Curtain Raiser

William Shakespeare ONCE ASSERTED that "all the world's a stage, and all the men and women merely players," may be to inspire posterity to muster the courage to play its role with conviction when it comes to the grand stage of life. As it happens in a play — the characters recede into the backstage as curtains are drawn, only to prepare and reappear for the next Act when the curtains rise again — the real life of an individual, society or a nation, too, has its own rhythm of acts, scenes, emotions, and drama. For a moment, if one considers the Indian economy as the 'stage' and policymakers the 'players', the Interim Budget is — on many counts — a curtain raiser to what lies ahead in the full Budget in July in the country's epic pursuit to be Viksit Bharat by 2047.

Devoid of pre-poll populist schemes and based on foundations, including a strong fiscal footing, a reduced fiscal deficit target of 5.1% of GDP in FY25, capital expenditure worth ₹11.11 lakh crore, lower net borrowing at ₹11.75 lakh crore, and a small yet smart tax sop ensuring benefits to a large section of taxpayers without tinkering the slabs, the Interim Budget has set the agenda for what to expect in July.

Over a dozen deliverables have been listed as guidance for the future. The biggest of them being that the full Budget will carry a roadmap for India's growth. "Our young country has high aspirations, pride in its present, and hope and confidence for a bright future. We expect that our government, based on it stupendous work, will be blessed again by the people with a resounding mandate. We are working with an approach to development that is all-round, all-pervasive and all inclusive. We are working to make India a 'Viksit Bharat' by 2047," finance minister Nirmala Sitharaman says in her Budget speech.

In fact, just a day before the Budget, Prime Minister Narendra Modi had indicated that finance minister Nirmala Sitharaman will set the direction for the future. After it was tabled in Parliament, Modi said, "Today's Budget, though an Interim Budget, is inclusive and innovative. This Budget carries the confidence of continuity… will empower all four pillars of 'Viksit Bharat' — the poor, youth, women, and farmers. The Budget is for building the future of the country. It carries the guarantee of strengthening the foundation of 'Viksit Bharat' by 2047."

Rechristening GDP as governance, development and performance, Sitharaman pointed to the thought process and future plans that have been kept in mind in the making of the Interim Budget. "We have largely kept vote on account as vote on account. But have also shown the plan for the economy and who we are going to aim at, when we come back in July to present the Budget. Who are the sections we will address, what are the kind of investments we will make." It is a clear cut indication that the Interim Budget serves as a necessary foundation to pave the future course of the Indian economy.

'Viksit Bharat': The Big Promises

The Interim Budget has laid down the key deliverables in the form of promises the government is expected to take up once it comes back to power after the general election — the confidence for which sprouts from the fact that unlike 2019, the Bharatiya Janata Party (BJP) has comfortably won key state assembly elections in the run-up to the general election. Also, the grand consecration ceremony of the Ram Mandir on January 22 is expected to bolster the political capital of the BJP ahead of the general election.

Housing, green economy, micro, small & medium enterprises (MSMEs), railway corridors, development of eastern states (Bihar, Jharkhand, Chhattisgarh, Odisha and West Bengal) and research and development (R&D) in sunrise sectors form the key deliverables announced for the future.

Firstly, in a move that would provide a fillip to the rural economy, the Budget promises construction of 2 crore additional houses under the PM Awas Yojana (Rural) in the next five years as the Centre nears its target of constructing 3 crore houses by March 2024. In addition, the government's mega promise also includes a new housing scheme for the urban poor residing in slums and unauthorised colonies.

"More houses under PMAY and the new scheme should provide an impetus to ancillary sectors such as cement and steel, among others,” says Gaurav Karnik, partner and real estate leader, EY India.

Rooftop solarisation of 1 crore households announced before the Budget, has been added a sweetener of 300 units of free solar electricity every month. The scheme envisages savings of up to ₹15,000 to ₹18,000 annually for households from free solar electricity, with the option of selling the surplus to distribution companies. The Budget also promised viability gap funding for harnessing offshore wind energy potential for the initial capacity of 1 gigawatt (GW).

"Focus on supporting 1GW offshore wind capacities through viability gap funding is likely to support long-term growth of the wind sector, which has lagged solar in per-annum capacity addition. One of the challenges for the wind sector is unavailability of sites with high wind potential. Opening up of offshore sites such as to improve supply and be a tailwind for growth," says Ankit Hakhu, director, Crisil Ratings.

