Modi 3.0's first budget may include new PLIs, a reduction in excise duties, more funding for star programs, and more responsibility placed on the states to instill positive feeling in the populace. The budget might support the grassroots economy while being cautious.
The government is probably going to provide more money to programs like PM-Kisan Samman Nidhi that typically have an impact at the local level.
The Modi-led administration will be trying to stave off any needless headlines that may put them on the defensive before the Union Budget, which is due on July 23. The most notable one was the adage "suit boot ki sarkaar," which implied that the government was lenient with large corporations.
The BJP suffered setbacks in key states including Uttar Pradesh, West Bengal, Maharashtra, Karnataka, and Rajasthan in the 2024 national elections. It's noteworthy that, with the exception of West Bengal, the BJP rules all of these states. The lesson from the defeat is that programs need to be strengthened in order to stimulate the grassroots economy. The BJP is aware of the difficulties in the back of their minds. According to a person involved in government deliberations, "they are not convinced that the economy is firing on all cylinders."
With the big RBI dividend payment of Rs 2.1 trillion, which is greater than the government's budget estimate and analysts' expectations of Rs 1 trillion and 141 percent more than the Rs 87,419 crore dividend distribution in FY23, the government has enough budgetary headroom to spend.
According to a source, "if they have a little bit of financial room, they might spend now rather than regret not having."
generating the appropriate sounds
It is probable that the government would continue on its current course of fiscal consolidation and strive to reduce the budget deficit to less than 4.5 percent of GDP by the fiscal year 2025–2026 and 5.1 percent by 2024–2025. According to someone with knowledge of budget objectives, "what the rating agencies say is important for the government and populism is likely to happen through states."
According to reports, a tiny percentage of Indians will be affected by income tax cuts, but they are the Indians that complain the most. It is being considered to reduce income taxes for those earning between Rs 5 lakh and Rs 15 lakh in order to increase consumer spending and promote a positive mood. Since taking office, Finance Minister Nirmala Sitharaman has faced intense trolling on social media, with one of the main accusations leveled against her being that not enough has been done by the government to assist the middle class of taxpayers.
This time, the Telugu Desam Party and Janata Dal United, two of the alliance's members, have requests for the government as well. Granting these states a unique package or status may let the government into a Pandora's box. Furthermore, there is still substantial disagreement about what constitutes a special status. While a special package may again be politically awkward, the government might decide to enhance funding for certain state-centric programs that prioritize building infrastructure.
There may also be a reduction in excise duties. According to Petroleum Minister Hardeep Singh Puri, between November 2021 and May 2022, the government reduced the excise tax on gasoline and diesel by Rs. 13 and Rs. 16 per liter.
An estimated Rs 124–140 billion in revenue losses are predicted from a reduction of the gasoline excise levy of Rs 1 per litre. gasoline taxes now account for 37% of the nation's retail gasoline price, of which 16% is due to state value-added taxes and 21% is to the federal excise duty. A reduction in excise duties will increase consumption. Experts have recommended reversing the inverted duty structure, which was first implemented with the intention of fostering supply chain ecosystems around the nation, in order to increase manufacturing. Industry organizations, however, have argued that these protectionist measures hurt Indian industry's ability to compete.
Some of the changes to customs taxes imposed in previous budgets may be undone by this one. Indian policymakers might learn from the success of nations like Vietnam, which have laxer local sourcing regulations and have outperformed India. Vietnam exports 10 times as much electronics as India does. Government policy experts have been pushing for fair trade policies for Indian manufacturers, arguing that a greater portion of global commerce is necessary for India's economy to expand. They claim that more affordable and easier access to inputs would lead to export competitiveness.
The controversial Agniveer program, which was implemented to lower the defense forces' growing pension costs, is another difficult issue the administration must deal with. The alliance partners have demanded that it be discontinued. The government would reverse a budgetary reform if it abandoned the plan. Even if the finance ministry has identified it as a difficult plan, the administration will have a difficult time deciding how to proceed with it. While other programs, like PM Awas Yojana and Har Ghar Nal, have been successful and will probably continue to get attention.
The government is probably going to provide more money to programmes like PM-Kisan Samman Nidhi that tend to benefit the general public. It can avoid launching a new plan because of the difficulty of designing and implementing it.
The problem with schemes is that once they are put into action, they cannot be undone. And the next year's RBI dividend won't exist. A insider said, "I feel more and more that state government will become a vehicle for populism.
"You must implement these plans at the state level if you must spend money in order to win votes. Ten states have declared plans to provide women monetary payments.
Maharashtra has actually lowered capital expenditures for payments to women. The insider said, "The Central government has no business announcing such initiatives.
According to a second source, the government may be thinking about raising the long-term capital gains (LTCG) tax on stocks. "The call will be directed more toward politics than economics, specifically against the one community that backs the government." However, if this is done, the political narrative will shift away from Suit-Boot, which has struck a chord someplace.
Caution in politics
According to macroeconomic calculations, the government has sufficient cash to maintain its fiscal restraint, increase consumer spending and infrastructure, and implement the RBI dividend. Economists warn that cutting the deficit below the intended 5.1 percent would be futile. The government wants to spend and boost the economy in all areas, but particularly for MSMEs and farmers. Water, electricity, and railroads are among other industries that may benefit.
A package to increase tourism and modify the PLI plan for textiles to include clothing is probably included in the budget as well. It is possible for tourism to generate employment. How might clusters in tourism be formed? Are there any packages available for cluster tourism that would increase employment?
All things considered, this budget may favor little over large. Gently prodding rather than radical improvements. Enjoy the status quo.
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