‘It Is a Futuristic Budget’

FINANCE MINISTER Nirmala Sitharaman dwelled on aspects of continuity and new efforts to reform land, labour and capital laws alongside a commitment to capital expenditure at the ‘OpenHouse’ event, organ­ised by the RP-Sanjiv Goenka Group and anchored by RPSG Chairman Sanjiv Goenka in New Delhi on July 26. The fi­nance minister also responded to questions on India’s nuclear energy plans, Centre-state cooperation, fiscal discipline, and debt management.

Emphasising that her July 23 Union Budget presented in Parliament was a “futuristic” roadmap for India, Sitharaman categorically said that capital expenditure (capex) would remain a cornerstone of Modi 3.0 policies until the government was certain that investment recovery could take off on its own.

The plan to make India a developed nation by 2047, as envis­aged by the Centre, encompasses an all-out effort to enhance growth, manufacturing output, social progress, and job gen­eration through sustainable means and good governance. The ambitious plan is called Mission 2047 or Viksit Bharat 2047.

In her remarks at the event, the finance minister highlighted several important economic themes that she had outlined in the 2024-25 Budget. She first mentioned the importance of factor productivity and land and labour factor reforms, two very important issues that have received emphasis in this year’s Budget. Land and labour are chief among factor markets that have for long been caught up in the politics of India. The fact that Sitharaman chose to highlight them again sends an important signal that these issues have lost none of their salience and potency for the Narendra Modi government. In her Budget speech, the finance minister had said, “Our government will initiate and incentivise reforms for, one, improving productivity of factors of production; and, two, facilitating markets and sectors to become more efficient. These reforms will cover all factors of production, namely land, labour, capital and entrepreneurship, and technology as an enabler of improving total factor productivity and bridging inequality.”

“We are aware that we have to have bang for the buck, but we are handling macroeconomic issues with a lot of responsibility,” says Nirmala Sitharaman

“Skilling is not about skilling people for old-India requirements, but for new India. It will be AI-driven and more research and technology will be brought into agriculture and labour-intensive units will be modernised,” says Nirmala Sitharaman

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Sitharaman also highlighted the importance of close coordination and cooperation between the Centre, states and industry to spur the Indian economy forward. She told the forum, “It [Budget] is not only the plan of the Central government.” She repeatedly emphasised the need for close coordination between the Centre and the states, states and the industry, and all three stakeholders together.

Another theme that resonated in the discussion and exchange of ideas at ‘Open House’ was the strong praise for the Modi government in maintaining fiscal prudence, not only in the current Budget but also over the series of past Budgets. In 2024-25, the government has set a target of reducing the fiscal deficit by one percentage point to 4.9 per cent of GDP from 5.9 per cent (Budget Estimates) in 2023-24.

The finance minister said that since the audience consisted of people from industry, they would understand and appreciate the government’s efforts in reducing the fiscal deficit. “The glide path has been adhered to in all these years on fiscal management and deficits,” Sitharaman said. She also spoke about India moving to using the debt-to-GDP ratio as an anchor for fiscal management in the years ahead. This was part and parcel of the government’s plan to keep India on the path of fiscal sustainability.

During the session, a question was raised about the government’s continuing emphasis on capital expenditure. In her response, Sithara­man left no room for doubt and said, “The public sector has to undertake investment. There is a lot of work to be done on infrastructure… we would like the private sector to take up investment as well.”

The audience at the event, held at Delhi’s Taj Mansingh Hotel, comprised industrialists, entrepreneurs, economists, and others. The finance minister was warmly welcomed by RPSG Chairman Sanjiv Goenka, who called her a leader who has “distinguished herself with deep thought, clarity, transparency and vision.”

Sitharaman said that she was at the forum primarily to clarify things about the Budget. She also said that skilling schemes outlined by the government are not a rehash of the old ones. “Skilling is not about skill­ing people for the old-India requirement, but for new India. It will be AI-driven and more research and technology will be brought into agriculture and labour-intensive units will be modernised.” The skilling schemes the government has undertaken will focus on meeting the demands of Industry 4.0, she said. In total, the Union Budget for 2024-25 will provide ₹1.48 lakh crore for education, employment and skilling in the country. Besides, a skill loan scheme will be revised to facilitate loans up to ₹7.5 lakh with a guarantee from a government-promoted fund, which is expected to help 25,000 students every year.

Sitharaman, who presented her seventh Union Budget this time, had reiterated her resolve to spend more on infrastructure to generate jobs, an­ticipating that plans in this area will have a multiplier effect and stir up the economy. It, therefore, came as no surprise that she announced the continu­ation of the spending plan announced in February’s Interim Budget ahead of the General Election. Much more needs to be done on the infrastructure front, she said, in response to a question. The Centre had some years ago doubled its infrastructure spend to 3.4 per cent of GDP. Along expected lines, the Union Budget announced a capital expenditure of ₹11.11 lakh crore to support the development of infrastructure over the next five years. “We are conscious that we have to have bang for the buck, but we are handling macroeconomic issues with a lot of responsibility,” Sitharaman said, adding that “India still has an infrastructure deficit in some parts of the country.”

