The widely expected shift in capex priorities was aptly summed up in the budget speech. The FM noted that the significant infrastructure investment of the last five years while continuing should be ‘conjoined’ with other priorities and fiscal consolidation.
In the last five years, capex allocation moved from 3.3 lakh crore in FY19 to the current 11 lakh crore at 27 per cent CAGR. The allocation to roads, rail, power and defence saw allocations growing at 15-25 per cent CAGR in the previous five-year term. The targets in these segments are now well defined and are on way to being met by 2030-32.
The next five years may likely focus on agricultural productivity, employment-skilling-education, MSME building, and housing. From infrastructure development in the last five years the focus may shift to these sectors. This may continue even in subsequent budgets, with further formulation carried out in the economic policy framework, as per the FM.
Compared to infrastructure building, the new priorities will yield results in a longer timeframe, will be bottom-up focused and the multiplier will expand based on the policy effectiveness, rather than the standard preset multipliers in infrastructure.
Several ‘Employment Linked Incentives’ were announced which directly benefit the employee and the employer. For first-time employees registered in EPFO, a direct benefit transfer of up to ₹15,000 has been announced. In the manufacturing sector, incentives to both first-time employees and employer is provided based on contributions to EPFO for four years. For all additional employment generated under a compensation of ₹1 lakh/month, employers will be reimbursed ₹3,000 per month for 2 years. 20 lakh youth will be skilled over a 5-year period along with extending skilling and education loans.
The agriculture and allied sectors were allocated ₹1.52 lakh crore which encompasses agri research, new seed variants for efficiency and ‘atmanirbharta’ for oil seeds, vegetable oils and others. Also, 1 crore farmers across the country will be initiated into natural farming with the aid of local machinery.
MSMEs will receive credit guarantees to purchase machinery of up to ₹100 crore and working capital assistance through TReDS platform. The infrastructure of plug and play industrial parks should benefit MSMEs.
Focus on housing continues, which fits the rural-focussed employee generation priority of the current budget. In the first move post Cabinet formation, the government announced assistance for 3 crore homes under Awas Yojana which has been reiterated in the current announcements. Also, support for 1 crore urban homes has been announced with an outlay of ₹10 lakh crore over five years.
Cues from economic survey
There is strong flow through from yesterdays Economic Survey prescriptions in today’s budget announcements. In key areas of policy focus in short to medium term the survey noted that generating productive employment, skill gap challenge, tapping agri sector, easing compliance burden in MSME and India Green transition are top five priorities in that order which find an echo in Budget 2024-25.
The employee-employer incentivisation schemes in the current budget while positive also needs a strong demand environment for meaningful improvement in tackling productive employment. The skill gap recommendation mentions that only 2/8 per cent of 15-59 years workers have received formal/non-formal vocational training, which is targeted with 20 lakh youth training program announced.
On the agriculture front research for better yields and self sufficiency in oil seeds to pulses has found mention in the budget. The budget also addressed the credit gap in funding for MSME growth but lower compliance burden is a work in progress.