Finance Minister Nirmala Sitharaman presented the second Budget for the third term of the BJP government led by Prime Minister Narendra Modi on Saturday.
In the lead up to the Budget, it had become clear that the Indian economy was losing its growth momentum. India’s GDP has grown at an average of less than 5% annually since 2019 and less than 6% since 2014.
Discontent has been simmering among the middle class about being taxed too much. Many had, therefore, expected some form of tax relief in the Budget.
However, the FM surprised everyone by announcing massive income tax relief by raising the tax rebate level to an annual income of Rs 12 lakh. This level has been Rs 7 lakh until now.
She also tweaked tax slabs in a manner that the highest tax rate in the country — 30 percent — will come into effect only after one reaches an annual income of Rs 24 lakh per annum, or Rs 2 lakh per month.
This relief is, of course, limited to income taxpayers. It will leave them with more money in their pockets. The government hopes that the additional money will be spent, and that will kick-start a growth process that will also incentivise companies to finally start investing in new capacities, thus creating new jobs and incomes.
When governments overspend or provide tax relief, there is fear that it may force them to borrow more money.
When governments borrow more, they either leave less money for private citizens and companies to borrow, which, in turn, raises interest rates for everyone. Or, they are forced to print money – and that leads to inflation, which also works like a tax because it reduces the purchasing power of people’s money.
However, despite the massive tax cut, which will cost the government around Rs 1 lakh crore in foregone revenues, the fiscal deficit (or the level of money borrowed) of the government will be reduced further to 4.4% (of the GDP) in 2025-26, the Finance Minister said.
Capital expenditure growth stalls: The big story from the budgets in the second term of the Narendra Modi government (2019-24) was the focus on increased capital expenditure by the government.
Capital expenditure essentially refers to spending towards creating productive assets such as roads and ports and bridges, etc.
Not only did the government miss its capital expenditure target for the current financial year by almost Rs 1 lakh crore, the budgeted capex for next year is less than Rs 10,000 crore over the current year.
That being said, the capex allocation is still high by historical standards.
Another big turnaround in focus has been the shift towards employment generation.
For a while now, the government has been criticised for ignoring the employment generation aspects of its policy measures. For instance, the Production Linked Incentive (PLI) scheme was essentially a subsidy for companies and ventures that were heavy on the use of capital instead of labour.
This Budget brings the focus back on employment generation, and this shows up in the shape of measures announced for boosting economic activity in sectors such as textiles and leather that traditionally create more jobs for the same level of GDP.
