Budget 2024 Expectations: Economic Survey projects real GDP growth of 6.5-7% in FY25

Cement demand in India continues to be a bright spot as it bucks global trend of flattish demand, the Economic Survey 2023-24 said. Read more

The Economic Survey has recommended keeping sensitive commodities such as rice, wheat and most pulses outside the ambit of the futures market until the markets are developed and the regulator has a higher degree of comfort in diversifying the portfolio. Read more

Equity benchmark indices Sensex and Nifty ended lower on Monday, dragged down by heavy selling pressure in Reliance Industries and Kotak Mahindra Bank ahead of the Budget. Read more

Attacking developed countries for imposing a carbon tax at the border on imports from developing nations, the Economic Survey, which was tabled in Parliament on Monday, said this is happening even as the latter is ramping up energy demand due to its “obsession” with Artificial Intelligence (AI). Read more

Pointing out that fertiliser administration reforms have been carried out in many countries, the Economic Survey said it is time for similar reforms in India, wherein the requirement is calculated based on standard norms and the quantity of subsidised fertiliser is fixed as per land records. Read more

Export bans on agriculture produce, including sugar, must be invoked only under exceptional circumstances as it is easier for consumers to substitute or reduce consumption than for farmers to endure big losses due to ad hoc prohibitions, the Economic Survey for 2023-24 has pointed out. Read more

Economic Survey for 2023-24 has made a case for higher level of private sector financing and resource mobilisation from new sources for India to continue down the path of building quality infrastructure. Read more

Green steel is poised to play a “pivotal role” in reshaping the future of the sector “as the world moves towards a low-carbon economy,” the Economic Survey has said. Read more

Beyond FY2025 as well, we expect the government to continue to prioritise the available fiscal space towards enhancing capital spending, both directly and through the interest-free loans provided to the State budgets.

Ramnath Krishnan, MD and Group CEO, ICRA, writes

“Even as developed nations prepare to impose a carbon tax at the border on imports coming into their countries laden with carbon, they are ramping up energy demand like never before, thanks to their obsession with letting AI guide, take over and dominate natural intelligence,” the survey said.

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SEBI has implemented several measures to improve liquidity in the market for distressed assets. FPIs are permitted to invest in debt instruments issued by companies undergoing resolution and in security receipts issued by Asset Reconstruction Companies (ARCs). No minimum investor limit or residual maturity requirement is imposed on FPIs for these investments. These measures have led to an increase in FPI investment in SRs issued by ARCs from around ₹10,000 crore to ₹14,482 crore during FY2221. SEBI also opened a particular route in 2022, the Special Situation Fund, a sub-component of the Alternative Investment Funds, to participate in the distressed asset market. 

1. Introduction of Trade Receivables Discounting System (TReDS)
2. Change in definition of MSMEs
3. Registration of MSMEs on Udyam Portal
4. Revampof Credit GuaranteeScheme (CGS) for Micro and Small Enterprises (MSEs)

Agricultural credit had increased nearly 1.5 times from ₹13.3 lakh crore in FY21 to ₹20.7 lakh crore in FY24. The Kisan Credit Card (KCC) scheme has played a pivotal role in providing timely and hassle-free credit to farmers, with over 7.4 crore operative KCC accounts at the end of 2023.11 Increased credit disbursal to the agricultural sector continued in April and May 2024 with bank credit to agriculture and allied sectors growing by 19.7 per cent and 21.6 per cent YoY, respectively

The Economic Survey 2023-24 released on Monday considers the pace of technology developments, especially those in the field of Artificial Intelligence (AI), to be among the key determinants of India’s medium-term economic growth and says that AI’s uncertainty on jobs will be a hindrance to India’s progress. 

“Technology is emerging as the biggest strategic differentiator determining the economic prosperity of nations. Its productivity enhancing potential is beyond doubt but the social impact of emerging technologies such as Artificial Intelligence (AI) via labour market disruptions and labour displacement is barely understood. It also has the potential to skew the capital and labour shares of income in favour of the former,” the Economic Survey said. 

