New Delhi: The much-awaited Union budget of 2024-25 turned out to be a dampener for the tax-paying citizens of India, even as the apparent welfare announcements made by Union finance minister Nirmala Sitharaman appeared to be an exercise in boosting the government’s optics more than any real course-correction.
The BJP’s losses in the recent Lok Sabha election were attributed to stagnant, even declining incomes, and widespread unemployment, both of which contributed greatly to a general fall in rural and urban consumption levels. A significant drop in household savings was seen as a crucial factor for poor growth indicators.
The finance minister made it a point to address these issues in her budget speech, but eventually ended up alleviating the hardships of none of the sections that bore the brunt of poor policy making over the last decade.
The Union budget attempted to fix supply-side factors once again without paying enough attention to firm up ways to bolster consumer demand. Instead, the whole budget exercise for this financial year seems to concentrate solely on reducing the targeted fiscal deficit from 5.1% (in the interim budget) to 4.9%, the maximum price for which will now be paid by taxpayers.
Taxpayers bear the brunt
Taxpayers in the bottom slabs have been given relief doles in income tax, all of which will be undercut by heavier taxations on their investments. The tax on short and long-term capital gains has now been increased, something that Sitharaman said would “simplify” the tax structure.
Observers have already started speculating that removing indexation from the LTCG tax on property may spell doom for the real estate sector, as investors will prefer cash transactions over legitimate deals. Those with ancestral property will have to shell out much more in taxes than before, while long-term investments (over ten years) on property will practically cease.
Similarly, swing traders in the share market, a majority of whom earn less than Rs 50,000 in a month, will now have to pay much more in taxes than earlier.
In contrast, the budget has slashed corporate tax for foreign companies from the existing 40% to 35% to incentivise foreign investments. In any case, the Modi government over the last decade has waived off a large chunk of taxes even in the previous tax structure.
The Modi government clearly prefers to punish the commoners over the rich in pursuit of its fiscal hawkishness.
Nothing to stem growing inequality
The larger thrust of the budget will only intensify the already growing inequality in India, with the poor and the middle classes forced to pay heavily even for necessary household consumption and investments made for long-term savings.
What the budget starkly lacked is an element of justice, even though the prime minister contended that it will empower the poor and the marginalised. It will clearly not do any such thing, as even the announcements related to proposed performance-linked incentives, apprenticeships and the skilling of young people to improve India’s poor employment rate sound hollow in light of no or negligible direct support to public education and health sectors. One may ask why companies should hire more people as interns, even if the government partly supports them financially, when the economy itself is showing no signs of confidence.
In attempting to project political continuity, the Modi government didn’t even try to present a budget that could have at least appeared to be an old wine in a new bottle. The finance minister cosmetically reiterated existing schemes and policies, peppered them with high-sounding numbers and made this sound sweet to an audience comprising the youth, farmers, women, middle classes, and poor – all sections that the BJP is trying to win back to recover from electoral losses.
Hostage to allies, attracts charge of being ‘NDA budget’
However, what the Union budget really mirrored were the political exigencies of the new Modi government that is dependent on its allies. A slew of announcements for N. Chandrababu Naidu-led Andhra Pradesh and Nitish Kumar-led Bihar clearly indicated that both these allies of the BJP have struck a hard bargain with the prime minister, who is considered to be a man of steel but hasn’t faced a moment in life where he had to depend on democratic considerations like a running a coalition government.
While Naidu has met Modi halfway by not insisting on “special category status” for his state, he did get the Union government to announce a “special package” for the development of a new capital – his dream Amaravati project.
He also got the Union government to announce significant funds for the development of the backward areas of Andhra Pradesh – Rayalaseema, Prakasam and the northern coastal regions. Incidentally, all the three regions are those where Naidu’s Telugu Desam Party is relatively weak, and where he hopes to channel both economic and political energy to consolidate his position in the state.
Similarly, Nitish Kumar, too, has worked a sweet deal for Bihar, with the finance minister announcing massive funds for improved road connectivity and urban infrastructure – both of which have an emotional appeal in the eastern state.
The chief minister’s pet projects, like developing tourism in historical sites like Nalanda, Rajgir and Gaya, were also attended to by Sitharaman. Moreover, the finance minister also announced the development of Gaya as an “industrial node” in the proposed Amritsar-Delhi-Kolkata industrial Corridor.
Opposition has hit out
Coalition compulsions writ large in the budget, leading to opposition parties like the Trinamool Congress going as far as terming it as a “Bihar budget”. Rahul Gandhi, too, intervened to say that announcements for common people were too far and few, and were made to mislead people with hollow promises. “A kursi bachao budget,” he said.
The Congress patted itself on the back to claim that announcements like apprenticeships for the young or some ease of business moves for MSMEs were inspired from its election manifesto.
Social sector gets short shrift
The finance minister almost entirely skipped talking about the social sector.
Rather, more of the same came to the fore. The PM’s housing scheme or an increase in the limit for not-very-successful Mudra loans or even the free rations have now become tired slogans for the BJP to boost “Brand Modi” and nothing more, as even routine allocations were made to sound grand in the speech.
In the absence of any long-term vision for the economy, the policy paralysis of the Modi government continued in the Union budget.
For the ultra-rich, such continuity may have come as a relief, while for the poor and the middle classes, it will continue to pinch them in their daily lives, despite the Union government’s aggressive efforts to wrap the budget in pretty papers.
That may be the biggest takeaway of the Union budget 2024-25.
