Indian Budget 2024 -Seeking to make a difference with tomorrow (2047) in mind

In summary :

• A thought through, balanced, long term budget presented through 9 priority areas in the road towards developed India by 2047.
• Given altered dynamics of the new political landscape, one had feared a more populist budget but the government has largely stayed its course
• Welcome fiscal prudence with budget deficit further lowered to 4.9% of GDP and announced deficit target of 4.5% going forward which will positively impact international investor sentiment, cost of borrowing and possible improvement of sovereign rating upgrade
• Missed opportunity to robustly address middle class concerns of perceived high tax burden, dwindling disposable income and quality of life although some measures were announced

Budget 2024 is the first full budget of the third Modi led coalition NDA government and keenly watched both in India and internationally because of the slightly altered political equation including possible impact on decision making and the India growth story. A more populist budget was feared but the government has largely stayed its course.

Country Perspective, India: 

Presentation of the budget through nine priority areas has demonstrated comprehensive, long term thinking and policy making in disparate areas that must work together and simultaneously progress if India is to become a developed nation by 2047.

No nation can be called truly developed without food security, energy security, strong manufacturing base and Finance Minister Nirmala Sitharaman has articulated policy, thinking and resolve in these areas

Priority 1 expressed as “Productivity & Resilience in Agriculture” shows understanding of the key role that Agriculture plays – and must continue to play - in India’s growth story. By announcing measures such as thrust on natural farming, introduction of climate resistant crops, leveraging Digital Public Infrastructure (DPI) in agriculture et al, the government endeavours to create a vibrant Agro-tech industry that can both feed the country and create well-paying jobs, now and going forward.

“Employment and Skilling” expressed as Priority 2 are critically needed given India’s young demographic dividend which can rapidly become a significant liability if not addressed. The innovative Employee Linked Incentive (ELI) scheme announced including measures such as the creation of internship opportunities in the top 500 companies and linking internship opportunity creation and funding with corporate social responsibility (CSR) is a notable step. Focus on education loans for higher education in domestic institutions is a welcome step because of the catalyst effect on R&D, skill development and entrepreneurship.

“Manufacturing & Services” expressed as Priority 4 attempts to turbo charge the MSME sector which can play an outsized role in employment creation if executed well. The new Credit guarantee scheme, new assessment model for credit evaluation, integration of DPI are boldly imaginative while expansion of SIDBI branches, creation of new e-commerce export hubs, internship opportunities are steps in the right direction.

Focus on infrastructure creation – physical and digital – continues with particular focus on all-weather road connectivity and the leveraging of Digital Public Infrastructure (DPI) in agriculture/manufacturing & services/ all aspects of governance and public life. Like the US, India is a vast country with significant hinterland largely dependent on roads for freight transport. As the economy grows, for efficient goods transfer and seamless value chains, all weather road connectivity is particularly relevant just as in the US.

Focus on quality of life for the common citizen through “Urban Development” articulated as Priority 5 in the budget. This is urgently needed and must be addressed on a war footing failing which the citizen will increasingly disengage with development and the growth story. After all Chandrayan lunar missions and bullet trains lose meaning if air quality is so poor that children face breathing difficulty.

International Investor, Looking Outside In :

Fiscal prudence: Continued fiscal prudence in Budget 2024 despite altered dynamics of the ruling NDA coalition inspires investor confidence. Greater dependence on allies for a stable government could have led to ‘populist measures’ resulting in increased budget deficit. The fact this has not happened speaks to a bold government with the will to stay the course and mature alliance partners that recognise the importance of continuity of the India growth story. For now.

Investment opportunity in the fast growing Indian startup ecosystem, today the world’s third largest, underscored by the following :

The abolition of Angel Tax is notable and will positively impact the Indian startup eco system which is sorely needed to power growth and employment. International investors looking to invest in India will recognise that angel tax abolition will increase ‘funding of ideas’ which will lead to increased growth and creation of successful startups, value creating opportunity and greater opportunity to invest in the India story from afar as well as within India.

During budget remarks following budget presentation by the Finance Minister, Prime Minister Modi spoke of the aspiration to create entrepreneurs in every village/town/city in India showcasing government recognition of the critical role that the startup eco system must play in India’s march towards 2047 and the sizeable investment opportunity it presents to domestic and international investors.

The innovative Employee Linked Incentive (ELI) scheme announced which allows for internship opportunity in the top 500 companies has potential to notably impact the startup eco system as youth exposed to the realm of the possible will use exposure and learnings to create innovative startups in ancillary areas and industries

The government’s agricultural agenda (one of the nine priority areas) which focuses on productivity and resilience and seeks to leverage and integrate Digital Public Infrastructure (DPI) in agriculture has significant potential for the Agri-tech startup ecosystem going forward and presents opportunity to domestic and international investors.

