As the central government is all set to present the interim Budget for fiscal year 2024-25 on February 1, 2024, what are the most likely policy/ reform announcements expected to come this year? While being an interim Budget, it is said to have no major announcements as it is coinciding with the general elections year which is scheduled for early next year. The full budget for the fiscal year 2024-25 will be presented after the formation of the new government following the general elections. The Budget is allotted for the upcoming fiscal year, which runs from 1st April to 31st March of the next year.
First and foremost, here are some of the upside and downside risks to the economy…
In terms of few of the downside risks to the economy, Deloitte’s report talked about the inflationary pressures, while maintaining that concerns around rising prices are at the top of mind for policymakers. High food prices, oil prices trending up, etc. are likely to keep inflation high. Despite the RBI raising rates to 6.5 per cent since April 2022, inflation remained above its tolerance range, Deloitte said. Further, with the upcoming national and key state elections in India over the next few months, policies around ensuring energy supplies, climate change, sustainable development, international trade, maritime, space and cyber-security, non-proliferation, and cross-border terrorism will be on priority for the incoming government. Geopolitical concerns too are weighing on global investors and policymakers.
Also, with consumer spending seeing a strong revival after the pandemic in the high-income segment, services such as travel and hospitality, and sale of high-end vehicles in the passenger vehicle segment have seen a surge, pointing to pent-up demand amongst the top income percentile of the population. Segments such as FMCG, entry-level auto segments, and two-wheelers are yet to pick up sustainably, it said. “Simultaneously, rising policy rates have put pressure on household borrowings as EMIs have gone up. Spatial and erratic monsoon has further added to stress on rural spending abilities,” said Deloitte.
What are the key expectations from Budget 2024?
“We also remain optimistic about the economy this year and expect India to grow between 6.5 per cent and 6.8 per cent during FY2023–24 in our baseline scenario, followed by an average of 6.65 per cent and 7.95 per cent over the next two years as the global economy turns buoyant. India will have to rely on its own domestic demand to drive its growth, specifically, private consumption and investment spending. However, inflation could affect stability in growth. We expect higher prices over the next 1.5 years; prices are expected to remain in the upper range of the RBI’s inflation target band over the forecast period,” said Rumki Majumdar, Economist, Deloitte India.
What are the top asks from the government ahead of Budget 2024?
While the government has focused on building a strong infrastructure over the past five years, with most infrastructure spending concentrated on roads and railways, the government is now expected to divert some of its expenses towards improving the port and shipping; energy, especially green and sustainable energy; and urban infrastructure. In this budget, the government’s focus should be on the transition from carbon-dependent to energy-efficient policies.
A higher capex spending by the government is expected to crowd in capital spending. That said, it will require some government incentives and a few measures in this direction.
In GDP, export growth contracted by 7.7 percent in 1Q FY24 after growing in double digits for the eight consecutive quarters. As the slowdown was largely driven by deceleration in growth of major economies, boosting exports in diversified and new markets, while helping existing markets grow, is important, said Sanjay Kumar, Partner, Deloitte India.
Further, the government is also expected to divert savings from subsidies towards spending that can support sustainable growth in income amongst rural households, boosting the rural economy’s disposable income. One of the ways could be higher spending on building rural infrastructure or providing incentives that improve cash flow.
In line with these expectations, Deloitte India recommends incentives such as broadening the scope of PLI schemes to sectors such as chemicals and services that create demand for more manufacturing. The government can also help provide funds for the Remission of Duties and Taxes on Exported Products (RoDTEP) and other export promotion initiatives.