Budget 2024: Setting the stage for India's sustained economic growth

The full Budget for FY25 signals policy continuity and retains focus on fiscal consolidation, a central tenet of the previous government. It also underscores the government's key focus areas which are fiscal prudence, job creation, infrastructure capital expenditure (capex), and simplification of the tax regime.

The fiscal deficit for FY25 was pegged at 4.9 per cent, well below the 5.1 per cent target presented in the Interim Budget in February 2024. The government has judiciously used available fiscal headroom from the higher-than-expected RBI dividend and strong tax collections to increase expenditure in key sectors such as agriculture and labour, while simultaneously accelerating fiscal consolidation. Further, the government has also laid out a credible plan to achieve an even lower fiscal deficit of 4.5 per cent of GDP by FY26. The projected decrease in government borrowing, combined with the ongoing inflows related to India’s bond index inclusion, is positive for fixed-income markets and will help reduce borrowing costs across the economy. Reining in the fiscal deficit also augurs well for a sovereign rating upgrade.

It is worth noting that the share of capex in total expenditure (3.4 per cent of GDP) remains at the highest level since FY05, while maintaining fiscal prudence. This bodes well for capital formation, employment, and the manufacturing sector. A special package was announced for eastern states that included fiscal support for the construction of roads, airports, medical colleges, power plants, etc.

The Budget had a strong focus on employment generation with measures including a wage incentive for first-time employees entering the formal sector, three new schemes for job creation, and support for the MSME and agri sectors, which are large employment generators. There was also an emphasis on skilling with the announcement of a plan to skill two million youth, an internship programme for young students, and an annual interest subvention scheme of 3 per cent for 100,000 students.

Several support measures were announced for the MSME sector, which accounts for about 30 per cent of GDP and provides employment to over 120 million Indians. The measures include credit guarantee schemes, doubling of the Mudra loan limit, as well as guaranteed funding for stressed companies. Further, Covid-related learnings from the ECLGS — a scheme that benefitted 119 million MSMEs and CGTMSE — have been incorporated.

The Budget has several business-friendly measures such as the plan to simplify the GST regime, overseas investments, FDI, Esops, TDS, etc. 

The creation of a platform for the debt resolution process, and an increase in the number of debt tribunals will improve the efficiency and transparency of the Insolvency and Bankruptcy Code (IBC) process.  

On individual income tax, a higher standard deduction and expansion of slabs were announced — both applicable under the new simplified tax regime. These will provide a fillip to household consumption while spurring higher adoption of the new simplified tax regime. Abolishing the angel tax is a very progressive step and will encourage new investments in the startup sector.

On the sustainability front, the announcement to set up the Critical Mineral Mission for domestic production, recycling of critical minerals, overseas acquisition of critical mineral assets, and the exemption of customs duties on 25 critical minerals, will ensure access to strategic rare earth supplies, and help achieve net-zero emission targets.

To conclude, this Budget has shown the government’s strong commitment to policy continuity, job creation, and infrastructure thrust, while maintaining fiscal prudence. 

The multiplier effect of the measures announced is likely to accrue in the coming years and put India on the path to sustained economic resilience.

The writer is CEO, India and South Asia, Standard Chartered Bank