Shorn of decisive policy action to tackle the burning problems of chronic and widespread unemployment and underemployment, the Union Budget is a reaction to the losses Prime Minister Narendra Modi’s Bharatiya Janata Party suffered in the Lok Sabha election.
Finance minister Nirmala Sitharaman’s budget speech for 2024-25 had fewer slogans than usual: Industrial corridors along cultural centres are proposed under the name ‘Vikas bhi Virasat bhi’ (tradition hand-in-hand with development); the New Pension Scheme will roll out a plan, called NPS-Vatsalya, for parents and guardians to save for children’s pensions.
Sitharaman, who has tinkered with nearly every tax the central government administers and stolen promises from the Congress party’s election manifesto, wants the country’s top 500 companies to shelter 10 million unemployed youngsters over the next five years.
The announcement is sure to generate scepticism. How will this idea be enforced? Did the government consult business leaders on the capacity of these companies to absorb such a large number of under-skilled youth? And in a market economy, can the state instruct companies on their labour intake?
As for income tax, Sitharaman has revised it even before the base could fully shift to the new slab structure introduced in the 2020-21 budget. The changes, effective from 1 April, 2024 (Assessment Year 2025-26), will give the middle class ₹17,500 a year more in disposable income.
Policy stability and predictability remain a non-priority except, thankfully, in one area: The budget recommits to sticking with the fiscal consolidation path Sitharaman announced in 2021, and aims to reach a deficit below 4.5% in 2025-26.
For 2024-25, Sitharaman has set a fiscal deficit target of 4.9%, lower than the 5.1% proposed in the interim budget in February. The government seems determined to get a sovereign rating upgrade. That depends on the transparency with which the fiscal deficit and other numbers are reported, and the general government debt reduction and serviceability, which can’t be guessed until there is clarity on how the tax laws will be changed.
The policy spadework required for producing sustainable growth and job creation has been pushed back again. The budget proposes to formulate an economic policy framework in which land and labour reforms could be incentivised. There’s no timeline for when these will see the light of day.
Similarly, while the government has promised to review the customs duty regime and the income tax law, no deadlines have been announced. An agenda was supposed to have been prepared for this before the conclusion of the general election for implementation within the first 100 days of the new government.
Rural distress does seem to be weighing on the government’s mind but it doesn’t appear to have a clue on alleviating policies.
The Congress party had in its manifesto critiqued the government’s productivity-linked incentive scheme and promised to upgrade it to an employment-linked incentive scheme if it came to power. Sitharaman’s budget proposes to roll out no less than three schemes as part of the prime minister’s package for employment-linked incentives.
This scheme will provide one month of wages to workforce entrants in formal sectors—similar to a promise for apprentices in the Congress party’s manifesto. Also, payments of up to ₹15,000 will be made in three instalments to about 21 million first-time employees registered with the Employees Provident Fund Organisation, provided their salaries are under ₹1 lakh per month.
Sitharaman has left the capital expenditure spending she announced in February’s interim budget untouched. The outlays for agriculture have been increased, and a few allocations have been moved about.
India spends a lot without making farmers better off—Sitharaman has earmarked more than ₹4 trillion for food and fertiliser subsidies, most of which will go to wheat and rice farmers. Indian farmers produce more wheat and rice than India needs but won’t grow pulses, for which the country is dependent on imports. The market distortions are such that producing pulses is less profitable.
The finance minister announced a mission for pulses and oil seeds to ensure ‘atma nirbharta’, or self-sufficiency. But for imports to reduce, reform is necessary. Right now, handouts and warped incentives keep farmers trapped in low-but-assured profitability wheat and rice. Those reforms do not figure on the list of promises.
In conclusion, the budget is indicative of a government in drift. It seeks to buy time for discussing reforms, fails to specify timelines for when these will be taken up, and in the meantime wants to retain the attention of the BJP’s key constituencies—unemployed youth, farmers, and the middle class—by tinkering here and there.
