Finance Minister Nirmala Sitharaman unveiled the Union Budget for 2024-25 on 23rd July 2024, aiming for economic resilience and inclusive growth. This budget addresses unemployment, skill development, and infrastructure enhancement, laying a foundation for future prosperity.
A substantial ₹2 lakh crore is allocated to five new schemes focused on job creation and skilling for 4.1 crore youth, showcasing the government's commitment to workforce empowerment. The budget outlines nine key priorities, from agricultural productivity to next-generation reforms, in a comprehensive development approach.
Three innovative employment schemes offer direct benefit transfers, EPFO (Employees’ Provident Fund Organisation) linked incentives, and employer reimbursements to stimulate job creation and economic activity. Support for MSMEs includes measures to ensure bank credit continuity, increase Mudra loan limits, and establish E-Commerce Export Hubs, bolstering small businesses.
Significant allocations were made to Bihar and Andhra Pradesh. Bihar received ₹26,000 crore for infrastructure projects and ₹21,400 crore for power projects, while Andhra Pradesh was allocated ₹15,000 crore for developing its capital city, Amaravati. These investments aim to support the infrastructure and development needs of these states, raising questions about whether this reflects a balanced approach to national development or a strategic move to secure political support from key states?
Fiscal prudence is emphasized, with a projected fiscal deficit of 4.9% of GDP for FY25, down from 5.1% in the Interim Budget, aiming for below 4.5% next year. Tax reforms include revised capital gain taxes and reduced customs duties, expected to ease taxpayers' financial burdens and stimulate investment.
Overall, the Union Budget 2024-25 emphasizes inclusive growth, fiscal responsibility, and strategic investments in human capital and infrastructure, laying a solid foundation for a prosperous and equitable India.
INFRASTRUCTURE
The Union Budget 2024-25 places a significant emphasis on infrastructure development, maintaining a robust capital expenditure (capex) allocation of ₹11.11 lakh crore, which constitutes 3.4% of GDP. This substantial investment underscores the government’s commitment to strategic investments in both public and private sectors, aiming to drive economic growth and create jobs. Key programs focus on enhancing transportation infrastructure, including economic railway corridors, port connectivity, and high-traffic density corridors. The aviation sector, which has seen remarkable growth, will benefit from plans to develop new airports, enhancing connectivity and boosting tourism.
On the social infrastructure front, the budget continues to prioritize housing. The announcement to build an additional 2 crore houses under the Pradhan Mantri Awas Yojana highlights the government’s commitment to providing affordable housing and stimulating the construction sector. This initiative is expected to generate a positive ripple effect across various industries, including cement, steel, and other construction materials.
EMPLOYMENT SCHEMES
The budget introduces three innovative schemes aimed at incentivizing employment, particularly for first-time employees and the manufacturing sector. Scheme A provides first-time employees in all formal sectors with a direct benefit transfer (DBT) of one month’s salary, up to ₹15,000, in three installments. Scheme B focuses on job creation in the manufacturing sector by providing incentives to both employees and employers based on their EPFO contributions for the first four years of employment. Scheme C offers employers reimbursement of up to ₹3,000 per month for two years towards their EPFO contribution for each additional employee, with a salary cap of ₹1 lakh per month. This scheme is expected to benefit 2.1 lakh youths.
SUPPORT FOR MSMEs
Micro, Small, and Medium Enterprises (MSMEs) are a vital part of the Indian economy, and the budget introduces several measures to support them. These include a new mechanism to ensure the continuation of bank credit during stress periods, increasing the limit of Mudra loans from ₹10 lakh to ₹20 lakh, and reducing the turnover threshold for mandatory onboarding on the TReDS platform from ₹500 crores to ₹250 crores. Additionally, the budget provides financial support for 50 multi-product food irradiation units and plans to establish E-commerce Export Hubs in PPP mode to enable MSMEs and traditional artisans to sell their products in international markets.
