India Budget 2024: Jobs, middle class and rural development in focus, minister says

Modi government forecasts GDP growth of between 6.5% and 7%

Finance Minister Nirmala Sitharaman's budget highlighted some of the risks India faces, including geopolitical tension, supply chain issues and protectionism. Bloomberg

India unveiled its first federal budget since Prime Minister Narendra Modi returned to power, with a focus on trying to alleviate the economic worries of voters while keeping the country's fiscal deficit in check.

The government will focus on supporting employment, skills development, the middle class and micro, small and medium enterprises, Finance Minister Nirmala Sitharaman said on Tuesday as she presented the budget in Parliament.

What was announced in the budget?

Urban and infrastructure development are among the government's priorities, with the capital expenditure allocation unchanged at 11.1 trillion rupees ($132.6 billion).

Ms Sitharaman announced 2 trillion rupees of spending on initiatives to create employment, while agriculture and related sectors were awarded 1.52 trillion rupees and 2.66 trillion rupees was allocated to rural development.

The minister also unveiled an easing of personal taxes, increasing the standard deduction rate to 75,000 rupees from 50,000 rupees.

But the government lowered its fiscal deficit target to 4.9 per cent of gross domestic product, from 5.1 per cent as announced in the interim budget in February.

'Strikes a balance'

The budget struck a balance between keeping the country's spending in check and meeting expectations on plans to increase jobs and help the middle class, according to some analysts.

“The key highlight of the budget is the fine balance between fiscal prudence and welfare schemes,” said Manish Chowdhury, head of research at Mumbai-based StoxBox.

“The government remains focused on job creation, infrastructure development, strengthening the ecosystem for manufacturing, renewable energy and new sectors and creating disposable income in the hands of people with a key focus on rural.”

The Finance Ministry “has managed to meet the demands of coalition parties, ramp up spending on employment programmes more generally and reduce the income tax burden for low-earners, all while keeping the fiscal deficit in check”, said Shilan Shah, deputy chief emerging markets economist at Capital Economics.

But investors were dismayed by the budget's increase in capital gains taxes, with the levy on short-term gains rising to 20 per cent from 15 per cent and the long-term tax to 12.5 per cent from 10 per cent.

This triggered a decline in equity markets, with the BSE Sensex dropping up to 1.8 per cent in afternoon trade shortly after the budget – although it later recovered some of those losses.

Shripal Shah, managing director and chief executive, Kotak Securities, said the tax increase is “aimed at moderating currently heightened activity levels and fostering a more sustainable pace of growth in the stock market”.

“We anticipate a small period of adjustment as the market adapts to these new tax measures, but this will ultimately contribute to a sustainable investment landscape with balanced and orderly growth of the capital market,” he added.

India's Economic Survey

Tuesday's budget came after the Indian government tabled its Economic Survey on Monday.

The annual report on the state of the economy highlighted some of the risks that the country faces, including geopolitical tension, supply chain issues and protectionism.

These challenges piled pressure on the Modi government to unveil measures to boost the economy at a time when the population is concerned about issues such as inflation, joblessness, savings and income.

India's cautious outlook for the current financial year forecast GDP growth at 6.5 per cent to 7 per cent.

This is down from an expansion of 8.2 per cent in the last financial year and slightly lower than the range of 6.8 per cent to 7.2 per cent that economists projected for this fiscal year.

What did Nirmala Sitharaman say?

In her budget speech, Ms Sitharaman said India continued to be a “shining exception” at a time of global economic uncertainty.

BJP supporters in Abu Dhabi celebrate while watching the election counting in India as Narendra Modi leads by a small margin. Victor Besa / The National

An elderly Indian BJP supporter in Abu Dhabi smiles while watching the election results. Victor Besa / The National

BJP supporters in Abu Dhabi watch the Indian general election. Victor Besa / The National

Mr Modi's alliance was heading towards a majority in vote counting trends. Victor Besa / The National

The numbers so far show the margin of victory may not be as large as exit polls suggested. Victor Besa / The National

The BJP is leading in 244 of the 543 seats in the directly elected lower house of parliament, according to evening vote count trends. Victor Besa / The National

Kerala supporters of the Congress in Dubai. Chris Whiteoak / The National

The opposition INDIA alliance led by Rahul Gandhi's centrist Congress party was leading in over 220 seats, higher than expected. Chris Whiteoak / The National

Congress alone was leading in nearly 100 seats, almost double the 52 it won in 2019 - a surprise jump that is expected to boost Mr Gandhi's standing. Chris Whiteoak / The National

Supporters of the opposition party at the KMCC Kerala Muslim Cultural Centre, Dubai. Chris Whiteoak / The National

Kerala supporters of the Congress in Dubai. Chris Whiteoak / The National

As a consumption-driven economy, putting more money in the hands of the Indian population through measures including tax cuts is expected to drive consumer spending.

Although the broader index fell, consumer stocks gained 1.5 per cent on Tuesday afternoon.

India's budget also contained steps to boost the country's manufacturing sector including cuts on custom duties on precious metals such as gold and critical mineral imports.

“The reduction of customs duty on gold and silver to 6 per cent and platinum to 6.4 per cent is a welcome move by the Finance Minister,” said Colin Shah, managing director, Kama Jewelry.

“This was one of the long-standing demands of the industry.”

Measures in the budget to try to help reduce unemployment include handouts of up to 15,000 rupees each to first-time workers joining the formal sector.

“New and additional employment incentives across manufacturing and other sectors will encourage workforce growth,” said Vivek Iyer, partner, Grant Thornton Bharat.

“These incentives complement existing production-linked incentive schemes and provide additional income tax benefits for hiring more employees.”

The property industry, meanwhile, welcomed announcements to boost the creation of affordable housing through the allocation of funds, set up new industrial parks, and plans for a regulatory framework for dormitory-style rental housing for industrial workers.

The budget “has further strengthened the government’s commitment towards long-term social and infrastructure development”, said Shishir Baijal, chairman and managing director, Knight Frank India.

Fiscal prudence remains a priority but additional headroom for spending was created after the Reserve Bank of India paid the government a dividend of $25 billion in May, a move that helped to cover tax cuts and subsidies.

Mr Modi and his ruling Bharatiya Janata Party failed to win an outright majority in the recent general election.

This has proved a challenge as it left the BJP dependent on its coalition partners to pass the budget.

“This budget will decide the direction of our work for the next five years and this will lay the foundation of fulfilling our objective to make India a developed country by 2047,” Mr Modi said on Monday.

Key highlights from the Indian budget

• Capital expenditure unchanged at 11.1 trillion rupees

• Fiscal deficit target for this financial year reduced to 4.9 per cent from an earlier estimate of 5.1 per cent

• Allocates 2.66 trillion rupees for rural development and 1.52 trillion rupees for agriculture and related sectors

• Earmarks 2 trillion rupees for job creation over five years

• Customs duty on gold reduced to 6 per cent from 15 per cent

• Short-term capital gains tax raised to 20 per cent from 15 per cent

• Venture capital fund of 10 billion rupees set up for the space sector

• Support for setting up of 12 industrial parks