Expectations in the interim budget 2024 25

Keeping in view the forthcoming general elections during April May 2024, the government is expected to place an Interim Budget (IB) for 2024 25 on February 1, 2024, leaving the prerogative to place a full Union Budget after the newly elected government takes over. The Election Commission (EC) of India’s code of conduct does not allow the IB to include any major schemes in IB as it could influence the voters.

The ruling government is also not allowed to present the ‘Economic Survey’ with the IB. It is intended to seek permission from Parliament to meet government expenditure for 4 – months of the fiscal – FY25. It may contain urgent measures which cannot wait until the new government assumes office.

It will be interesting to capture some of the challenges and opportunities to shape up the IB. Given the immediate challenges to spruce private final consumption expenditure (PFCE) which had slowed down, some measures may follow. PFCE is projected at 4.4% in FY24, less than the 7.5 percent recorded in FY23.

The government final consumption expenditures (GFCE) growth was seen at 4.1 percent, sharply higher than the 0.1% recorded in the previous year. The power to sharpen IB numbers could also come with a surge in monthly GST collections averaging to reach Rs. 1.6 lakh crore or even more in FY24, compared to Rs.

1.4 lakh crore seen in FY23. Similarly, the statement from the Central Board of Direct Taxes (CBDT) indicates that direct tax collection, net of refunds, stands at Rs.14.70 lakh crore, which is 19.4 percent higher than the net collections for the corresponding period of last year. This collection is 80.6 percent of the total Budget Estimates of direct taxes for FY24.

These data points indicate an overall resilience of the economy and depth of business happening. Against the given backdrop, reviving sagging consumption demand, boosting government expenditure, and pushing forward private investments could be some of the priorities to sustain and work towards accelerating the pace of GDP growth in the coming times.

The government may work out some methods to put more cash in the hands of people to step up demand for consumption while following the code of conduct set by EC. Buoyant Economy: Given the buoyant macroeconomic setting, according to the National Statistical Office (NSO), the GDP may expand higher than the expected rate of 7.3 percent in real terms in FY24 compared with 7.2 percent in FY23.

At the same time, it estimated nominal GDP working out to 10 to 10.5 percent. According to experts, a nominal GDP of 10.5 percent is not ambitious for FY25 as wholesale price index (WPI) based inflation has turned positive and 10.5 percent has been the growth trend in the recent past. The NSO data is based upon the computation of the GDP of the first half (H1) of the year and several high frequency indicators for the October/November period.

The GDP growth during FY24 is expected to breach the RBI’s revised estimate of 7 percent. However, the World Bank in its recent dispensation maintained its GDP estimate for India at 6.3 percent for FY24, 6.4 percent for FY25, and 6.5 percent for FY26 while maintaining the tag of ‘fastest growing economy among the world’s largest economies’ The World Bank further asserted that the GDP at US $ 3.57 trillion in FY 24 is expected to reach US $ 3.9 trillion in FY25 as the consumption growth may stabilize at 4.7 percent in FY25, up from 4.5 percent in FY24.

The CPI inflation too is oscillating within the glide path set under the flexible inflation targeting framework with December data at 5.7 percent edging towards the upper end of the target while RBI is aiming to keep CPI inflation at its midpoint of 4 percent. Balancing act amid challenges: Despite the enhanced expected income streams from GST and direct taxes, the IB has to not only stick to a fiscal deficit of 5.9 percent of GDP in FY24 but has to plan out its way forward for further fiscal consolidation.

It is more important to keep the IMF observation that the government debt could overshoot 100 percent of GDP in the worst case scenario by FY28 unless it could stick to fiscal consolidation. In response, the finance ministry reaffirmed that the government is “on track to achieve its stated fiscal consolidation target” of reducing fiscal deficit below 4.5% of GDP by FY26.

Hence, paring the fiscal close to 5 percent of GDP in FY25 may be imminent to way to hit the fiscal consolidation target. With COP 28 commitments, allocations may increase green hydrogen and triple global renewable energy by 2030. The beneficial tax rate of 15 percent for new beyond the current period of March 31, 2024, may get extended to push the Make in India campaign.

Home loan interest deduction up to Rs. 2 lakhs could be made available under the new income tax regime. Limits of investment linked deductions could see a spike. The maximum rate of surcharge of 25 percent applicable to individuals may be slashed. To push infrastructure funding, the government could increase the limit of investment in NHAI bonds to claim exemption from capital gains tax from the current level of Rs.

50 lakhs to Rs. 1 crore. The basic exemption limit for income tax could be raised and the limit of rebate under 80 D for the health insurance premium limit may be raised to accommodate rising premium costs. The higher allocations to MGNREGA to increase the payout to farmers cannot be ruled out to alleviate poverty.

With the increase in the cost of FMCG by 8 10 percent due to higher input costs, its sales dipped due to a drop in buying capacity. The increase in the risk weights by RBI on consumer goods, personal loans, and loans to NBFCs and credit cards could also douse buying capacity as financial intermediaries slow down credit to these sectors.

Ensuring continuing growth while truncating fiscal deficit and boosting consumption growth is a stressful challenge in articulating IB amid the limitations of the code of conduct of EC..