SKILLING PROGRAMMES
The budget includes a comprehensive package to boost skilling and education, recognizing the importance of a skilled workforce for economic development. It plans to upgrade 1,000 Industrial Training Institutes (ITIs) in a hub-and-spoke arrangement over five years, ensuring that these institutes can provide high-quality training. The government aims to skill 1 crore youth through internships in top companies, with a 12-month Prime Minister’s Internship providing a monthly allowance of ₹5,000.
CUSTOM DUTIES
The budget announces several changes in customs duties and tax reforms to boost manufacturing and ease the financial burden on taxpayers. Customs duties on gold and silver have been cut to 6%, and on platinum to 6.4%. Lithium, copper, and cobalt are now exempt from customs duty, reducing costs for various industries. The exemption list for capital goods used in manufacturing solar cells and panels has expanded, promoting renewable energy. Basic Customs Duty (BCD) on MDI for manufacturing spandex yarn has been reduced from 7.5% to 5%, and customs duty on manufacturing connectors and oxygen-fused copper has been exempted.
TAX REFORMS
Significant tax reforms have also been introduced. Short-term capital gain tax on certain financial assets has increased to 20%, while long-term capital gain tax on financial assets has been revised to 12.5%. Revised income tax slabs are expected to save taxpayers ₹17,500. Additionally, the TDS rate on e-commerce operators has been cut to 0.1% from 1%, reducing compliance burdens.
The budget dismantles barriers to investment and innovation. The angel tax, which discouraged investment in startups, has been abolished for all investor classes. Income from share buy-backs by companies will now be charged as dividends, and the cost of such shares treated as a capital loss to the investor. The budget also enhances the International Financial Services Centre (IFSC) by extending tax exemptions to retail schemes, ETFs, core settlement guarantee fund incomes, and certain finance companies. Venture capital funds in the IFSC are exempt from explaining their source of funds and specified funds' income from securities is not subject to a surcharge.
However, indexation benefits on property sales have been removed, and long-term capital gains tax on property sales is set at 12.5%. The budget also increases the Securities Transaction Tax (STT) on options transactions from 0.0625% to 0.1% of the option premium and raises the STT on futures transactions from 0.0125% to 0.02% of the futures price. These adjustments aim to generate additional revenue and align the tax structure with evolving financial market dynamics.
MAJOR SECTOR EXPENDITURE
The budget outlines substantial allocations for various sectors to drive economic growth and development. Key allocations include ₹4,54,773 crore for defence, ₹2,65,808 crore for rural development, ₹1,51,851 crore for agriculture, ₹1,25,638 crore for education, ₹89,287 crore for health, and ₹68,769 crore for energy. These allocations reflect the government’s commitment to strengthening these critical sectors and ensuring balanced development across the country.
Impact on Prices
The budget’s changes in customs duties and tax reforms are expected to impact the prices of various goods. Items that will become cheaper include mobile phones, chargers, precious metals, cancer drugs, solar energy parts, and certain broodstock. On the other hand, items that will become costlier include ammonium nitrate, PVC flex films, laboratory chemicals, and non-biodegradable plastics. These adjustments aim to balance the needs of different industries while promoting sustainable practices and reducing the overall tax burden on consumers.
A Future-Forward Fiscal Blueprint
While the changes in Securities Transaction Tax (STT) on futures and options transactions might discourage excessive trading, they could also generate higher revenue from taxes. The revised income tax slabs favour salaried employees, potentially boosting consumer spending and economic growth.
Overall, the Union Budget 2024-25 is a forward-looking financial blueprint that aims to achieve a balanced approach to growth, fiscal responsibility, and strategic investments. It sets a clear path towards a prosperous and equitable India, addressing current challenges while laying the groundwork for future advancements.
As India navigates this transformative journey, it is essential to consider how these changes will impact various sectors.
Considering the tax reforms and other major steps taken in this budget, will the traders evolve into long-term investors, or will their returns simply bolster the government's tax revenue?
Author: Alok Kumar Pandey
Illustration: Japneet Singh
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