Is it an ideal budget? Perhaps not. Yet, domestic conditions, including the message and verdict of the recent general election, as well as international turbulence – especially the rocky global trading environment and tepid demand in some of India‘s key export markets – have created obvious limitations.
Given this, what has Sitharaman set out to achieve? She has pushed for job creation and further incentivised – but in an intelligent, rather than reckless, manner – private investment. The capex cycle of Indian industry has not quite got going for several years now. Initially, this was due to legacy issues – the banking crisis – and then a series of international shocks, from Covid to the Ukraine war. Now, post-election and with macroeconomic stability having been achieved after enormous effort, Sitharaman cannot but have private investment revving up.
She has supported this by effecting a bunch of promotive measures for job creation in the formal and manufacturing economy – employee-linked incentives (ELIs). She has done this by overdue, but astute, cutting of customs duties, especially in sectors, such as mobile phones, that have demonstrated success with ‘Make in India’ and warrant duty cuts to foster greater end-product domestic manufacture.Finally, recognising the limitations of the mandate of 2024, she has held out an offer of a partnership with competitive and enlightened state governments and linking their advances in labour and land reforms to fiscal backstopping by GoI.While ‘Make in India, Make for the World’ is a laudable long-term aspiration, in the shorter run, does it make sense to somewhat prioritise ‘Make in India, Smoothen Market Access in India’? The size of the Indian consumer market as a primary driver of investment has been recognised. If you consider industries that have got a fresh impetus, they align with sectors that are growing domestically. Where has FM taken a risk? She has factored in stock market misgivings with increased taxes for certain types of transactions and a higher long-term capital gains (LTCG) tax. Removal of indexation while computing LTCG in property sales has been compensated with a lower rate of taxation – 12.5% against 20%. But the actual outcome is still uncertain and will vary from transaction to transaction. It’s likely these will make for headlines in the immediate.
Yet, buoyancy and flow of money to the stock markets and the overheated nature of the property market – which is currently an investor’s rather than end-user’s preserve – have allowed GoI the space to absorb these risks. With the stock markets, in particular, the epidemic of day trading – an obsession across Indian workplaces today – and the hazard of small investors gambling with futures and options products needed to be curbed. Unchecked, it could hurtle towards social and systemic anomie.
Is there some populism in the budget? To a degree, yes. There are necessary offerings to agriculturalists, and some concessions to states such Andhra Pradesh and Bihar. Even so, fiscal discipline has been maintained, the fiscal deficit target is a very credible 4.9% of GDP. There are no giveaways or wild ideas that will bust the bank.
The election results might have been below expectation, but they are not going to derail Modi’s consistency. This is much more important for investor confidence than any instant sentiment.
If there is a spectre haunting the budget – indeed, India’s polity and society – it is that of jobs. The budget has been motivated by fostering conditions for high-quality, formal sector jobs that can sustain families and enhance social stability.
Previous attempts haven’t always worked as hoped for. But India has to try and try again, as jobs is an issue that, to borrow from FDR, ‘demands bold, persistent experimentation’. Sitharaman and Modi have more than acknowledged that.
