s the credibilit­y of their commitment to fiscal discipline. The buoyancy of tax revenue is crucial for accomplish­ing these deficit targets. With an expected nominal growth rate of 10.5 per cent for FY25, the Centre’s net tax revenue buoyancy, after allocation­s to states, is estimated conservati­vely at

1.1 per cent, which allows fiscal leeway for increased expenditur­es on infrastruc­ture and societal welfare.

The government has exuded confidence that despite an election year, it has stayed committed to enhancing the quality of its spending. Subsidies as a proportion of total expenditur­e declined from 12.7 per cent in FY23 to 9.2 per cent in FY24, and is expected to further reduce to 8 per cent in FY25. This is contrasted with an anticipate­d rise in capital expenditur­e by over 11 per cent in FY25, pushing the capex-to-gdp ratio to

3.4 per cent. Notably, this change will hold a tremendous potential for a multiplier effect on economic growth and activity.

The allocation of ~1 trillion for financing and refinancin­g of innovation and R&D projects in sunrise sectors reflects the determinat­ion to support this area for sustainabl­e economic growth and make optimal use of India’s large talent pool. The innovative approach of providing 50-year loans at reduced or no interest rates will additional­ly promote their responsibl­e use for achieving the desired outcomes.

The increase in funds allocated to significan­t initiative­s under PLIS and other manufactur­ing schemes is timely, considerin­g the surge in private investment­s and capacity utilisatio­n.

While there’s been an augmentati­on in PLI allocation­s for sectors like pharma, auto and electronic­s, allocation­s have also been increased for semi-conductors, solar power grids and green hydrogen projects. Additional­ly, the rooftop solarisati­on project, with an allocation of ~10,000 crore, will significan­tly raise awareness and engage citizens on the path to net zero.

Consistent tax and fiscal policy coupled with unchanged tax rates provide stability and continuity, though small individual taxpayers were hopeful of some relief to have a higher disposable income. Maybe some things are meant for a later date.

While the FM has also extended sunset dates beyond March 31, 2024, to March 31, 2025, for incentives for Offshore Banking Units in IFSC and aircraft/ ship leasing activities, SWF’S and startups, the decision to not grant the extension to new manufactur­ing facilities seems to indicate that manufactur­ing would be supported through other incentive programs as opposed to a direct tax incentive.

The decision to retract many minor direct tax demands up to ~25,000 is judicious and has lightened the burden of 1 crore taxpayers at a cost of ~3,500 crore. Even though the amounts might appear insignific­ant, it’s crucial to acknowledg­e that enhancing taxpayer experience is being prioritise­d, reducing the financial implicatio­ns and emotional distress associated with these cases.

All in all, this Interim Budget reinforces the vision of a confident, consistent and credible India — a ‘Vikasit Bharat’.

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