By CA Verendra Kalra
Union Finance Minister Nirmala Sitharaman presented her seventh Union Budget, which was also the first Budget of the third NDA Government under Prime Minister Narendra Modi.
Coming in the backdrop of the less than expected majority secured by the Modi Government in the recent elections, the budget predictably walked the fine line between securing political stability for the government and, at the same time, macroeconomic stability for the country. Politically significant states such as Bihar and Andhra Pradesh were expectedly the largest beneficiaries in the allocation mathematics of the budget. It goes to the credit of this NDA government that despite political compulsions it never had to face before, the budget stayed the course on the fiscal path by trimming the fiscal deficit to 4.9%, well on the way to meeting the target of 4.5% by 2025-26.
The budget hit the right notes with its focus on 4 major ‘castes’, namely ‘Garib’ (Poor), ‘Mahilayen’ (Women), ‘Yuva’ (Youth) and ‘Annadata’ (Farmer).
Keeping in mind the vision of Viksit Bharat by 2047, the FM presented a finely tuned budget with a strong emphasis on employment, skilling, MSMEs and the middle class, with the following nine key priorities:
- Productivity and resilience in Agriculture
- Employment & Skilling
- Inclusive Human Resource Development and Social Justice
- Manufacturing & Services
- Urban Development
- Energy Security
- Infrastructure
- Innovation,
- Research & Development and
- Next Generation Reforms
In the next two years, 1 crore farmers across the country are targeted to be initiated into natural farming, supported by certification and branding. Further, 6 crore farmers to be brought into the farm and land registry and Kisan credit cards to be provided. DPI, an area where the government has a successful track record, is now planned to be extended in the agriculture sector for coverage of farmers and their lands in 3 years. Other initiatives in this sector talk about strengthening production, storage, and marketing for self-reliance in pulses and oilseeds and facilitating the implementation of digital public infrastructure for farmers in association with states. A National Cooperation Policy will be framed for the systematic, orderly development of the cooperative sector.
Similarly, digitisation of urban land records through GIS mapping and an IT-based system for property records management is proposed to be carried out. This would help urban local bodies increase their property tax collections, thereby improving their finances.
On the skilling front, 20 lakh youth are intended to be skilled over a 5-year period. 1,000 Industrial Training Institutes will be upgraded in hub and spoke arrangements with outcome orientation. For promoting women-led development, the FM announced that the budget carries an allocation of more than Rs 3 lakh crore (Rs 3 trillion) for schemes benefitting women and girls.
To enhance credit flow to MSME’s, a new credit assessment model, based on the scoring of digital footprints of MSMEs in the economy is proposed to be developed. Reduced turnover threshold of buyers for mandatory onboarding on the TReDS platform from Rs 500 crore (Rs 50 billion) to Rs 250 crore (Rs 2.5 billion) would also help MSMe’s access working capital by converting their trade receivables into cash.
On the infra front, the development of investment-ready “plug and play” industrial parks with complete infrastructure in or near 100 cities, in partnership with the states and private sector is a good step. An investment of Rs 10 lakh crore (Rs 10 trillion) for the construction of 1 crore houses in cities under Pradhan Mantri Awas Yojana-Urban 2.0, of which Rs 2.2 lakh crore (Rs 2.2 trillion) is proposed under central assistance over five years.
The FM also announced an Rs 1,000 crore (Rs 10 billion) venture capital fund to give a push to the space economy, towards the goal of five-fold expansion of the sector in the next ten years.
The budget was encouraging for the Indian startup ecosystem also. The proposal to completely remove rather than tinker with the Angel Tax has come as a big relief and will help the ecosystem to flourish. It was a long-standing demand of the industry. Start-ups and investor ecosystem require an environment of faith and trust to grow and contribute innovatively to the economy.
Further, to enhance revenue, a hike in Long Term Capital Gains tax has been announced, from 10% to 12.5%, with no indexation benefits, which will be a dampener for the real estate industry. With a small reduction in tax rate slabs, individual taxpayers are being nudged to go for the new tax regime. Further, reassessment provisions are proposed to be rationalised and the outer time limit to reopen assessment is proposed to be reduced from 10 years to 5 years from end of the assessment year in certain cases. This will help usher in certainty and trust in the business environment.
International tax proposals include expansion of safe harbour rules and streamlining transfer pricing assessments to reduce international tax disputes. Measures have been proposed to attract foreign investments, including reduced tax rate for foreign companies from 40% to 35% and simplifying tax regimes for foreign shipping and mining entities. However, there was not much hint in the budget on the direction of India’s tax policy for implementing the OECD’s GMT rules. Since a comprehensive review of the income-tax law has been promised in the next 6 months, a staggered implementation of the same is most likely in India.
On the indirect tax front, there is an articulation in this budget of an intent for simplification of GST and Customs duty rate structure and a promise to do so even more in the times to come.
The introduction of amnesty schemes in both direct and indirect tax front were unexpected but welcome steps to reduce litigation and promote ease of doing business.
The Union Budget 2024 seems to have the right mix of fiscal prudence and strategic spending, with the government tightening its purse strings on capital gain benefits, while boosting capital expenditure for infrastructure. Despite this, the unchanged allocations for critical sectors like railways, highways, education and healthcare have left many hoping for more, as these are key to the nation’s long-term growth and well-being. Essentially, the budget has been cautious with its resources, aiming for economic stability but not at the cost of potential investments in the social fabric of India. While the budget provides a robust framework for growth in the medium term, harnessing the latent demographic dividend to meet the burgeoning aspirations of the country’s youth, being the Gen-Z and Gen-Alpha’s as we now define them, will be the biggest challenge and priority for any government in the years to follow.
(The author is a practicing Chartered Accountant and the Convener of the Panel on Start Ups, Education & Skills, CII Uttarakhand State Council)
