JOIN USKey expectations from last full Union Budget of Modi 2.0 govt
The last full-fledged budget of the second term of Prime Minister Narendra Modi-led government comes amid global headwinds and domestic macroeconomic challenges like slowing growth, high inflation and job losses. While Finance Minister Nirmala Sitharaman must be under pressure to boost allocation for social welfare and introduce new programmes and schemes targeted to woo voters ahead of several state assembly elections this year and the crucial Lok Sabha election in 2024, the budget will test her resolve to stay fiscally prudent.
This being a pre-poll budget, a strong political undertone is natural. Which are the sectors that are likely to get major attention in this budget? Will Sitharaman focus on agriculture and rural economy as was the case with the Union Budget 2018-19 presented by then finance minister Arun Jaitley?
In the Union Budget 2018-19 Jaitley significantly boosted allocations to schemes like Ujjwala Yojana and Ayushman Bharat. Farmers were promised MSP of one and half times their production cost on the majority of rabi crops. Substantial allocations were made to provide free LPG connections, electricity and toilets to the lower and middle classes. These gave impressive results in the 2019 elections. Will the Modi government try to make similar experiments before the 2024 general elections? Here are some of the key focus areas to look out for in the budget:
Farmers
Cash assistance given to farmers under the PM-KISAN scheme is likely to be raised from the current Rs 6,000 per year to Rs 8,000 per year. The PM-KISAN scheme was launched in February 2019, just a couple of months before the Lok Sabha election. Under this scheme, Rs 2,000 is transferred to eligible farmers’ accounts thrice a year. Rs 2 lakh crore has been released to more than 11 crore eligible farmers till December 2022, as per the government data.
Budgetary allocation for the Ministry of Agriculture & Farmers Welfare stood at Rs 1,24,000 crore in 2022-23. This is likely to be substantially increased for 2023-24. The government may increase interest subsidies on agricultural credit.
Rural Development
With over 65 per cent of the total population, rural India is the key to electoral success. It is also critically important for accelerating economic growth. There is likely to be a renewed thrust on rural infrastructure development and credit availability.
Allocation of funds to MNREGA has created political heat in the last couple of years. The highest allocation for MNREGA, which was introduced by the Congress-led UPA government in 2005, stood at Rs 1.11 lakh crore in 2020-21. The allocation to the scheme was boosted by 55 per cent in FY21 to provide support to poor labourers hit by Covid pandemic and lockdowns. The allocation to the scheme was cut to Rs 98,000 crore in 2021-22 and further to Rs 73,000 crore in 2022-23. Sitharaman is likely to reverse the downward trend and substantially boost the allocation for MNREGA this year.
There is likely to be a significant increase in allocation for PM Awas Yojana. In the 2022 Budget, the finance minister allocated Rs 48,000 crore to build 80 lakh houses under the scheme in both rural and urban. A substantial increase in allocation is also expected for rural infrastructure development, piped water and sanitation.
Women
Providing free cooking gas cylinders under Ujjwala scheme is estimated to have yielded huge electoral benefits to the ruling BJP in the 2019 general election and state polls. Allocations are likely to be increased for schemes related to education, healthcare and the safety of women. Women-specific fiscal incentives are also on the card. This may include tax concessions on purchases of assets like house, vehicles in the name of women.
Middle class
The biggest hope of the middle class, invariably from all union budgets, is pinned on tax relief. So far, the Modi government has not provided any major relief to income tax payers. The income tax rates for individuals have not changed since the financial year 2017-18. The only change that has happened in the last five years is the introduction of the ‘new tax regime’ in the union budget for 2020-21. Sitharaman is likely to focus on making the new tax regime more attractive.
“The focus will be on exemption-free tax regime – a simple, straight, lower tax rate and no exemptions. Maybe that is the direction that the government is likely to strengthen rather than give all kinds of direct and indirect exemptions,” C J George, MD and CEO of Geojit Financial Services, told DH in an interview. If tax relief is provided to lower income brackets, there is a possibility that the finance minister might opt to compensate revenue loss by imposing cess/surcharge on the upper-income bracket.
Manufacturing
Supporting manufacturing is crucial for jobs and accelerating economic growth. India has been positioning itself as an alternative to China in the global supply chain. The China-plus-one strategy of major global firms has benefited India. Finance minister is likely to enhance financial incentives to support manufacturing. The Production-Linked Incentive (PLI) scheme, which currently covers 13 sectors, is likely to be further expanded to several other areas like manufacturing of leather and non-leather footwear, toys, bicycles, vaccine materials and telecom products.