This season seems to be both the summer of sport – The Euros, Cricket T20, the Olympics – and elections – India, UK, France, and the exciting run-up to the US. In India, with the election out of the way, the next big event will be the Union Budget. Initial thoughts suggest that we have the strongest opposition seen in a decade.
Moreover, while the coalition government does have a comfortable majority, there are upcoming elections in multiple states, and this is likely to reflect in decisions taken in the budget. In the face of this, the budget is expected to be a mix of growth and populist measures. Some key facets of the expectations are:
Advancement of DPI
India’s progress in Digital Public Infrastructure (DPI) has been commendable. Continued investments in initiatives like Aadhaar (digital ID) and UPI (digital payments) are expected to bridge the digital divide and empower more citizens, acting as economic multipliers. Increased allocation expectations towards digital infrastructure, artificial intelligence, and cybersecurity aim to bolster India’s position as a global tech hub. Incentives to spur investments in startups and emerging technologies are likely, furthering the vision of a digitally empowered society.
Balancing growth-oriented measures with populist policies
With upcoming state elections in Haryana, Maharashtra, Jammu & Kashmir, and Jharkhand, an increase in subsidies and allocations to sectors like healthcare, housing, infrastructure, and education is anticipated. Agriculture, historically receiving substantial subsidies, will likely continue to see increased support.
Growth-oriented measures are expected in infrastructure and technology sectors, focusing on financial inclusion. Significant investments in large-scale projects like highways, railways, and urban development can spur economic growth and job creation. The technology sector might see support for digital payments and AI research. Expanded banking services and microfinance initiatives could enhance financial inclusion and stimulate broader economic participation.
Populist measures may include immediate job creation initiatives, infrastructure development, and economic stimulation efforts to address unemployment and economic slowdown. The agrarian sector is expected to receive enhanced support to alleviate rural distress. Employment generation initiatives are anticipated to be central, with a focus on education and healthcare, potentially including new institutions and increased funding for accessible services.
Manufacturing sector
The previous budget’s significant increase in capital investment benefited infrastructure and, consequently, the manufacturing sector. Further investments in logistics and infrastructure development are anticipated to improve supply chains and reduce costs for manufacturing companies. The finance minister may introduce measures in Budget 2024 to strengthen India’s supply chain and manufacturing sector.
This aligns with India’s strategic goal of establishing itself as a leading global manufacturing hub. These measures should create a favourable environment for sustained growth in the manufacturing sector, making it an attractive long-term investment option.
Fiscal management and deficit reduction
The government aims to reduce the fiscal deficit to 5.1% of GDP by 2025-26 through optimized expenditure, enhanced tax revenues, and economic growth promotion. This could lead to a more stable macroeconomic environment, increased investor confidence, lower interest rates, and improved market performance as fiscal discipline is reinforced.
Corporate tax rates and incentives
Potential adjustments to the 15% corporate tax rate for new manufacturing units may stimulate industrial growth and attract investments. Additionally, broader Production-Linked Incentive (PLI) schemes are anticipated to expand across various sectors, providing incentives for companies to boost domestic production and enhance global competitiveness.
Conclusion
As we look forward to the Union Budget, a careful balancing act between growth-driven initiatives and necessary populist measures is expected. The emphasis on digital infrastructure, fiscal discipline, and support for startups and manufacturing reflects a comprehensive approach to fostering sustainable economic development. While the specific allocations and policy decisions will soon be revealed, these areas of focus could provide a clear indication of the government’s priorities in steering the country’s economic trajectory forward.
Arun Chulani, Co-Founder, First Water Capital