Deepanshu Mohan 
The humbling tone in the finance minister’s Budget address as part of the first full Union Budget presented by the Narendra Modi 3.0 government (with weaker electoral strength in the Lok Sabha) has a cautious reality check for observers, both within and outside the government.
It seems the Modi government, after all these years, has (finally) realised how structural issues around employment creation, high youth unemployment, high inflation (combined with farmer distress), struggling MSMEs and middle-income groups, had to catch hold of the government’s attention for critical action.
According to the Economic Survey presented on July 22, India has demonstrated greater economic resilience than other emerging markets in the face of global supply chain disruptions caused by geopolitical tensions, showcasing its robust macro-growth trajectory.
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The country maintained strong fiscal discipline, achieving a fiscal deficit of 4.9% of GDP for FY25, which deserves to be highlighted. However, the distributive ends of this growth and the substitutive cost of replacing welfare expenditure for a higher capex (to boost private investment) widened inequality and exacerbated existing divides in rural-urban areas and between higher and lower income (wealth-class) groups.
In this Budget, the total outlay has not changed much from the one in the interim budget. The funds have been channelled to agriculture and rural development, housing, and MSMEs – they are at the centre of the job creation objective.
It can be said that the outlayed expenditures have been made to work better in terms of generating employment, which is positive to note as a signaling device by the finance ministry, given how dismissive it has remained on the employment issue. The current measures include direct payments to be made by the government for first-time employees, based on provident fund data. Incentives have been given to employers too for increasing employment.
The government has continued to maintain its focus on increased capital expenditure, bolstered by confidence stemming from significant changes in taxation. However, a key objective remains on reducing the fiscal deficit, which is critical for fiscal consolidation. The estimate for the fiscal deficit has been lowered to 4.9% of GDP from 5.1% in the interim budget. Finance Minister Nirmala Sitharaman has further set an ambitious target to bring the fiscal deficit below 4.5% by FY26.
Fiscal Deficit as a percentage of GDP. Source: Budget 2024 – 25
Market borrowing has also seen a reduction, with revised estimates showing gross market borrowing at Rs 14.01 trillion, down from Rs 14.13 trillion projected in the interim budget. Net market borrowing has also been adjusted to Rs 11.63 trillion from the previously stated Rs 11.75 trillion, Sitharaman announced.
This revised borrowing plan for FY25 reflects the government’s strategy to manage its finances more efficiently and reduce reliance on borrowing, signaling a shift towards fiscal prudence. In FY24, the Centre had borrowed a record Rs 15.43 trillion on a gross basis and Rs 11.80 trillion on a net basis. The reduction in borrowing aligns with the downward revision in the fiscal deficit target, further underscoring the government’s commitment to maintaining fiscal discipline.
On tax, the government has signaled a clear intent for taxpayers to move towards the new income tax system. It has looked only at the new income tax regime and not spoken of the old one. It has stated that two-thirds of taxpayers have opted for this alternative. Benefits have been given in terms of an increase in standard deduction and tax slabs have been tweaked.
In effect, the finance minister has stated that there would be a gain of Rs 25,000 as standard deduction and Rs 17,500 per annum on tax saved. This is a plus as it will increase income and hence give people the option to either consume or save the amount. In the extreme case of adjusting for inflation, this will protect real disposable income. Therefore, there are benefits for the common man. It also gives the message that the government would like everyone to migrate to the new scheme.
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The revised income range for individuals in the 5% tax slab has increased to seven lakh from six lakh. For 10% income taxpayers, the scale has increased from nine lakh to ten lakh, while the remaining 15%, 20% and 30% tax slabs remain unchanged. Although the shift from the old tax regime to the new one is being witnessed, modifications in the new tax slabs would undoubtedly make the new taxation system more attractive and feasible for the higher middle class-even if by a limited margin.
Furthermore, an increase in taxation for short term and long term capital gains of 12.5% from 10% and 20% instead of 15% respectively, has led to a dip in the intraday Nifty50 stocks. Visibly, India’s status as a manufacturing hub and hotspot for foreign investments was brought to focus, with a 5% reduction in foreign company tax rate from 40% to 35%.
The Budget rather failed to address the rising higher consumer inflation issue more effectively, which currently stands at 5.08% as of June 2024. Although it aims to ensure that inflation moves towards the 4% target. It must be noted that inflation is based on CPI (Consumer Price Index) and does not take into account WPI (Wholesale Price Index) which jumped to 3.36% in June. Analysis suggests that WPI inflation was driven by food inflation as well as manufacturing related costs.
In a concerted effort to enhance India’s struggling manufacturing hub, the government has introduced several key initiatives designed to drive growth and innovation. Among the most notable is the Credit Guarantee Scheme for MSMEs, which provides vital financial support to small and medium-sized enterprises. This scheme is aimed at facilitating easier access to credit and fostering expansion within the sector, which was much needed after the nature of heavy crisis blows struck at MSMEs since 2016 and the pandemic.
