Confident, consistent and credible

WITH AN EXPECTED NOMINAL GROWTH RATE OF 10.5% FOR FY25, THE CENTRE’S NET TAX REVENUE BUOYANCY, AFTER ALLOCATIONS TO STATES, IS ESTIMATED CONSERVATIVELY AT 1.1%

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’.