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Export of goods and services from India is likely to increase this fiscal with advanced economies looking up, but fragmentation along geopolitical lines and protectionism may distort goods trade growth, impacting India’s external sector, the Economic Survey for 2023-24 has said.

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Credit growth remains robust, mainly driven by lending to services and personal loans. Deposit growth has also gained momentum due to the transmission of previous rate increases, resulting in the repricing of deposits and higher accretion to term deposits. Lending by non-banking financial companies (NBFCs) accelerated, led by personal loans and loans to the industry, and their asset quality has improved

The advent of artificial intelligence casts a huge pall of uncertainty as to its impact on workers across all skill levels – low, semi and high. These will create barriers and hurdles to sustained high growth rates for India in the coming years and decades. Overcoming these requires a grand alliance of union and state governments and the private sector. 

The ONDC network holds promise in substantially improving the livelihoods of farmers and artisans, according to Economic Survey 2024. Around 5,700 FPOs (Farmer Producers Organisations) have joined the network so far, with them collectively doing more than 23,000 transactions during Q4 of FY24. National Agriculture Market (eNAM) and Small Farmers’ Agri-Business Consortium’s (SFAC) digital applications have also been integrated into the network.

The government-backed Open Network for Digital Commerce (ONDC) has recorded over 68 million transactions since its inception, the Economic Survey FY 24 noted. It is seeing 9 million transactions per month and has rapidly expanded into various domains beyond mobility and food and beverages.

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“The Economic Survey implicitly stresses that in the medium term, growth needs to be supported by the private corporate sector as well as the state governments. Managing inflation, on the other hand, is not just the prerogative of the RBI and its MPC, and would require active intervention by the Centre, especially in the arena of food price management. The realisation of both these paradigms is crucial to ensure an optimal growth-inflation mix over the medium-term

Exports of IT and technology-enabled services lead India’s GVC services exports. 

Key expectations

Higher Capex Spending:

The government is expected to continue with a strong emphasis on capital expenditure (capex). The FY2025 budget estimate for capex is ₹11.11 lakh crore, representing a 16.9% increase over FY2024 revised estimates.

Significant allocations are anticipated for railways (₹2.55 lakh crore, up 5%), roads, highways (₹1.68 lakh crore), and urban development.

Support for Rural Economy and Agriculture:

Increased allocation for rural development and agricultural sectors to enhance rural consumption and welfare. Notable allocations include ₹86,000 crore for MNREGA and increased funding for PM Gram Sadak Yojana and PM Kisan Samman Nidhi.

The budget is expected to provide relief to those at the bottom of the pyramid through proactive food and fertilizer subsidies and affordable housing initiatives.

Job Creation:

The government will focus on job creation through infrastructure projects and public welfare schemes. Higher allocations for labor-intensive sectors and Production-Linked Incentive (PLI) schemes are anticipated to boost employment.

Fiscal Consolidation:

The fiscal deficit is projected to be maintained below 5.1%, aiming for 4.5% by FY2026. This includes prudent fiscal management while supporting growth initiatives.

Expected gross borrowing for FY25 is ₹16.85 lakh crore, with net borrowings targeted at ₹11.1 lakh crore.

India’s domestic production and exports of smartphones have been increasing steadily, with significant changes achieved, especially since the launch of the Production Linked Incentive (PLI) scheme in 2020. 

Exports now provide the primary stimulus for the growth of the sector. A 42.2 per cent increase in exports in FY24 (on a YoY basis) enabled smartphones to rank among India’s top five export items considered at six-digit HS product categories.

The automobile industry was helped by multiple government schemes in the fiscal year 2024 (FY24) during which the country produced around 49-lakh passenger vehicles, 9.9-lakh three-wheelers, 214.7-lakh two-wheelers, and 10.7-lakh commercial vehicles, the Economic Survey said on Monday.

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India’s defence production grew substantially from ₹74,054 crore in FY17 to ₹108,684 crore in FY23, boosting defence exports.

The country has transitioned from an arms importer and found a place in the list of the top 25 arms exporter nations. 

