A Budget with many authors but no plot

Coalition pressures, middle-class backlash, and piecemeal solutions mark a directionless fiscal roadmap.

Union Finance Minister Nirmala Sitharaman shows the Budget tablet at the Ministry of Finance before heading to the Parliament to present the Union Budget 2024-25 on July 23, 2024. | Photo Credit: ANI

In the snap TV analysis post Budget, an industry head struggled to find the right adjectives to commend what he had just heard. “Frankly, I like the Budget,” he said, and added, “I think it is a good Budget” before pausing to hit home the central takeaway: “It is time to get back to business.” In the fine dust that settles after a storm of Union Budget coverage, it does seem like there is less and less to discuss around the Finance Minister’s seventh consecutive Union Budget.

While Minister Sitharaman stressed an approach of continuity and welfare, it was clear that this was a post-election government bearing clear marks of coalition compulsions.

The Budget has set out large chunks for its two critical partner states: Andhra Pradesh, where Rs.15,000 crore has been allocated as financial support for the development of the new Andhra Pradesh capital, Amaravati; and Bihar, which was refused special status but has been promised Rs.26,000 crore to build new airports, medical facilities, sports infrastructure, and highways. Unsurprising as the announcements were, they drive a further wedge into Centre-State relations.

Labelled a “kursi bachao Budget” (“saving their seats Budget”) by the opposition, State governments such as Telangana have already begun to speak of bringing Southern States like Tamil Nadu and Karnataka together to contest what they believe is a glaring lack of allocations to many. Kerala echoed that sentiment, as did Maharashtra—which ironically makes up the ruling BJP’s third major alliance partner in the NDA government with seven Lok Sabha seats but got no special attention in the Budget.

The BJP’s greater reliance on its regional allies may well dictate their budgetary decisions, but a galvanised and united Opposition will test the fiscal federalism the Modi government has so far practised. Future discussions between the Centre and States may be headed for far more conflict than before.

The Finance Minister’s employment and skilling schemes clearly echo this changed reality. It is a relief to see the government finally acknowledge the jobs crisis and begin to address it, albeit piecemeal. The Centre’s planned internship scheme for India’s top 500 companies bears a marked resemblance to employment guarantees promised in the Congress’ manifesto.

To be implemented over five years in partnership with States and industry, the scheme aims to benefit 100 million youth. It envisions interns receiving monthly stipends and one-time assistance, with companies covering training costs. Additional centrally-sponsored schemes seek to skill two million youth over five years.

While the government promises to finance part of the recruitment expense, this means an average of 20,000 interns per company needing skills, salaries, and eventually, a positive impact on profitability. It is a tall order for corporate India, which has enjoyed substantial profits with minimal private capex over the past decade. These 500 companies may face reduced profit margins and a potentially underproductive workforce.

Effectively, the jobs crisis has become India Inc.’s problem to solve. This approach overlooks the reality of India’s formal-informal workforce split and relies heavily on the narrow corporate sector. It also banks on support from States often disregarded in fiscal decisions.

The most dramatic turn of events may yet come from a space the BJP has always considered its staunchest support base: the middle class. In one fell swoop, the Finance Minister applied her sharpest shears to all asset classes, announcing a slew of tax increases: Long-term capital gains on all financial and non-financial assets will now attract a 12.5 per cent tax rate, up from 10 per cent. Short-term capital gains tax has increased to 20 per cent from 15 per cent. In the Futures and Options space, the Securities Transaction Tax (STT) has doubled from 0.01 per cent to 0.02 per cent, meaning index traders will pay twice the tax for their trades.

Real estate faces a significant change. While indexation over the years has ensured a lighter tax burden, and there is merit in arguing for indexation across all assets or none, the fear is that tax outflows on real estate sales will now be quite onerous.

Why did the BJP-led NDA government feel compelled to squeeze so hard on all investment-related taxes? Could it be a growing realisation that this was the only route to increase collections? After all, tracking from 2014-15, it is remarkable that the share of government revenue from income tax (tax on individuals) is now 19 per cent, higher than the 17 per cent contribution from corporations. No wonder business channel pundits consistently give glowing reviews and 10/10 ratings for each Union Budget.

The move to hike taxes across stocks, realty, etc. has played out as a public and angry “break-up” with India’s middle class. They are swiftly falling out of love with the Modi government, taking to social media to air grievances and demand changes in the Finance Ministry’s leadership. While the stock markets showed no dramatic change on the day, there is a clear souring of mood over this perceived “penalisation” of a tax-paying community.

At the end of the day, there is a jaded sense while analysing the Union Budget for two reasons. 

1. There is yet again no attempt to take bold measures addressing India’s fundamental challenge of inequity. While many core pillars are in good shape—the fiscal deficit estimate was lowered to 4.9 per cent of GDP from 5.1 per cent in the Interim Budget thanks to a bumper Rs 1.3 lakh crore in extra dividends from the Reserve Bank of India, market borrowing decreased to Rs.14.01 lakh crore from Rs.15.43 lakh crore for FY24, and a gradual reduction in debt levels could reduce the Centre’s interest liabilities to allow more development spending—there was hardly any change in allocations for key social sector schemes from the Interim Budget.

Only Rs.56,501 crore has been allocated to social welfare, starkly lower than many other heads, and spending on flagship schemes has increased only marginally. It is tragic that the word “children” did not feature even once in the Finance Minister’s Budget speech, highlighting our failure as a nation to provide basic nutrition, primary education, and care for our future. There was also no acknowledgement of the sharp, back-breaking gap between food inflation and core inflation figures that’s squeezing households dry month after month.

2. The “execution gap” is cause for circumspection. After 10 years in power and countless new and re-branded schemes, the government has been high on promise but low on delivery. The Finance Minister would have done well to announce an audit of all its schemes. Surely, a government with a third mandate can confidently evaluate its progress on initiatives like the Jal Jeevan Mission, the Ujjwala LPG cylinder scheme, and the PM Surya Ghar Muft Bijli Yojana, to name a few.

Ahead of the 2024 general election, Prime Minister Narendra Modi countered a question on India’s inequity in a television interview with the remark, “Shall I make everyone poor?” One Union Budget later, it remains an open question what the Finance Ministry’s answer to that rhetorical question might have been.

Mitali Mukherjee is Director of the Journalist Programmes at the Reuters Institute for the Study of Journalism, University of Oxford. She is a political economy journalist with more than two decades of experience in TV, print and digital journalism. Mitali has co-founded two start-ups that focussed on civil society and financial literacy and her key areas of interest are gender and climate change.