As Finance Minister Nirmala Sitharaman prepares to present what is the last Budget of the present government, economic analysis has begun with gusto. Will the FM make any major announcements? (Unlikely given that she will be presenting an Interim Budget). And where will the thrust be in terms of policy direction and capital infusion?
To read the economic tea leaves, it’s worthy to look at last year’s Budget to get a sense of the direction this one will take.
Budget 2023 had a few clear themes, which emerged, and they may continue to see emphasis in the coming Budget as well.
Infrastructure
That the government has gone big on infrastructure development is not something that can be argued against.
The FM announced last year that the government intends to spend ₹10 lakh crore this fiscal on capital expenditure, an increase of 33% compared to the ₹7.5 lakh crore spent in FY23.
Should that number come in as per estimate, it will herald a 4X increase in capital outlay in 8 years, from ₹2.5 lakh crore in FY16 to ₹10 lakh crore in FY24.
Artificial Intelligence
Even before ChatGPT and artificial intelligence became a buzzword, Budget 2023 had proposed setting up of three centers of excellence for Artificial Intelligence in top educational institutions, reflecting the government's vision to 'Make AI in India and Make AI work for India.'
Towards this end, the government committed funding of ₹990 crore over the next five years.
While the government’s plans specifically focused around harnessing AI for agriculture, health and sustainable cities, it would be interesting to see if Budget 2024 goes further in shining light on how or whether the government plans to use AI in governance.
Already, the government has deployed AI and ML for use in coming through potential tax frauds or deploy chatbots.
Economists will also want to see what the government’s position is on the impact of technologies like generative AI on job creation.
Healthcare and Education
Budget 2024 proposed the establishment of 157 new nursing colleges and emphasized research and innovation in pharmaceuticals and medical devices. This focus on healthcare was complemented by the emphasis on skilling and education, with initiatives like a unified Skill India Digital platform.
Government spending on healthcare has gone up from 1.4% of GDP in FY19 to 2.1% in FY23 with schemes such as Ayushman Bharat and Jan Aushadhi finding success.
However, spending on education has remained nearly the same (2.8% vs 2.9%) over the same period.
As the ruling party goes into an election year, it will be interesting to see if the government is able to outline an overarching vision in terms of how it plans to upgrade the state of education in India.
Emphasis on Sustainable and Green Growth
Budget 2023 highlighted a commitment to sustainable development, with an outlay of ₹35,000 crores for energy transition and net-zero objectives. It aimed at promoting battery energy storage and targeted an annual production of 5 MMT under the Green Hydrogen Mission by 2030.
India has seen rapid strides when it comes to renewable energy, with a 30X increase in installed solar capacity since 2014.
In the past, the government has also announced incentivisation of investments in solar modules through a ₹24,000 crore production-linked incentive scheme. Analysts will watch for whether the government has more plans to push renewable energy development through more PLI schemes in future.
Fiscal prudence and tax reform
Over the years, the government has taken several steps to become more fiscally prudent and push tax reform.
It has done away with practices such as indulging in creative accounting done to reduce the impact of subsidy burdens.
It has also pushed through numerous income tax reliefs, most recently in Budget 2023 where it announced zero tax for all incomes up to ₹7 lakh.
It is unlikely that another income tax relief will be coming through in Budget 2024. But investors especially will be delighted if there are any tax announcements related to capital markets, such as the long-standing demand for abolition of long-term capital gains on equities.
Finally, economists and rating agencies will watch whether the government is on track to meet its fiscal deficit target of 5.9%, as this will ensure the country is on track for fiscal consolidation and hopefully pave the way for a long-overdue ratings upgrade.
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