Unveiling Modi 3.0’s First Budget: Infrastructure Push, Welfare Measures, and Fiscal Consolidation

As Prime Minister Narendra Modi’s government embarks on its third term, the first Union Budget will be presented by Finance Minister Nirmala Sitharaman on July 23, 2024. This Budget marks an important milestone as it will be Sitharaman’s seventh consecutive Budget presentation, surpassing Morarji Desai’s record of six. The session is set to convene from July 22 to August 12, 2024, with the Economic Survey for the past financial year being tabled on the opening day.

Infrastructure Investment and Targeted Spending

The forthcoming Budget is expected to focus heavily on infrastructure investment and targeted spending aimed at the middle class, women, railways and the agricultural sector. Buoyant tax collections have resulted in a fiscal deficit better than budgeted, closing last year at 5.6% of GDP against a revised estimate of 5.8%. The current fiscal targets a 5.1% deficit, with the government leveraging a record dividend from the Reserve Bank of India (RBI) to aid in meeting this goal. The RBI’s higher-than-budgeted dividend, amounting to 0.3% of GDP, could potentially increase capex growth to 20% year-on-year (YoY) if allocated towards infrastructure.

Reform Measures and Legislative Bypass

The Modi government plans to introduce significant reform measures that bypass the need for legislative approval, showcasing its economic resilience and strategic governance. These measures are likely to include adjustments to the Production-Linked Incentive (PLI) scheme, aimed at expanding the scope of the manufacturing industry in India. The need for swift disbursements under existing and new PLI schemes could be considered.

Addressing Inflation, Unemployment, and Income Inequality

With pressing issues such as inflation, unemployment, income inequality, and regional disparities at the forefront, the Budget is expected to include tax measures and social security benefits, particularly targeting the middle class. It is to be considered that there is limited fiscal space for stimulating the economy due to high public debt but noted the positive long-term growth spillovers from India’s infrastructure upgrades. The Budget is anticipated to outline a roadmap for public debt sustainability and green finance, balancing India’s energy security with its transition needs.

Sectoral Expectations and Incentives

In the manufacturing sector, there is a clear emphasis on labour-intensive industries, with fiscal incentives aimed at making India a global hub for toy, textile, apparel, and commercial aircraft manufacturing. The housing sector may see a focus on slum redevelopment in major cities, reducing regulatory costs, and ensuring clean drinking water for households. The service sector is likely to witness an expansion of Global Capability Centres (GCCs), Global Technology Centres (GTCs), and Global Engineering Centres (GECs), alongside a focus on tourism for job creation.

For the agricultural sector, the Budget is expected to include incentives for increasing domestic production of edible oils, pulses, vegetables, and fruits, as well as expanding dairy cooperatives and fisheries. Infrastructure projects such as cold storage facilities, efficient irrigation networks, and food processing units are also anticipated. Additionally, there may be a reduction in input costs for machinery, an increase in the availability of seeds, and allocations for a price stabilization fund for vegetables and pulses.

Infrastructure and Insurance Sector Focus

The infrastructure sector is expected to receive continued focus, with an emphasis on rail network expansion, particularly in East and North-East India. The Budget aims to add over 5,000 km of new rail tracks annually over the next few years. In the insurance sector, policies targeting unorganized workers, such as insurance schemes for taxi, truck, and three-wheeler drivers, are anticipated.

Conclusion of Pre-Budget Consultations

FM Nirmala Sitharaman recently concluded pre-Budget consultations, involving over 120 invitees from various stakeholder groups, including farmer associations, trade unions, and industry representatives. These consultations, held from June 19 to July 5, 2024, aimed to gather valuable suggestions for the Budget’s preparation. Sitharaman assured participants that their inputs would be carefully examined and considered.

The upcoming Union Budget 2024-25 will be crucial in setting the path for a developed India by 2047, with a strong emphasis on infrastructure development, targeted spending, and strategic reforms. As India projects a GDP growth rate of 7% this year, the Budget will play a pivotal role in addressing critical areas for medium-term resilience and ensuring the country’s economic prosperity.

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.