Another critical measure is the enhancement of Mudra Loans, where the limit for the ‘Tarun’ category has been increased from Rs 10 lakh to Rs 20 lakh. This move is expected to inject much-needed capital into the struggling MSMEs, empowering them to scale operations and enhance productivity. However, a lot more over the next three-five years would be needed by the government to ensure this.
The government through its current Budget seems to also be focusing on the broader quality and safety by supporting MSME Units for Food Irradiation, Quality & Safety Testing. These units are crucial for ensuring that products meet stringent safety standards, thereby boosting consumer confidence and marketability.
Additionally, the development of 12 industrial parks under the National Industrial Corridor Development Programme represents a strategic investment in infrastructure. These parks are set to provide a robust platform for manufacturing activities, offering modern facilities and connectivity to support industrial growth. But, execution remains the key-given how poorly the Modi government has performed on implementing its own government funded infra-projects.
On agriculture, the current government has offered a range of new initiatives aimed at improving sustainability and efficiency. A major highlight is the ambitious plan to integrate one crore farmers into natural farming practices over the next two years. This initiative will be bolstered by comprehensive support in the form of certification and branding, ensuring that farmers receive the recognition and market access needed for success.
In addition, the establishment of 10,000 need-based bio-input resource centers will provide essential support and resources to farmers, promoting the use of eco-friendly agricultural inputs. Still, the legally backed MSPs for a diversified crop basket and a targeted intervention on increasing farm incomes remains an illusory goal.
The rollout of Digital Public Infrastructure (DPI) is set to “revolutionise” agricultural management. Over the next three years, according to the government, DPI will enhance coverage for farmers and their lands, streamlining operations and improving data accessibility. A significant part of this digital transformation includes a digital crop survey to be conducted across 400 districts, facilitating better monitoring and decision-making.
Further supporting farmers, the issuance of Jan Samarth based Kisan Credit Cards will provide crucial financial assistance, helping farmers access credit with greater ease and efficiency.
Overall, the Union Budget 2024-25 presents a comprehensive plan for growth and stability, its success will depend on the effective implementation of its policies and addressing the underlying economic challenges, to ensure sustainable progress and economic resilience.
Tokenistic welfarism
As this author argued earlier, the Modi government has worked hard to provide greater fiscal benefits on the supply side for the private sector, at the risk of eroding, almost dismantling the existing social/economic safety net for the vulnerable, without ensuring any substantive investments in human capital formation. That approach hasn’t changed much this Budget.
The reason for this latter issue (the inability to provide a higher-mobility fiscal plan) is directly related to an ‘entitlement-centered’ view of economic welfare that the government seems to practice, driven by a political (more narrowly an electoral) rationale. From the 80 million people receiving ‘free ration’ to seasonal cash-transfers provided to low-income women households, the government has prioritized entitlement over empowerment to its citizenry. This is where the average Indian citizen has become atmanirbhar by circumstance -or apathetic indifference by its government, not by choice or empowerment.
One key indicator to explain this the nature of widening social, economic, and political inequality of ‘access’ that is plaguing states, rural areas, pan India. In almost all critical developmental measures, from measuring access to basic healthcare, education, social security, credit, legal recourse, the macro-realities of widening access inequality has made the average citizen worse off (at least in states where the BJP has remained in power). The Opposition-ruled states too have faced their own set of challenges, triggered by a severe politicisation of fiscal devolution that has worsened the scales of asymmetric federalism (see a detailed report here).
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The current Budget hasn’t done much to change this.
Entitlement-centered welfarism has a symbolic, tokenism of ‘assigned resources’ (from housing to nutrition to jobs) attached to it. It makes a citizen feel that the government is ‘handling’ soaps to them rather than investing in building an ecosystem -through a more enterprising, pro-market set of competitive interventions, that allows citizens to do/achieve/pursue what (s)he finds reason to value.
This tokenistic approach to welfare through seasonal, temporal entitlements driven for electoral gains has further made a few (those like this author) to question the credibility and legitimacy of the Indian fiscal state under Modi , which seeks to envision a ‘developed’ India as part of its Viksit Bharat 2047 plan, or one may more critically see all the hype as simply another episodic cycle of a new rhetoric being peddled by those in power.
Although the Union Budget 2024-25 aims to promote macro-growth and fiscal stability, its welfare implications for the poor remains centered on weak entitlements, and the overall mixed success of new schemes will depend on the effective implementation of its policies — which hasn’t been the government’s strongest suite given its history of delayed publicly invested projects. Moreover, the budget falls short in addressing underlying economic issues, such as inflation, and ensuring equal access to capability-enhancing resources for human capital development.
Deepanshu Mohan is Professor of Economics and Dean, Office of Interdisciplinary Studies and Director, Centre for New Economics Studies (CNES), O.P. Jindal Global University.