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Demand under the Mahatma Gandhi National Rural Employment Guarantee scheme (MGNREGS) is not a real indicator of rural distress but is rather predominantly linked to the State’s institutional capacity and, to some extent, different minimum wages and other considerations

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1. resource dependence on hostile nations;
2. technological challenges such as intermittency of power generation, ensuring grid stability amidst surges and drop in generation from renewable energy sources and battery storage
3. recognition of the opportunity cost of tying up land in a land-scarce country;
4. fiscal implications that involve both additional expenditures for subsidising renewable energy generation and for e-mobility solutions, loss of tax and freight revenue currently accruing from the sale and transportation of fossil fuels;
5. impairment to bank balance sheets from the so-called ‘stranded assets’ and
6. examination of the merits of alternative mobility solutions such as public transportation models and more.

In FY23 and FY24, the agriculture sector was affected by extreme weather events, lower reservoir levels, and damaged crops that adversely affected farm output and food prices. So, food inflation based on the Consumer Food Price Index (CFPI) increased from 3.8 per cent in FY22 to 6.6 per cent in FY23 and further to 7.5 per cent in FY24.

Despite a robust 8.2 per cent GDP growth in the previous fiscal year, the Economic Survey for 2023-24 has conservatively forecast current fiscal economic growth at 6.5-7 per cent. 

The Finance Ministry has opted for a conservative forecast in the latest Economic Survey 2023-24 although market was expecting a much higher growth number.

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Has the corporate sector responded? Between FY19 and FY23, the cumulative growth in private sector non-financial Gross Fixed Capital Formation (GFCF) is 52% in current prices. During the same period, the cumulative growth in general government (which includes states) is 64%. The gap does not appear to be too wide, according to the Economic Survey report.

In terms of financial performance, the corporate sector has never had it so good. Results of a sample of over 33,000 companies show that, in the three years between FY20 and FY23, the profit before taxes of the Indian corporate sector nearly quadrupled. 

Newspaper headlines told us that the corporate profits-to-GDP ratio rose to a 15-year high in FY24. businessline reported, “The corporate profit for the Nifty-500 universe was up 30 per cent last fiscal to ₹14.11-lakh crore against ₹10.88 lakh crore in FY23. The nominal GDP grew 9.6 per cent y-o-y to ₹295-lakh crore (₹269-lakh crore)1 ”. 

Hiring and compensation growth hardly kept up with it. But, it is in the interest of the companies to step up hiring and worker compensation.

Many (not all) of the issues that influence economic growth, job creation and productivity and the actions to be taken therein are in the domain of state governments. India needs a tripartite compact to deliver on the higher and rising aspirations of Indians.

In more than one respect, the action lies with the private sector.

Investment interest of external investors, measured in terms of dollar inflows of new capital, was $45.8 billion in FY24 compared with $47.6 billion in FY23. This slight decline is in line with global trends.

Many private equity investors took advantage of buoyant equity markets in India and exited profitably. It is a sign of a healthy market environment that offers profitable exits to investors, which will bring newer investments in the years to come. That said, the environment for foreign direct investment to grow in the coming years is not highly favourable for many reasons.

Interest rates in developed countries are much higher than they were during and before Covid years. 

Second, emerging economies have to compete with active industrial policies in developed economies involving considerable subsidies that encourage domestic investment. 

Third, notwithstanding the impressive strides made in the last decade, uncertainties and interpretations related to transfer pricing, taxes, import duties and non-tax policies remain to be addressed. Lastly, geopolitical uncertainties, which are on the rise, will likely exert a big.

In FY24, rural wages rose at above-5 per cent every month, y-o-y. On an average, nominal wage rates in agriculture grew by 7.4 per cent for men and 7.7 per cent for women, benefitting from robust agriculture growth during the period. The wage growth in non-agricultural Employment and Skill Development 289 activities was relatively lower, at 6.0 per cent for men and 7.4 per cent for women during the same period

The significant increase in retail investors in the stock market calls for careful consideration. This is crucial because the possibility of overconfidence leading to speculation and the expectation of even greater returns, which might not align with the real market conditions, is a serious concern

The survey explained how increased FDI inflows from China can help in increasing India’s global supply chain participation along with a push to exports.

