Interim Budget to focus on Viksit Bharat
The interim budget to be tabled on February 1 is expected to focus on relief for the middle class, measures to check inflation, agriculture, manufacturing, welfare schemes, and the goal of building a $5 trillion economy. It will also emphasize the government’s economic vision for women, youth, farmers, and the poor. No major new schemes are expected, but there may be adjustments to direct taxes and customs duties. The government is also prepared to take pre-emptive measures to control inflation caused by supply disruptions due to geopolitical reasons.
The interim budget to be tabled in Parliament on February 1 is likely to present a report card of the decade-old central government, provide relief to the middle class, announce measures to check inflation, continue key subsidies, focus on agriculture, incentivise manufacturing, strive for saturation of welfare schemes, take forward the mission to build a $5 trillion economy by 2027-28 and underscore the two-decade-long Viksit (developed) Bharat road map, three people aware of the preparations said.
The interim budget, also known as the vote on accounts, will be an opportunity for the government to reiterate its economic vision with a focus on women, youth, farmers and the poor, including scheduled castes and tribes, ahead of the parliamentary polls due in the summer, they said, requesting anonymity.
Prime Minister Narendra Modi recently articulated a long-term vision for economic development in India. “Four amrit pillars of Viksit Bharat are India’s nari shakti, yuva shakti, the farmers and the poor families of India,” Modi said at an interaction with welfare beneficiaries on November 30.
Union finance minister Nirmala Sitharaman is unlikely to announce any major new scheme on February 1. “Announcements of welfare schemes are expected later in the Bharatiya Janata Party’s election manifesto,” one of these people said.
“Being a vote on account, the interim budget is expected to announce only urgent and time-sensitive tax proposals. Some tweaks are expected in direct taxes, which may provide relief to the middle class, while customs duties could also be calibrated to boost Make in India and rein in prices of essential commodities,” a second person said. HT reported about possible changes in import duties on Saturday.
“Although the government has been taking necessary steps in sync with the RBI (Reserve Bank of India) to tame prices of essential commodities, it is especially alert to take pre-emptive measures to keep inflation under check. Some tariff and non-tariff measures are expected, particularly due to the Red Sea turmoil,” the first person said.
Supply disruptions due to geopolitical reasons are reflecting in retail inflation, which is inching up sequentially towards the central bank’s upper tolerance limit of 6%, which may need some interventions, he said. The government would not like prices to pinch the electorate just before the Lok Sabha polls, he said.
India’s retail inflation rose to a four-month high of 5.69% in December from November’s 5.55%, mainly because of higher food prices.
Disruption in the trade route through the Red Sea due to missile attacks could lead to a spike in food, fuel and fertilizer prices. “These are external factors where the government of India has no control, but it is committed to protect both farmers and consumers irrespective of any jump in subsidy amounts,” the first person said.
“Some support is expected for modernising agriculture and providing quality inputs like seeds. Agriculture is one of the key strengths of Indian economy that ensured food security for over 800 million poor amid geopolitical disturbances and government is considering to encourage R&D in this sector,” the second person said.
“Earlier, the seed industry used to get 200% weighted income tax deductions for R&D expenses. But it was withdrawn gradually,” said Ajai Rana, chairman of the Federation of Seed Industry of India, which represents companies in the sector. Those incentives need to be restored to develop high-quality seeds, he added.
While the interim budget may not make big announcements, it will mark continuity in government’s economic policies, experts said. “The economic policies of the Modi government have been globally acknowledged,” said Nilaya Varma, CEO and co-founder of Primus Partners, a consultancy. “They not only helped the economy to quickly recover from Covid disruptions, but also made India as the fastest growing major economy of the world. Investors want this policy continuity.”
A vote on account is presented to Parliament during an election year to cover expenditure for a brief period. After the parliamentary polls are over and a new government is formed, a regular budget for the 2024-25 financial year will be presented. The interim budget keeps the government functioning in the meanwhile. Funds made available under the vote on account cannot be utilised for expenditure on any new service.
