Will India’s 2024-25 Budget Propel Economic Growth Amidst Global Headwinds?

Economic Overview | By: Nikita Talnikar , Growth Expert & Senior Research Analyst, Economic Analytics, Frost & Sullivan India

Key Announcements Made:

§  Announcement 1: Capital Expenditure Led Growth Model to Ensure Economic Resilience Amidst Persistent Geopolitical and External Headwinds

Capital expenditure for infrastructure will rise from Rs. 9.5 lakh crores in 2023-24 to Rs. 11.11 lakh crores in 2024-25 with a 3.4% share of total GDP. Interest-free long-term loans of Rs. 1.5 lakh crores will also be provided to state governments.

States like Uttarakhand, Sikkim, Bihar, Assam will receive assistance for irrigation and flood mitigation and management projects. Under the 4th phase of the Pradhan Mantri Gram Sadak Yojana (PMGSY); 25,000 rural habitations will see the construction of all-weather roads.

Impact: Infrastructure development supported by continued fiscal support will result in a multiplier effect on overall growth and employment. Spillover impacts of quality infrastructure, robust connectivity, and development of industrial corridors will drive growth in automotive, trade, agriculture, and manufacturing industries, while especially giving impetus to Make in India amidst the China+1 focus.

§  Announcement 2: Adjustments to Personal Income Tax Slabs to Provide Demand-side Thrust; Abolishment of Angel Tax and Reduction of Corporate Tax on Foreign Companies to Support Private Sector Growth

The personal income tax slabs were revised under the New Regime, and they are as follows: Rs. 0-3 lakhs, Rs. 3-7 lakhs, Rs. 7-10 lakhs, Rs. 10-12 lakhs, Rs. 12-15 lakhs, above Rs. 15 lakhs with tax rates of nil, 5%, 10%, 15%, 20%, and 30%, respectively.

Standard deduction provisions have been increased from Rs. 50,000 to Rs. 75,000 and deductions on family pensions have been increased from Rs. 15,000 to Rs. 25,000.  

Angel tax has been abolished for all classes of investors, and foreign companies will now face a reduced corporate tax of 35% (down from 40% earlier). 

Impact: While the tax slab revisions will support persons in the Rs. 3-12 lakhs income range with a reduced tax burden, the new provisions for standard deductions are expected to benefit 4 crore salaried persons and pensioners. The simultaneous targeting of low- and middle-income bracket taxpayers will drive domestic demand amidst reduced direct tax burdens.

Reduction of tax burdens on foreign companies as well as startup investors will boost foreign investments, employment generation, as well as start-up ecosystem growth.

§  Announcement 3: Sizable Policy Support for Employment, Skilling, and MSMEs will Foster Long-term Growth

5 schemes were announced as a part of the Prime Minister’s Package, which is expected to provide 4.1 crores of Indian youth with employment, skilling, and other opportunities. They are as follows:

• 3 schemes focus on first-timers, incentives for manufacturing job creation, and support to employers, respectively.
• A central government-financed skilling scheme covering the skilling of 20 lakh youth and the upgradation of 1,000 Industrial Training Institutes.
• A new internship scheme will provide 1 crore youth an opportunity to pursue a year-long internship in India’s top 500 companies.

A credit guarantee scheme without collateral has been rolled out for the Medium, Small, and Micro Enterprises (MSMEs) in the manufacturing sector for the purchase of machinery and equipment. A new mechanism will also be established to ensure that credit supply to MSMEs remains steady even during their stress period.  Moreover, e-commerce export hubs will also be set up in partnership with the private sector for MSMEs and traditional artisans.

Impact: Massive country-wide skilling programs – with incentivization policies for employers and employees – will benefit industrial as well as tertiary sector growth in the long run. These policy moves are in the right direction and will help reap higher benefits from India’s demographic dividend and sizable young population. Continued policy support for MSMEs will make them the engines of growth and ensure that they become key enablers of manufacturing growth in India.

Overall Impact: Positive

Overall Analysis & Perspective: The FY 2024-25 budget will ensure that India’s real GDP growth momentum remains robust at about 6-7%, despite external headwinds.

• Sticking to a capex-led model, the government will continue to support the key growth engines of the Indian economy. For e.g., infrastructure spending will remain upbeat with an allocation of Rs. 11.11 lakh crores, fostering multi-sector growth.
• Income tax slab revisions will provide some leeway to low- and middle-income taxpayers supporting consumer spending growth.
• Tax revisions for start-ups and foreign companies will also drive investment attractiveness and in turn boost employment generation potential.
• Sizable policy support for employment generation, skilling, and MSMEs underscores the government’s focus on ensuring near-term economic resilience and long-term sustainable development.
• Policies focusing on 9 key priority areas covering agriculture, employment, human resource development, urban development, energy security, innovation and R&D, infrastructure, and next generation reforms – will cumulatively result in resilient cross-sector growth and economic development.  

Top Expected Growth Drivers for 2024-25:

1. Tax revisions for angel investors and foreign firms will boost India’s investment attractiveness, further cement India’s go-to manufacturing attractiveness with the rewriting of global supply chains, drive jobs creation, and in turn foster economic growth in the near term.

2. Improved and seamless access to credit, and investments in boosting e-commerce adoption of Indian MSMEs – a group with a 29.2% GVA share in total GDP in 2021-22 and 43.6% share in total exports in 2022-23 – will provide much-needed boost to MSME export-competitiveness.

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