At present, FDI from China in any sector needs government approval.

China stands at 22nd position with only 0.37 per cent share (USD 2.5 billion) in total FDI equity inflow reported in India during April 2000 to March 2024.

(PTI)

Some reforms are overdue and need to be accepted by agrarian communities

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It has attracted a proposed investment of ₹67,690 Crore, against which ₹14,043 Crore has been invested till end-March 2024. 

PLI Scheme for automobile and auto components has a budgetary outlay of ₹ 25,938 Crore from FY23 to FY27. 

Artificial Intelligence casts a huge pall of uncertainty as to its impact on workers across all skill levels – low, semi and high. These will create barriers and hurdles to sustained high growth rates for India in the coming years and decades. Overcoming these requires a grand alliance of union and state governments and the private sector. 

The Union Budget for 2024-25 will be presented by Sitharaman on Tuesday. Read more

Find the Economic Survey for 2023-24 here.

businessline compiled some expectations from key players in the farm sector.

Click here to read

Tamil Nadu Chief Minister MK Stalin on Sunday submitted to the Centre a wish list of various rail and road projects for the State to be included in the Union Budget 2024-25, which will be presented in the Parliament on Tuesday.

“We believe that the upcoming budget will likely support the vision of “Viksit Bharat” by 2047, following a transformation similar to the one seen in the last decade. With the formation of the NDA 3.0 government, there are increasing expectations from the market for some allocation to address rural challenges and a potential cutback on capital expenditure. The budget is expected to strike a balance between capital expenditure and addressing rural challenges. Moreover, a higher-than-expected RBI dividend has provided some flexibility to progress further with welfare schemes. We anticipate that the government’s priority will continue to be achieving and maintaining macro stability by following a path of fiscal consolidation while balancing growth and stability. We expect the fiscal deficit for FY25 to be kept below 5.1%, with a goal of reaching 4.5% by FY26. Currently, the market is closely monitoring developments related to the capital gains tax. Any deviation from market expectations could lead to some short-term unfavourable reaction, although the likelihood of this happening seems low.”

The Budget expectation this time from the private sector is about how the mandated 70% of total defence expenses via domestic procurement can be segregated between the public and private sectors in India, says Ashish Rajvanshi, CEO of Adani Defence & Aerospace, in conversation with businessline’s Dalip Singh

“The Indian media and entertainment (M&E) industry is flourishing, bolstered by the surge in OTT platform usage, governmental support for digital infrastructure, and the ever-growing enthusiasm for cinema. Despite numerous tax reforms introduced over the years, several critical issues remain that need to be addressed in the upcoming Union Budget.

One major challenge involves the TDS (Tax Deducted at Source) system. Currently, taxpayers face significant difficulties in reconciling TDS with their income due to timing differences. To alleviate this burden, it would be beneficial if the Income-tax Act allowed for TDS credit as reflected in Form 26AS for the corresponding year.

Advertising agencies also face hurdles with the existing TDS framework, which impacts their cash flow due to TDS being applied to the gross billing amount. Lowering the TDS rate on payments from advertisers to these agencies would help ease this financial strain.

Additionally, payments to foreign satellites and data centers are presently classified as royalty or fees for technical services, making them subject to withholding tax. Clarifying that these payments are not taxable in this manner would greatly assist M&E companies utilizing these services.

Moreover, the rules for carrying forward losses during company amalgamations should be expanded to include M&E sector companies, fostering growth and consolidation within the industry.

On the GST front, implementing the proposed changes from the recent GST Council meeting, such as the amnesty scheme for waiving interest and penalties and reducing pre-deposits for filing appeals, would significantly reduce ongoing litigations and create a more supportive business environment.

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Listen to this State of the Economy Podcast, businessline’s PT Jyothi Datta talks to Shuchi Ray, Partner at Deloitte India, on the current state of healthcare in India, and the sector’s expectations from the upcoming Budget.

