Budget 2024: What economic analysts expect from Modi government
Finance Minister Nirmala Sitharaman will present the Union Budget for 2024-25 in the Lok Sabha on July 23. As the presentation nears, speculations abound as to what the Narendra Modi government will be announcing. Economic analysts expect the new government to focus on job creation and income growth following the recent election setback where PM Modi's party failed to secure a majority. "We think the budget will balance economic imperatives with political ones," Shreya Sodhani, regional economist at Barclays, said.
Surplus funds to fuel increased government spending
Sodhani added that the government is likely to use surplus funds from the Reserve Bank of India (RBI) dividend and higher tax revenues for increased spending rather than reducing the deficit. A record $25 billion surplus transfer from the RBI will provide more room for government spending without expanding the deficit. The fiscal deficit target is expected to remain at 5.1% of gross domestic product.
Infrastructure and manufacturing to stimulate growth, generate jobs
Over the past three years, government spending on long-term infrastructure projects has nearly doubled as a strategy to stimulate growth and generate jobs. Economists at Nomura anticipate that the government will continue its focus on promoting domestic manufacturing. They predict an increase in local procurement requirements and an extension of a concessional tax rate for new manufacturing facilities.
Potential tax cuts, increased subsidies to provide middle-class relief
According to Reuters, the budget may also lower personal income tax for some categories and increase state subsidies on rural housing and food. Political analyst Rasheed Kidwai noted that it's time for the government to provide relief to the middle class who have been supporting Modi but have not seen much relief in recent years. However, key allies of the Modi government have demanded $6 billion in funds for their states, which could lead to similar demands from others.
Government may increase interest-free loans for infrastructure
Kidwai warned that preferential treatment to the allies could lead to discontent. One possible solution could be an increase in interest-free long-term loans offered by the central government for infrastructure projects. Despite these pressures, the government is expected to maintain or lower its planned market borrowing for the year due to slow spending in the first half of the year and strong tax collections. The budget will replace interim estimates for the fiscal year 2024/25 that started on April 1.