The government’s focus on Space Tech is showcased with token INR 1000 Cr (~120 Mn USD) investment. While the quantum is largely insignificant in and of itself it demonstrates government recognition of Indian potential and talent in this critical area. On the heels of successful south-side moon landing in the recent past, the successful yet shoe-string funded Indian MARs mission, and rapidly growing successful well funded private space startups, this is an area with significant opportunity and potential for domestic and international investment.

Infrastructure – The continued focus on infrastructure creation, physical and digital, is welcome. The world has watched with interest and awe India’s DPI stack creation and the rapid build of physical infrastructure in the form of new roads, bridges, airports and highways. Clear policy enunciation of the will to integrate DPI in agriculture, manufacturing and governance et al is viewed progressively.

Innovation, Research & Development : Innovation, R&D have been expressed as Priority 8 within the nine priority areas of Budget 2024. In conjunction with the push on DPI integrated MSME and overall Make in India mantra, this signals intent to create value added manufacturing opportunity in its own right beyond China +one.

The Government has further rationalised and simplified the income tax regime which is a step in the right direction. While there has been some criticism of the overall tax burden (income tax, GST, Capital gains and so on), which is considered onerous, it is worth pointing out that the UK imposes 20% value added tax (VAT) on goods and services while the highest income tax slab is steep 45% imposed on annual income above £125000. Furthermore one only has to earn £50000 per annum to fall into the 40% tax bracket.

The Government has endeavoured to rationalise the capital gains regime. While there is some disapproval from the market on taxation of capital gains, the government is possibly taking a longer-term view in the national interest and wishing to curb irrational behaviour by putting speed-breakers in place in capital markets.

Next-gen reform: By mentioning Next Gen Reform as the final priority in its 9 budget priority areas, and the putting in place of a sound Economic Policy Framework that will guide successive reforms, the government is signalling continuity and intent in the path towards developed India 2047.

Populist Measures : 

Budget 2024 has had to nod to altered dynamics of the new NDA coalition government including its dependence on regional allies particularly Bihar (East) and Andhra Pradesh (South) for stable government formation. Bihar and Andhra Pradesh have received specific mention and ‘goodies’ in the budget which has been noted and called out by critics and observers.

This is true. Equally, there is an opportunity to view this another way.

Densely populated Bihar (130 million, approximately twice the size of the UK) is one of India’s poorest states. With a median age of 22 years, Bihar is the country’s youngest state with a restless youth population yearning for opportunity. Bihar is also an ancient state with rich heritage including the birthplace of a major world religion, Buddhism. The lack of basic infrastructure has prevented Bihar from harnessing its full global tourism and other potential. By boosting infrastructure creation including road connectivity measures announced as well as developing holy Buddhist sites, Bihar is getting attention long overdue. Without Bihar developing at pace, India’s road to 2047 will be patchy.

The focus on Andhra Pradesh including funds to build the long overdue state capital following earlier bifurcation is a healthy demonstration of federal-state cooperation and cooperative federalism. Executed well, this can be a pilot and roadmap for others going forward.

Missed Opportunity : 

However holistic, comprehensive and ‘India first’ a budget may be, in a democracy, it must ultimately speak to the Indian consumer. India becoming the world’s third-largest economy has little relevance to the ‘aam admi’ unless the quality of everyday life improves, there is more disposable income and a healthier future with more opportunity beckons.

Health: While in the past, the government has introduced measures and legislation including crafting health insurance legislation to benefit the uninsured, Budget 2024 should have addressed government and private healthcare provisions more comprehensively including making healthcare and health insurance more affordable. Furthermore, a healthy nation is a working nation and Preventative healthcare policy and measures should be a key component of every budget.

Consumer spending: Further rationalisation of the GST regime and other tax measures to put more disposable income in pockets leading to a consumption boost that benefited the economy and concomitant ‘feel good’ factor would have led to happier ‘aam admi’.

Quality of life: While the government’s focus on building state-of-the-art highways, railways, bridges, airports et al is laudable, the basic quality of life in towns and cities must improve including air pollution, road water logging during monsoons, public transport and so on. Budget 2024 seeks to address this as Priority 5 called “Urban Development” but immediate and visible measures must be taken to ameliorate rising citizen concerns and the disconnect felt in a rising nation where the quality of everyday life is not at pace with successful Chandrayan lunar missions.
 

Overall : 

India is a democracy that is sub-continent in size with four times the population of the US and nearly twenty times that of the UK. The road to 2047 will be uniquely Indian. Bob Sternfels, Managing Partner Mckinsey, has said this will not be India’s decade but India’s century. The world is watching India’s growth story with wonder. Initial surprise, and scepticism have yielded way to awe and amazement. One sees this every day in travels.

Budget 2024 is largely a step in the right direction. It is comprehensive, thought through, long term and seeks to make a difference keeping tomorrow (2047) in mind.