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Interim Budget 2024: Quo Vadis, Indian Economy?

TIOL - COB( WEB) - 906
FEBRUARY 08, 2024

By Shailendra Kumar, Founder Editor

PARSING into much-hyped Interim Budget documents after a week of its presentation is predictably fraught with the risk of loose-grab of readers' eye-balls! Although there are many announcements worth commenting on, but I have cherry-picked a few for my own peek. Against the silhouette of tall expectations, of course unjustifiably because it was merely a vote-on-account, the Interim Budget turned out to be a pit of despair for the Opposition caught in peatlands of politics and finding no 'pearl' but only biles and debris in the Finance Minister's speech; a quasi-fleshy skeleton of post-election roadmap for the economists; a case of missing fiscal psychedelics for individual taxpayers; enough meat to look under the 'bonnet' for the corporate and the start-ups and a bounty of charms for the 'pillars' identified for the Amrit Kaal! The general reaction briefly ranged from shrugs, yawns to a kick in the teeth!

The history of income tax sops granted in 2019-20 was not repeated by the Union Finance Minister, Ms Nirmala Sitharaman, for a raft of apparent reasons. The most prominent among them was the BJP's infallible belief of sure-shot trek-back to power! Since many other non-taxation planks have richly fructified with the low-hanging fruits to be leisurely plucked by the party, injecting a fresh bout of fertiliser would not have further done any good to their almost-certain chances of victory! A case of faux option! So, it was indisputably the most opportune time to play by the ethics and convention book, and Ms Sitharaman gummily stuck to it while broadly unspooling the details of the glide path for the economy in 2024-25! Lots many announcements in her Budget Speech did not have any corresponding entries in the Finance Bill because they were merely designed to trigger pacifying hormones and enzymes in the mind of many expectant segments and also to provide clues about what may finally come in the full-fledged Budget in July!

Yup, Ms Sitharaman's 97 paras Budget Speech was to answer the niggling question - Quo vadis, Indian economy? Swirling away from the bubble-burst scenario for a lot many segments, the most substantive announcement was the 11.1% hike to vroom capital expenditure in the economy - a proven source for future productivity and growth. It was Rs 10 lakh crore last fiscal. If one adds the Railway's kitty, it was over Rs 13 lakh crore in 2023. Against the Central Government allocations last year, it would now be over Rs 11 lakh crore in 2024-25. Such an enormous quantum was astonishingly unexpected by most economy pundits as they believed that while keeping an eye on fiscal consolidation, such a large allocation may weigh down on government resources synchronised largely towards pre-poll welfare-punctuated schemes! While commenting on such an allocation, the Finance Secretary says that the Government is alone capable of sustaining the present growth rate. Eek! He is right but the moot question is - Is the present rate of 7% growth good enough to attain the Amrit Kaal goal of transforming India into a developed economy? Nope! India needs to achieve two-digit growth for taking long strides towards its ambitious goalpost!

What comes out of the Finance Secretary's observations and also the enormity of the allocation made by the Finance Minister, of course not murmured by them, is that private sector investments continue to be sparse and elusive for the past two fiscals! Since it is not happening, the Finance Minister had no choice but to go for monstrous allocation for yet another year - of course, at the cost of many social sectors! This is to sustain the present rate of growth and to showcase India before foreign investors that the Indian economy is doing pretty well! Though the Finance Minister, out of political and strategic niceties, went on record to say that private investments are happening on scale but she knows in her heart that most corporate titans have only been talking good about the Indian economy but are either being too cautious about its future growth glide path or having no confidence in the present growth trajectory! At various forums and Investors' summit hosted by the States, the large jamboree of India's industrialists, CEOs and other C-suite executives often make tall promises and investments on paper skyrocketing to several billions but statistics reveal that those were shockingly hollow words! Private sector investments are in a terminal decline - sort of!

