While the Budget is likely to set the priorities for the third five-year term of the Narendra Modi government, it is also likely to present a roadmap for the period up to 2047, the hundredth anniversary of India’s independence, In her interim budget speech, she said, “In the full budget in July, our Government will present a detailed roadmap for our pursuit of ‘Viksit Bharat’.” The budget is expected to lay emphasis on infrastructure, manufacturing, fiscal discipline, creation of jobs and social spending as well as economic reforms.
Below are the sectors which are expected to be the main themes in the budget.
Infrastructure Budget expectations
The Interim Budget 2024-25 had allocated an impressive ₹11.1 lakh crore for capital investment in infrastructure, which was a 11 % increase over the previous year’s budget. This allocation constituted 3.4% of India’s projected GDP for 2024-25, up from 3.3% in the previous year. However the growth rate was lower compared to the previous year’s 34% increase. The focus on infrastructure is expected to continue in the full budget with emphasis on roads, highways, railways and housing. “It is imperative to expedite implementation of ongoing projects. A lot more focus would be on project monitoring and tracking the progress of key projects and ensuring timely completion. The Government would do well to provide incentives to Project authorities and executing companies to complete their projects within the scheduled timelines,” Sudeep Kumar Sinha, Partner, Deloitte India, has written in ET.
The government is seeking to tap funds from the UK, Saudi Arabia, and Japan to finance its mega infrastructure ambitions, TOI has reported.
“Bringing in private sector investment is really going to be critical considering the limited fiscal space the Government has in increasing its own capital spend. Therefore we can expect more attractive viability gap funding and other incentives to attract private investment in infrastructure projects, Modifications in the viability gap guidelines and changes to PPP approval guidelines may be considered. With the increasing impact of climate change, a lot more focus on sustainable and climate resilient infrastructure can be expected. I would expect allocation of specific funds for development of green corridors, and circular economy projects etc to promote sustainable infrastructure. We could also see specific tax incentives and subsidies for the adoption of energy-efficient technologies and renewable energy solutions in infrastructure projects,” Sinha said.
A renewed focus on infrastructure investment will help generate demand for steel, cement and other inputs while also creating a large number of jobs.
Manufacturing Budget expectations
The government is likely to maintain its focus on promoting domestic manufacturing and announce an increase in the minimum local content requirement for public procurement, revive the concessional corporate tax rate of 15% for new manufacturing facilities, overhaul the 2019 national policy around electronics global value chain integration, and extend the PLI scheme to electronic components, Nomura has said.
The government may take steps to correct the inverted duty structure on a number of goods by rationalising levies on several products that are inputs for electronics, copper tubes and pipes, ferro alloys, textile staple fibres and certain chemical preparations to lift local manufacturing, ET has reported based on information from sources. The government has drawn up a list of finished products that are subject to lower import duty than the materials needed to make them, or an inverted duty structure. The commerce and industry ministry has undertaken a cross-sectoral study to rationalise such inverted duty structures to improve India’s manufacturing competitiveness and aid domestic manufacture of value-added products.
Goldman Sachs anticipates the budget will focus on promoting labor-intensive (PLI) manufacturing through fiscal incentives across sectors like toys, textiles, apparel, and commercial aircraft manufacturing. A Citi report too suggests that the government might extend its PLI scheme to encourage more domestic value addition and set explicit employment targets.
MSMEs Budget expectations
The upcoming budget could unveil a scheme aimed at bridging the credit gap and other financing issues for the micro, small and medium enterprises (MSME) sector, ET has reported based on information from sources. While the contours of the scheme are yet to be finalised, it may involve an outlay upwards of ₹10,000 crore, they said. Interventions being examined included interest subvention for working capital, credit guarantees, refinance and some form of support towards equity, sources said, adding that a special window for women entrepreneurs was also being considered.
According to a parliamentary standing committee report, the MSME sector contributes around 30% to India’s GDP, 45% to manufacturing output and 48% to exports. The committee further noted that the credit gap in the MSME sector is estimated at ₹20-25 lakh crore.
Social sector Budget expectations
With its mandate eroded in the Lok Sabha elections, the Modi government is likely to emphasize social and welfare spending in the budget. There is also the need to boost demand in rural areas. The government is likely to increase the outlay on rural sector schemes, with subsidies for housing to be increased by Rs 23,000 crore (~0.07% of GDP) as well as increased outlays for rural roads and employment, as per Japanese brokerage Nomura. There are also reports of an expansion of the public health insurance programme and a renewal of the economic empowerment programme for women with schemes such as Lakhpati Didi.
Defence Budget expectations
Sitharaman allocated Rs 6.21 lakh crore for the Ministry of Defence in the Interim Budget. This was a 4.3 per cent increase from the previous year. Defence sector is likely to remain an important part of the budget with the government’s ongoing drive to indigenise defence production as well as boost defence exports.
A possible budget proposal could be revision of the FDI cap for defence manufacturing, TOI has reported. The Department for Promotion of Industry and Internal Trade is assessing how to make investment norms in defence more appealing to boost manufacturing to the sector. Currently, the rules allow 100% FDI wherever modern technology is accessed or “for other reasons to be recorded”. While up to 74% FDI is permitted under the automatic route, this comes with various conditions, including the requirement of industrial licensing for certain sectors and small arms production, which might be subject to review. There are strings attached including industrial licensing for certain sectors and for small arms production and there are riders within that, which may be reviewed.
