The upcoming Union Budget in July 2024 is a highly anticipated event in India, generating a buzz of expectations and predictions from various sectors. As Finance Minister Nirmala Sitharaman prepares to unveil the Modi government’s first full budget for its third term, key stakeholders are eager to understand the government’s plans to address pressing economic issues and propel India’s growth trajectory.
The budget is expected to strike a balance between fostering economic growth and maintaining fiscal discipline. This will involve measures to control inflation, which has emerged as a major concern for households. Additionally, job creation will be a top priority, with the government likely to announce initiatives to boost employment opportunities across sectors.
The salaried class is keenly awaiting potential tax breaks in the form of reduced personal income tax rates or an increase in the tax exemption limit. Any such changes are likely to be introduced within the new tax regime implemented in 2020.
Investors are anticipating changes to the capital gains tax structure. The current system is perceived as complex, with varying tax rates and holding periods for different asset classes. This complexity creates confusion and compliance challenges for investors. The budget is expected to propose a simplified capital gains tax regime to enhance transparency and ease of doing business. Potential reforms include streamlining tax rates, introducing uniformity across asset classes, and revising indexation rules for long-term capital gains.
The government is likely to maintain its focus on infrastructure development, with a potential increase in capital expenditure allocations for the Ministry of Road Transport and Highways (MoRTH) for the 2024-25 fiscal year. While the exact increase is yet to be announced, estimates suggest a moderate rise of 5% to 10% over the revised estimates of the previous year. This focus on road construction is expected to be supplemented by a significant rise in private sector investments, particularly under the build-operate-transfer (BOT) toll model. Data shows private investments in road construction reached Rs 34,805 crore in FY24 and are projected to nearly double in FY25, reaching Rs 68,000 crore.
The electronics and mobile phone manufacturing industry has requested financial incentives of around Rs 40,000-45,000 crore. This support could come in the form of direct financial aid or an expansion of the production linked incentive (PLI) scheme. The industry body representing major handset makers and electronics manufacturers has also called for a rationalisation of import duty structures. They propose reducing duties on components of mobile phones and sub-assemblies over time to make India more attractive for global value chains. This aligns with the government’s broader vision of establishing India as a global manufacturing hub and reducing dependence on countries like China.
India’s strategic goal of becoming a global manufacturing powerhouse is gaining momentum. The upcoming budget is expected to play a crucial role in supporting this vision. Measures to incentivize domestic production, improve supply chain infrastructure, and enhance trade agreements are likely to be central themes. The success of these initiatives will be vital in determining India’s ability to compete with established manufacturing giants and carve a niche in the global supply chain.
The budget strategy is likely to prioritize substantial investments in infrastructure development. This focus on infrastructure is crucial for reducing domestic logistics costs and improving the efficiency of India’s supply chain. Upgrading transportation infrastructure is particularly important, considering India’s current lag in global Logistics Performance Index rankings.
The path to becoming a global manufacturing hub is not without its challenges. Complex regulations, a challenging business environment, and limited labor market reforms pose potential hurdles to attracting foreign investment. The budget might propose measures to address these concerns, potentially streamlining regulations and fostering a more business-friendly environment. Additionally, India’s high tariffs and a cautious approach to free trade agreements could hinder its efforts to integrate more deeply into global supply chains.
The Union Budget 2024 is a highly anticipated event that will set the tone for India’s economic trajectory in the coming year. With a focus on balancing growth, job creation, and fiscal consolidation, the budget will outline the government’s roadmap for navigating a dynamic economic landscape. Measures to address inflation, incentivize investment, and streamline the tax regime will be closely watched by businesses and individuals alike. The success of the budget in propelling India’s manufacturing ambitions and achieving its role as a global player in the supply chain will hinge on its ability to address skilling gaps, invest in infrastructure, and navigate regulatory challenges.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.
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