The latest RBI data released last month states that the credit offtake has been 8.1% which is less than 8.6% in 2022. One reason for the private sector not nibbling the carrot of easy credit sanction is the under-utilisation of its installed capacities. So, the actual problem area is the shrinking consumption canvas which needs to be undergirded by a policy-mix. At present, households have been borrowing and spending, and ergo, their net financial assets have plummeted by over 5%. Since inflation and interest rates are high, most corporate entities look perched on the fence and may take a call once the RBI trims the rates later this year. Secondly, they are also impacted by the global economic headwinds - poly-crisis marred global trade and recession-bruised international markets. What may do some good is the FM's announcement to significantly slash government borrowings. Lesser borrowings by the government may have 'crowd-in' effect on private investments as it would result in a lower interest rate! My reading is that many macro-economic emblems would change by the end of 2024 and the Indian economy would roar back to higher growth curve in 2025!

The second major announcement, I would like to cheer with glee as I have been advocating the same for long (See 'Will FM really play fiscal 'Santa Claus' today!'), is the piggybank of Rs one lakh crore for the private sector to scale up research and innovation in the sunrise sectors. FM promises to provide 50-year interest-free loan. It would cater long-term financing or refinancing with long tenors and low or nil interest rates. A new scheme will be launched for expediting deep-tech research for defence purposes. A pull towards war is already unrelenting across the world. Higher allocation of funds for innovation mirrors the new-found confidence of New India as this alone would enable India to transmogify or jump up to higher orbit of development! A chunky corpus for innovation and a massive hike in the defence budget - over 18% to Rs 6.22 lakh crore, are gratifying announcements. Interestingly, the budgetary allocation for capital expenditure in Defence for FY 2024-25 is Rs 1.72 lakh crore which is over 29% jump from the last fiscal. Let's acknowledge the fact that if the future wars on earth are to be won, it can only be done from the space! Space has become new bullfight arena! A cut-throat competition has emerged for developing new capabilities in space - an essential domain for fighting future wars! And two powerful tools are going to be satellites for military use and anti-satellite weapons. India has tested one such weapon - 'Shakti' but needs to diversify its repertory besides raising a new division of space warriors. A deep-pocket affair, indeed! But, more than capital, it would require new technology to build precision weapons. A momentum has been generated by the start-ups which have successfully developed a new green propulsion system for the DRDO and the same is now being used by IRSO. Space technology also makes land, water and air forces stronger. I sincerely hope that India's defence mandarins are gearing up our forces for future 'star wars' with a hawk eye on autonomous weapons, GPS jamming devices, hypersonic boost-glide weapons and also stealth technology!

Before I conclude this piece, I would like to give full credit to the Finance Minister for making an announcement to write off petty outstanding up to Rs 25,000 in the Income Tax Recovery books. Though she did not unwrap the exact quantum of such arrears but the fact that she felt compelled to talk about it in her Budget Speech, it has to be, hmm, a dang tall figure in 10-digit! An eye-popping outcome from rummaging of junk drawers of the Recovery Cells! Secondly, I do wonder that why the Finance Minister of India has to be talk about such write-offs when the Income Tax Act empowers assessing officers, range officers and other senior officers to take a call at their own behest! The fact that the numbers kept on stacking up, the officers in the field formations did not exercise their powers, probably, to play safe. A blatant case of job-shirking! Bizarro, not for one year or one decade - Finance Ministers says - since 1962! What was the CBDT doing for so many decades? The highest supervisory authorities need to be pulled up for such rakish and desiccated performance and unsightly oversight! Since the Finance Bill does not talk about it, such an exercise is perhaps going to be done by the Board under Section 119 of the I-T Act, 1961! Let's wait for more details to know how it is going to be executed and how whopping would be the quantum? I clearly see that many of the FM's announcements are going to be detailed only in the July budget! Till then, let's have 'Sleepy Girl Mocktail' - a new raging drink on Tik Tok!



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