India's Finance Minister Nirmala Sitharaman on Thursday unveiled plans to spend nearly $134 billion on infrastructure and focus on long-term reforms to drive growth and contain the fiscal gap despite pressures to raise spending before elections.
She said the next generation of reforms will be carried out in consultation with state governments. The government has simplified India's complicated tax structures, invested in new ports and roads but has struggled to liberalise land acquisition and labour laws.
The fiscal deficit target for the next fiscal year has been reduced to 5.1% of GDP compared to the revised deficit estimate of 5.8% for the current fiscal year.
The interim budget for 2024/25 is being seen as an economic manifesto for Prime Minister Narendra Modi's ruling Bharatiya Janata Party (BJP), giving cues to the market on its plans for fiscal consolidation, borrowings and future taxation policy.
Here are the highlights of the interim budget:
ECONOMIC GROWTH
* Nominal GDP growth for 2024/25 seen at 10.5% y/y
* Inflation has moderated and economic growth has picked up
* Pro-active inflation management has helped contain inflation within the target band (2%-6%)
* Govt says its policies brought 250 million people out of poverty in 10 years
INFRASTRUCTURE SPENDING
* Allocation for infrastructure for 2024/25 raised to 11.1 trillion rupees ($134 billion), up 11.1% y/y
* Federal govt to allocate 3.86 trillion rupees to states for spending on infrastructure in 2024/25
* Corpus of 1 trillion rupees to be set up with a 50-year interest-free loan for research in sunrise sectors
* Federal govt to allocate 2.55 trillion rupees ($30.7 billion) for spending by railways in 2024/25
* 2024/25 budget allocations for the road transport ministry seen at 2.78 trillion rupees
* Viability gap funding to be provided for offshore wind power
* 10 million houses to get free electricity via rooftop solar programme
* Govt to subsidise construction of 20 million affordable houses in rural areas
NO NEW TAX
* No change in tax structure
* Investments by sovereign wealth funds and pension funds will be tax-free for one more year
* Tax reforms have widened the tax base and increased tax collections
* Total revenue receipts in 2024/25 estimated at 30 trillion rupees vs revised estimate of 26.99 trillion rupees in 2023/24
* Tax-GDP ratio in 2024/25 seen at 11.7% of GDP vs revised 11.6% estimate for 2023/24
INCREASE IN SPENDING
* 2024/25 federal budget spending estimated at 47.66 trillion rupees, 6.1% higher compared to revised spending estimate of 44.9 trillion rupees in 2023/24
* Education budget for 2024/25 seen at 1.25 trillion rupees, 14.5% higher than revised estimate of 1.09 trillion rupees for 2023/24
* Health budget for 2024/25 seen at 901.7 bln rupees, 13.8% higher than revised estimate of 792.2 billion rupees for 2023/24
* Govt's 2024/25 spending on affordable housing programme seen at 806.7 bln rupees, 49% higher compared to revised estimate of 541 bln rupees in 2023/24
SUBSIDIES
* Fertiliser subsidies for 2024/25 seen at 1.64 trillion rupees vs 1.89 trillion rupees in 2023/24
* Food subsidies for 2024/25 seen at 2.05 trillion rupees vs 2.12 trillion rupees in 2023/24
* Govt spending on rural jobs programme seen at 860 bln rupees in 2024/25, at the same level as revised estimates of current fiscal
FISCAL DEFICIT
* India's fiscal deficit for 2023/24 revised to 5.8% of GDP from 5.9%
* India's fiscal deficit for 2024/25 target reduced to 5.1% of GDP
* Net borrowings for 2024/25 seen at 11.75 trillion rupees
* Federal gross borrowings for 2024/25 seen at 14.13 trillion rupees
* Govt to spend 11.9 trillion rupees ($143.4 billion) on interest servicing in 2024/25, more than one-third of govt revenue receipts
($1 = 82.9900 Indian rupees)