Association of Indian Medical Device Industry (AIMED) wishlist also hoped the upcoming Budget ’24 would announce income tax benefits tailored to expenditure on capacity expansion and research and development investments by medical device companies.

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The government is now set to present a revised Union Budget for FY25, which will supersede the interim budget presented earlier in Feb-24. The newly appointed government will be expected to continue with policy focus on prudent fiscal management and fiscal glide path to achieve fiscal deficit of 4.5% by FY 26. This augurs well for overall macro-stability for transitioning towards the goal of Viksit Bharat by 2047.

I believe the Union Government budget should focus on five key priorities for the upcoming Union Budget

- Commitment towards fiscal discipline needs to get reiterated and will boost India’s fiscal image at a time of global bond inclusion. A sovereign rating upgrade over next two years will lower the cost of borrowing for all economic stakeholders in the country.

- Viksit Bharat requires scaling up of financial intermediation in a sustainable manner. There is an urgent need to accelerate deposit mobilization by the banking system. The FY25 Union Budget (along with support from the RBI) could look at providing a level playing field to bank deposits vis-à-vis other competing instruments by incentivize deposit mobilization through lowering tax incidence on FDs.

- Indian banks have been spending 6-8% of total operating expending on technology. This is lower than the global average of 10-12%. With government’s focus on digitization and financialization of the economy and boosting cyber security, Indian banking system needs to meaningfully scale up the technological infrastructure to be future ready. (deeper penetration of digital payments, adoption of CBDC, rapid use of AI in customer service etc). FY25 Union Budget could offer some tax rebates for scaling up technological infrastructure.

- Job creation needs to be is a top priority for the policymakers to help maximize India’s demographic dividend and sustain GDP growth close to 8%. (as per the UN, India’s working age population is expected to peak around 2040). The Union Budget needs to be multi-dimensional prioritising filling of government jobs, existing PLI Scheme to reinvigorate labour intensive sectors (esp. involving the SMEs) like textiles, leather, tourism etc, doubling increasing allocation towards education from close to 3% currently of GDP to around 6%.

- Supporting demand side economic activity through private consumption will not just raise demand at the bottom of pyramid, but it would also help the fiscal revenue by boosting indirect tax collections. The Budget could consider increasing targeted allocation for affordable housing under the PMAY Scheme while also providing tax incentives to home loan borrowers for developers. Scaling up of agriculture infrastructure and encouraging ‘farm tourism’ will also provide a strong impetus to rural incomes. 

The Union Budget needs to set the tone for economic momentum for the next five years. This will involve a fine balancing between preserving of fiscal discipline, boosting inclusive consumption, and incentivizing financial savings, private investment, and exports.

With the issue of the minimum support price (MSP) once again taking the front burner, perhaps the time has come for the government to consider a revamp in the present, and look out for future alternatives for sustainable agriculture growth in the country, especially as the 2024 budget comes into action. 

​Rajesh Aggarwal, Managing Director, Insecticides (India), writes​

Experts believe these trends clearly highlight that people are holding their investments for longer durations while keeping old age security in mind. They expect reform in capital gain calculation norm in the budget.

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From ₹3.3 lakh crore in FY19, capex allocation compounded at 27 per cent CAGR to the current ₹11 lakh crore allocation. For comparison, the allocation grew at 9 per cent CAGR in the FY14-19 period. The last five years clearly indicate a government spending push. This was aimed at dragging the economy out of Covid blues and putting it on a growth path.

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1. Further simplification of personal tax regime
2. Overhaul of Capital Gains tax structure
3. Housing: One could expect an enhancement in the existing limit for deduction of interest on housing loan for self-occupied property from ₹2 lakh to ₹3 lakh per financial year.
4. Other expected measures include reverting to the previous deadlines for filing belated or revised tax returns, introducing a provision for tax treaty relief at the withholding stage by employers, clarifying the treatment of Tax Collected at Source (TCS) paid by employees during tax withholding, expediting the resolution of pending appeals and establishing accountability provisions for taxpayers’ interactions with the CPC regarding grievances and other issues.

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