As India pirouettes towards its centenary of independence in 2047, aspiring to become Viksit (developed), the Union budget 2024-25, presented by finance minister Nirmala Sitharaman, unfolds like a grand ballet. This fiscal performance weaves together the delicate choreography of fiscal prudence, infrastructure development and social welfare. However, beneath the graceful movements and optimistic crescendos, there lurk significant challenges that demand a critical eye.
Fiscal deficit: Walking the fiscal tightrope
Setting a fiscal deficit target of 5.8% of GDP for 2024-25, a slight reduction from the previous year’s 5.9%, the government attempts a high-wire act without a safety net. This marginal improvement is akin to a trapeze artist balancing on a thin wire, hoping the increased capital expenditure, projected to rise by 11.1% to Rs 11.11 lakh crore, will spur economic growth enough to offset the fiscal burden.
However, the success of this strategy is as precarious as juggling flaming torches. The efficient and timely execution of infrastructure projects, historically plagued by delays, cost overruns, and bureaucratic inertia, remains a significant hurdle. The government’s borrowing plan of Rs 14.13 trillion, though lower than the previous year, still reflects significant fiscal stress and raises questions about long-term sustainability. One misstep and the entire performance could come crashing down.
Taxation policies: The double-edged sword
In maintaining the status quo on income tax slabs for individuals and corporations, the government aims to provide a stable fiscal environment. Yet, this stability may be more like a stagnant pond rather than a flowing river.
In a dynamic global economy, where emerging markets aggressively reform their tax regimes to attract investment, India’s conservative approach may be a missed opportunity. Extending tax benefits for startups and investments by sovereign wealth funds until March 31, 2025, is a positive step but falls short of a comprehensive tax overhaul that could potentially widen the tax base and increase revenue.
The move to withdraw outstanding direct tax demands up to Rs 25,000 for periods up to FY 2009-10 and up to Rs 10,000 for FY 2010-11 to 2014-15, benefiting around one crore taxpayers, is a welcome relief but addresses only a fraction of the systemic issues in tax administration. The government wields a double-edged sword, hoping to strike a balance, yet risks cutting itself in the process.
GST: An unfinished symphony
The GST regime, intended to unify India’s fragmented tax system, is more like an unfinished symphony, with some notes hitting the mark while others fall flat. The budget highlights its success in doubling the tax base and increasing average monthly collections to Rs 1.66 lakh crore.
However, compliance issues and the tax structure’s complexity still pose significant challenges, particularly for small and medium enterprises. A recent survey indicating that 94% of industry leaders view the transition to GST positively as encouraging but masks underlying frictions.
The government’s efforts to fine-tune GST policies must address these challenges to ensure the system’s long-term viability and effectiveness. The continued calls for further rationalisation of the rate structure, elimination of rate inversions, and expanding the tax base remain pressing issues that need decisive action. It’s a melody with potential, yet requiring careful tuning.
Infrastructure development: Castles in the air
Ambitious infrastructure initiatives, such as the Pradhan Mantri Awas Yojana (PMAY) and the development of new railway corridors, promise a future as grand as castles in the air. However, the reality often brings these castles crashing down to the ground.
Historical underperformance in executing large infrastructure projects raises significant concerns about feasibility. Delays, cost overruns, and bureaucratic red tape have often undermined the economic impact of such initiatives.
Furthermore, the success of these projects hinges on seamless collaboration between the central and state governments, a coordination historically fraught with challenges. The ambitious target of building 2 crore more houses under PMAY over the next five years is laudable, but achieving it requires unprecedented efficiency and resource allocation. Without concrete foundations, these grand designs risk crumbling.
Social welfare: A patchwork quilt
The social welfare schemes outlined in the budget, such as the Lakhpati Didi Scheme and expanded healthcare initiatives, reflect a commitment to inclusive growth. However, these schemes often resemble a patchwork quilt, beautiful in concept but marred by fragmentation and inefficiencies.
The success of these programmes depends heavily on effective implementation and adequate funding, both of which have historically been inconsistent. Incremental gains from these schemes may not be sufficient to address the deep-rooted issues of poverty and inequality, especially in rural areas.
While the focus on healthcare and education is essential, the allocation of resources needs to be critically examined to ensure they reach the most vulnerable sections of society. The quilt may be warm, but it still has holes.
Trade and investment: Navigating stormy seas
On the global stage, the budget’s emphasis on enhancing trade and investment through bilateral treaties and encouraging foreign investments is like setting sail in stormy seas. Geopolitical uncertainties and protectionist tendencies in major economies pose significant risks.
The effectiveness of these initiatives will depend on India’s ability to navigate these external challenges while maintaining a competitive domestic economic environment. The government’s plan to attract foreign investments by negotiating bilateral investment treaties is a positive step, but the actual impact will depend on the terms of these treaties and their implementation. The global economic landscape is fraught with uncertainties, and India’s trade policies must be agile and responsive to these dynamics. It’s a voyage fraught with peril, requiring a steady hand at the helm.
Renewable energy: Green shoots or mirage?
The budget’s emphasis on renewable energy, particularly through schemes like the PM Suryodaya Yojana, reflects a commitment to sustainable development. However, the transition to renewable energy faces significant challenges, including technological constraints, financing issues, and the need for a robust regulatory framework.
While the ambitious targets set forth in the budget are commendable, achieving them will require concerted efforts across multiple sectors. The success of renewable energy initiatives hinges on the government’s ability to foster innovation, attract investment, and build the necessary infrastructure. Without addressing these challenges, the vision of a green energy future may remain elusive, a mirage shimmering on the horizon.
Internships: A double-edged sword for job creation
A significant landmark of this budget is the announcement of a large-scale internship program aimed at creating job opportunities for the youth. The government plans to partner with 500 firms to offer internships, positioning this initiative as the next big thing in job creation.
However, this approach is fraught with challenges that could undermine its long-term effectiveness. While internships provide valuable work experience and can bridge the gap between education and employment, they are inherently short-term. The critical question is what happens after the internship period ends. The budget does not provide a clear roadmap for transitioning interns into permanent roles. Without strong incentives for firms to offer long-term employment, there is a risk that many interns may find themselves without job prospects once their internships conclude.
Another challenge lies in the selection of the 500 firms that will participate in this programme. The criteria for choosing these firms remain unclear. Ensuring a fair and transparent selection process is crucial to avoid potential issues of favouritism or inefficiency. Additionally, the government must ensure that these firms are capable of providing meaningful training and opportunities for skill development.
The willingness of the private sector to convert internships into long-term employment will depend on several factors, including economic conditions, the firms’ financial health, and the quality of the interns. The government needs to provide robust incentives and support to encourage firms to invest in these interns beyond the internship period. This could include tax benefits, subsidies, or grants for firms that demonstrate a commitment to long-term employment.
Conclusion: A road less travelled
The Union Budget 2024-25 presents an ephemeral vision of growth and development, tempered with sonder fiscal prudence. While it lays out an ambitious roadmap, the true test lies in its execution. The government’s ability to navigate the complexities of fiscal management, infrastructure development, social welfare, and global economic dynamics will determine the success of this budget.
The balance between aspiration and feasibility will be crucial in steering India towards its goal of becoming a developed nation by 2047. The challenges are formidable, requiring a strategic vision and effective implementation.
Dharminder Singh Kaleka is a Master’s Candidate in Public Policy and Development at the London School of Economics. He is co-founder of MovDek Politico LLP, a political risk and public affairs strategy consulting firm.
