FM focuses on jobs creation, fiscal glide path in Budget 2024

Finance minister Nirmala Sitharaman on Tuesday focused on jobs, outlined plans to stick to the fiscal glide path, and hiked capital gains tax on stocks and levies on derivatives trading in a bid to stem a boom in speculative trading.

In her budget speech, the government pledged ₹2 trillion (about $24 billion) over five years to boost jobs, while announcing a slew of initiatives for Bihar and Andhra Pradesh, two key states that are ruled by parties allied with the central government.

The Telugu Desam Party (TDP) of Chandrababu Naidu is ruling the southern Andhra Pradesh state, while Nitish Kumar’s Janata Dal (United), or JD(U), is ruling Bihar, both in alliance with the Bharatiya Janata Party (BJP).

This was Sitharaman’s first budget after Prime Minister Narendra Modi secured a third term at the Centre with the support of TDP and JD(U) as the BJP failed to reach majority on its own.

Fiscal glide path

The government has narrowed its fiscal glide path further in the budget, with Sitharaman saying that she is targeting a fiscal deficit below 4.9% of gross domestic product (GDP) this fiscal year. In its interim budget, the government had projected the deficit by the end of the current fiscal at 5.1%, down from 5.6% of GDP in FY24 and 6.4% of GDP in FY23.

“The government is committed to staying the course. From 2026-27 onwards, our endeavor will be to keep the fiscal deficit each year such that the central government debt will be on a declining path as percentage of GDP,” Sitharaman said.

For 2024-25, total receipts other than borrowings and total expenditure are estimated at ₹32.07 trillion and ₹48.21 trillion, respectively. The net tax receipts are estimated at ₹25.83 trillion.

Government debt

On government borrowing during the current fiscal, Sitharaman said the gross and net market borrowings through dated securities are estimated at ₹14.01 trillion ($168 billion) and ₹₹11.63 trillion, respectively, less than those in 2023-24.

Bonds, which rallied initially on Tuesday, declined as traders were expecting a bigger cut in debt sales.

Startup ecosystem

The government has scrapped the so-called angel tax for all classes of investors ‘to bolster the Indian startup ecosystem, boost the entrepreneurial spirit and support innovation,’ Sitharaman said.

The angel tax, introduced in 2012 to combat money laundering, was levied at 30.6% on investments received by an unlisted firm in excess of its fair market value.

The minister also proposed to develop taxonomy for climate finance. “This will enhance the availability of capital for climate adaptation and mitigation, which can help achieve India’s climate commitments and green transition,” Sitharaman said.

On FDI, rupee, and cruises

Sitharaman also said India plans to simplify rules to facilitate foreign direct investments, and boost the use of the rupee for international investments.

Noting the tremendous potential for cruise tourism, Sitharaman also proposed a simpler tax regime for foreign shipping firms operating domestic cruises in the country.

India is a leader in the diamond cutting and polishing industry, which employs a large number of skilled workers. To further promote the development of the sector, the government plans to ease tax rules for foreign mining firms selling raw diamonds in the country, Sitharaman said.

To attract foreign capital for India’s development needs, the finance minister has also proposed to reduce the corporate tax rate on foreign companies from 40% to 35%.

Indian professionals working in multinationals get employee stop options , or ESOPs, and invest in social security schemes and other movable assets abroad. Non-reporting of such small foreign assets has penal consequences under the Black Money Act. Such non-reporting of movable assets up to ₹ 20 lakh is proposed to be de-penalized, Sitharaman said.

Speculative trading

The government has also proposed to increase the rates of securities transaction tax on sale of an option in securities from 0.0625% to 0.1% of the option premium, and on sale of a futures in securities from 0.0125% to 0.02% of the price at which such futures are traded.

The Economic Survey had on Monday sounded a note of caution on India’s booming futures and options market. It said the significant increase in retail investors in the stock market calls for “careful consideration.”

This is crucial because the possibility of overconfidence leading to speculation and the expectation of even greater returns, which might not align with the real market conditions, is a serious concern, the Survey said.

While the benchmark BSE Sensex index declined 0.09% to 80,429.04 on Tuesday, the Nifty index fell 0.12% to 24,479.05.

Doles for Andhra Pradesh and Bihar

Sitharaman said that recognizing Andhra Pradesh’s need for capital, “we will facilitate special financial support through multilateral development agencies.” In the current fiscal, the government proposes to arrange for ₹15,000 crore, with additional amounts in future years.

“The government is fully committed to financing and early completion of the Polavaram irrigation project, which is the lifeline for Andhra Pradesh and its farmers. This will facilitate our country’s food security as well,” she added.

Under the Act, for promoting industrial development, funds will be provided for essential infrastructure such as water, power, railways and roads in Kopparthy node on the Visakhapatnam-Chennai Industrial Corridor and Orvakal node on Hyderabad-Bengaluru Industrial Corridor. An additional allocation will be provided this year towards capital investment for economic growth, she added.

For Bihar, Sitharaman said the government will support development of various road connectivity projects at a total cost of ₹26,000 crore. Power projects, including setting up of a new 2400 MW power plant at Pirpainti, will be taken up at a cost of ₹21,400 crore. New airports, medical colleges and sports infrastructure in Bihar will be constructed, she said.

Budget reaction

Prime Minister Narendra Modi, while lauding Sitharaman for the budget, said: “The #BudgetForViksitBharat ensures inclusive growth, benefiting every segment of society and paving the way for a developed India.”

Union roads minister Nitin Gadkari called the budget as “pioneering a prosperous future with advanced infrastructure, innovation, and next-generation reforms, developing every section of the society.”

In a social media post,  Gadkari said the “dynamic blueprint promises to boost productivity in agriculture, enhance employment and skilling, and elevate human resources and social justice.”

Rahul Gandhi, leader of opposition in the Lok Sabha, called the budget a “Kursi Bachao Budget (save the seat budget).”

“Appease Allies: Hollow promises to them at the cost of other states. – Appease Cronies: Benefits to AA with no relief for the common Indian. – Copy and Paste: Congress manifesto and previous budgets,” Gandhi said in a social media post.

Congress leader and former India finance minister P. Chidambaram said Sitharaman “has virtually adopted the employment-linked incentive (ELI) outlined on page 30 of the Congress Manifesto” for the Lok Sabha elections.

“I am also happy that she has introduced the Apprenticeship scheme along with an allowance to every apprentice spelt out on page 11 of the Congress Manifesto,” he added.