India boosts spending on jobs, rural area in first post-poll budget
NEW DELHI, July 23, 2024
Indian PM Narendra Modi's first post-election budget struck a balance between greater spending on jobs and rural development while narrowing the fiscal deficit in its 2024-25 budget unveiled on Tuesday, after last month's election setback for the government.
The government said on Tuesday that it will spend a record 11.11 trillion rupees ($132.85 billion) on infrastructure in the financial year ending March 2025 to support growth and offering long-term loans of 1.5 trillion rupees to states to fund such expenditure.
Some of these loans will be linked to reform milestones in areas such as land and labour, which the government intended to push in its third term, reported Reuters.
Thrust on jobs creation
The government will allocate 2 trillion rupees ($24 billion) for job creation over the next five years, said the Finance Minister Nirmala Sitharaman as she unveiled the new economic roadmap of Modi 3.0 while presented her record-breaking seventh budget in the Lok Sabha. Also plans are afoot to launch three schemes for employment-linked incentives.
"As mentioned in the interim budget, we need to focus on 4 major castes, namely ‘Garib’ (Poor), ‘Mahilayen’ (Women), ‘Yuva’ (Youth) and ‘Annadata’ (Farmer). For Annadata, we announced higher Minimum Support Prices a month ago for all major crops, delivering on the promise of at least a 50 per cent margin over costs. Pradhan Mantri Garib Kalyan Anna Yojana was extended for five years, benefitting more than 80 crore people," she stated.
Sitharaman said the Modi government will focus more on middle class and youth of the country. From abolishing angel tax in a massive boost for the startup ecosystem to revising new tax regime struct, reported Times of India.
The spending plan was unchanged from the interim budget presented in February before the national elections. "This would be 3.4% of our GDP (gross domestic product)," she stated.
A major highlight of the speech was the announcement of the reduction in import duties on gold to 6% from 15%, a move spelling good news for those looking to buy the yellow metal. The customs duty on silver has also been slashed.
Industry experts say it could boost retail demand and help curtail smuggling.
According to Sitharaman, the Modi government will be spending $24 billion on job-spurring efforts over the next five years and $32 billion on rural development this year alone.
Analysts had blamed distress in rural areas and a weak job market for a poor poll showing that cost Prime Minister Narendra Modi's Bharatiya Janata Party (BJP) its absolute majority, making it dependent on allies to form a government.
"The budget successfully engineered a fine balance between supporting job creation and skilling, rural development and agriculture, along with continued focus on infrastructure spending without compromising on fiscal consolidation," said Sakshi Gupta, principal economist at HDFC Bank.
Tax up on equity investments
Amid concerns of an overheating market, Sitharaman also raised taxes on equity investments and equity derivative trading, while giving lower-income consumers some tax relief.
The government hiked the tax rate for equity investments held for less than a year to 20% from 15%, while for those held for more than 12 months the rate rose to 12.5% from 10%, reported Reuters.
The government also increased the tax on equity derivative transactions that have drawn retail investors. The tax changes are a short-term negative for the market, said Trideep Bhattacharya, the chief investment officer of Edelweiss Mutual Fund.
"The tax increase is marginal but will help bring in rationality on options trading exuberance and will better investment behavior," said Bhattacharya, adding it would drive a push to longer-term investing.
The government plans to cut its fiscal deficit to 4.9% of gross domestic product in 2024-25, below the 5.1% figure in February's interim budget. It has reduced its gross market borrowing marginally to 14.01 trillion rupees.
That comes as a large surplus of $25 billion from the central bank this year has helped the government reduce the fiscal deficit while letting it spend more.
Lauding Sitaraman for the commendable job, PM Modi said this budget would empower every section of society.
"This Budget strengthens every section of the society. It takes the country's poor, village and farmer on the path of prosperity. In the last 10 years, 25 crore people have come out of poverty. This is a budget of continuity of empowerment of the new middle class," he stated.
"The youth will get unlimited opportunities from this budget. Education and skill will get a new scale from this budget. This budget will give power to the new middle class...This budget will help women, small businessmen, MSMEs," he added.
"In this Budget, the government has announced ‘Employment Linked Incentive scheme. This will help generate many employment opportunities. Under this scheme, the government will give the first salary to those who are newly entering the workforce. Youth from villages will be able to work in the country's top companies under the apprenticeship program."
Manufacturing, infrastructure top focus
The Prime Minister said: "This Budget strengthens every section of the society. It takes the country's poor, village and farmer on the path of prosperity. In the last 10 years, 25 crore people have come out of poverty. This is a budget of continuity of empowerment of the new middle class."
"It puts emphasis on manufacturing as well as infrastructure; will speed up growth," the PM stated.
In her speech, Sitaraman had announced the launch of Phase 4 of the Pradhan Mantri Gram Sadak Yojana (PMGSY) aimed at providing all-weather connectivity to 25,000 rural habitations.
The budget's employment-boosting measures include incentives for companies, such as those in manufacturing, and programmes to improve skills and hand out cheaper loans for higher education, Sitharaman added.
Around Rs2.66 lakh crore has been allocated for rural development, including rural infrastructure.
The finance minister also revealed plans to build three crore additional houses under the PM Awas Yojana across both rural and urban areas, reported Financial Express.
Review of Income Tax Act
In a major move, Sitharaman has announced a comprehensive review of the Income Tax Act. She has proposed easing taxation norms for individuals and entities.
The finance minister said the government will come out with SoP (standard operating procedure) for TDS defaults and simplify and rationalise compounding of such offences.
"To simply taxation, we have taken a number of measures in the last few years,” Sitharaman further said. For the last fiscal, more than two-thirds have availed the new income tax regime, she added. FM Sitharaman also proposed raising the long-term capital gains to 12.5% from 10% in the Budget 2024-25. More than two-thirds of individuals availed of the new income tax regime," Sitharaman said in the Lok Sabha.
In one of the biggest announcements of her seventh consecutive Budget speech, Sitharaman has proposed to abolish the 'Angel Tax.'
Contrary to its misleading name, Angel Tax does not provide tax relief. It operates under Section 56(2)(viib) of the Income Tax Act, 1961, treating investments received by startups from external investors as “income from other sources” and then, subjecting it to a 30% tax rate, say experts.
So, this has come as a relief for the Indian startup ecosystem. Angel tax applies to capital raised by unlisted companies through share issuance to Indian investors. If the share price exceeds the fair market value of the company, the surplus amount is treated as income and taxed accordingly.
With over 1.17 lakh registered startups eligible for Startup India incentives, Deloitte India Partner Sumit Singhania said that this is a positive step that not only recalibrates the tax landscape for startup investors and foreign strategists but also showcases the government’s progressive approach to tax policy.
He said the removal of angel tax, which has been a burden since its introduction in 2012, represents a timely correction. It signals the government’s commitment to fostering long-term strategic investments and encouraging more risk capital to stimulate innovation and research and development (R&D), he added further.
In a concession to the government's allies, Sitharaman said it would hasten loans from multilateral agencies for the eastern state of Bihar and the southern state of Andhra Pradesh.