The Budget proposals in infrastructure development include a transit-oriented development plan for 14 large cities with a population of over 30 lakh, the creation of investment-ready ‘plug and play’ indus­trial parks with complete infrastructure in or near 100 cities, and the setting up of Digital Public Infrastructure (DPI) in agriculture, power projects, ports, airports, and so on. The Centre will also spend ₹10 lakh crore to house people. In her Budget speech, Sitharaman had said she had made a provision of ₹2.66 lakh crore for rural development, including rural infrastructure.

Outlining more proposals in her Budget speech, Sitharaman had said that ownership, leasing, and flagging reforms will be implemented to improve the share of the Indian shipping industry. She added, “We will set up a Critical Mineral Mission for domestic production, recycling of critical minerals, and overseas acquisition of critical mineral assets. Its mandate will include technology development, skilled workforce, extended producer responsibility framework, and a suitable financing mechanism.” The finance minister said she would promote investment in infrastruc­ture by private sector players through viability gap funding and enabling policies and regulations.

“Factor market reforms have a big place in this budget,” says Nirmala Sitharaman

“Nothing in the finance ministry is done with back-of-the-envelope calculations. It is a rigorous process,” says Nirmala Sitharaman

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Emphasising stability along with continuity, the finance minister told the gathering at ‘OpenHouse’ that the skilling schemes the government has under­taken will focus on meeting the demands of Industry4.0 and so most upskilling programmes will be done using artificial intelligence (AI), confirming that the Centre has done it after a careful review of its previous ventures. Sitharaman said that tax-related changes in Budget 2024 were not done based on back-of-the-envelope calculations. A lot of rigour goes into the exercise, she averred.

“These are well-thought-out plans,” she said, emphasising that stakeholders across sectors were consulted before the government chalked out a roadmap for this purpose. Sitharaman also said that her government will enlist the support of state governments and the private sector to tide over challenges in job generation and the creation of new employment opportunities. She said that the Modi government will rise above narrow political considerations in this massive effort.

To spur job creation, the government also plans to expand mi­cro, small, and medium enterprises (MSMEs) and make them go global. Sitharaman said, presenting the Budget, “For facilitating term

loans to MSMEs for the purchase of machinery and equipment without collat­eral or third-party guarantee, a credit guarantee scheme will be introduced. The scheme will operate on pooling of credit risks of such MSMEs, and a separately constituted self-financing guarantee fund will provide to each applicant a guarantee to cover up to ₹100 crore, while the loan amount may be larger.” She also announced that public sector banks (PSBs) will build “inhouse capability” for credit assessment of MSMEs. The government will also slash the mandatory revenue requirement for MSMEs for submitting applications on TReDS from ₹500 crore to ₹250 crore. TReDS is an electronic platform for facilitating the financing or discounting of trade receivables of MSMEs through multiple financiers, according to a government communiqué.

“Forward signalling has been made in this budget,” says Nirmala Sitharaman

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She also said that special packages to certain states were allocated in line with the promises made in the Interim Budget and not due to any post-poll considerations. To a question from Shashwat Goenka, director at the RPSG Group, Sitharaman said that the government would actively encourage private sector participation in its aggressive initiatives in nuclear energy. The finance minister also said at the meeting that the government is open to suggestions and recommendations in multiple sectors, including electronics and renewable energy.

Right Steps Taken On Tax and Jobs

A panel discussion on the Union Budget 2024-25 featured journalist Vikram Chandra; Surjit Bhalla, noted economist and India’s former executive director at the International Monetary Fund (IMF); Nilesh Shah, manag­ing director of Kotak Asset Management Company Ltd; and Vishak Raman, vice president for sales at Fortinet.

The questions centred on the details of the Budget, especially the government’s new employment incentives package, fiscal consolidation, capital gains tax, and more.

In his remarks, Bhalla said the Budget was excellent from both an economic and political perspective. He said that on employment generation, the government recognises that there is an issue and this is especially so for entrants to the labour market who are looking for their first job. Bhalla added that from the perspective of economic policy, there has never been any dispute on the solution to the problem: the way to increase employment is to give a wage subsidy and that is what the government is doing. The economist said that youth unemployment is a problem across all countries as there is a surplus of college graduates.

In his remarks on capital gains tax, Nilesh Shah said that the issue is not the increase in the tax but a view has to be taken on the totality of all other taxes in the securities markets, such as the Securities Transaction Tax (STT), dividend taxes, and all other taxes. He said STT is a step in the right direction but it should be taken to its logical conclusion by removing the differential treatment for domes­tic and foreign investors. Bhalla added that the government was moving towards equalising tax treatment across different asset classes and this was a positive step.

All participants in the discussion praised the government for its fiscal prudence and its continuous efforts to put India on the path of fiscal sustainability and consolidation.

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