The next big step for the government will be e-mobility initiatives as announced in the Budget. Expanding and strengthening the e-vehicle ecosystem by supporting manufacturing and charging infrastructure along with greater adoption of e-buses for public transport networks has been laid down as another major objective for the future.

For R&D and tech innovation in the country, a new corpus of ₹1 lakh crore with 50-year interest-free loans is in the works. It will provide long-term financing or refinancing with long tenors at low or zero interest rates. A new scheme will be launched for strengthening deeptech for the defence sector as well. The finance minister also promised empowering MSMEs to grow and compete globally, along with next-generation reforms, and building consensus with states.

In its continuation of higher capex in infrastructure to power the economic growth engine, three major railway corridors have been promised — energy, mineral and cement, and port connectivity corridors, with high density. "For 'Viksit Bharat, one does not need to build only for better amenities for passenger movement. For 'Viksit Bharat,' raw materials, building goods, cement, rare earth need to move. And we need to move them efficiently too," Sitharaman says in her Budget speech.

On the promised railway corridors, railway minister Ashwini Vaishnaw says 40,000 km of new rail tracks will be laid under the corridor development programme within the next six to eight years, which will decongest both passenger and freight movement in the country and develop capacity to an extent that the problem of waitlist tickets becomes a thing of the past. "The corridors will be multi-modal rather than dedicated freight corridors (DFCs). Under the programme, 434 projects will be taken up at a cost of ₹11 lakh crore," says Vaishnaw.

Once the plan to set up the greenfield railway network spanning 40,000 km kick-starts, it will be the largest-ever infrastructure project taken up by the Indian Railways, overtaking the DFC projects and the bullet train corridor, and enhancing capacity and revenues significantly. To put it in context, the railways has a network of 68,000 km spanning the length and breadth of the country, from which it is projected to earn a total revenue (passenger + freight) of ₹2.78 lakh crore in FY25. "The corridor development approach is beneficial for the economy as well as the logistics sector as it will contribute to lowering of logistics cost and help exports," says Vineet Agarwal, MD, Transport Corporation of India.

Numbers Reveal Confidence

It may be noted that no allocation has been made towards any of the above schemes in the Interim Budget and the provisions will be made once the full Budget is tabled by the next government in July. However, the latent forces powering the confidence of the government seem to be coming from a higher revenue collection — goods and services tax (GST) and personal income tax collection — as well as dividend income from the Reserve Bank of India (RBI) and the public sector units.

Gross tax revenue for FY25 has been estimated at ₹38.30 lakh crore, up 11.5% from the FY24 revised estimate of ₹34.37 lakh crore. Personal income tax collection has grown to ₹10.22 lakh crore in the revised estimate for the current financial year, up 13.51% from the budget estimate of ₹9 lakh crore. For FY25, personal income tax collection is estimated at ₹11.56 lakh crore, up 13.07% over the revised estimate for FY24. The revised estimate for central goods and services tax (CGST) collection remains unchanged at the budget estimate of FY24 at ₹9.57 lakh crore, but the estimate for FY25 stands at ₹10.68 lakh crore. The Centre's net tax revenue for FY25 stands at ₹26 lakh crore, up 12% from ₹23.24 lakh crore in the revised estimate for FY24.

Dividends from the RBI and public sector units, too, form a major chunk of the non-tax revenue this year and a similar trend is projected for the next financial year as well. Dividends and profits for FY25 are estimated at ₹1.5 lakh crore, compared with FY24 budget estimate of ₹91,000 crore.

That explains the continued thrust on capital expenditure, which received an allocation of ₹11.11 lakh crore for FY25, up 11.1% from the budget estimate of ₹10 lakh crore for the current fiscal. The allocation for FY25 is 3.4% of GDP. The Ministry of Road Transport and Highways, and the Ministry of Railways have been allocated a mega share of capital expenditure outlay for the next financial year. At ₹5.24 lakh crore, the total allocation made to the ministries accounts for about 47% of the total allocation worth ₹11.11 lakh crore for FY25. Prima facie the rate of growth of capex looks moderate, but as Sitharaman explains, it is on a higher base from the previous years.

"There is 11% growth in capital expenditure. You have got used to about 30% and 23%, which were on a low base. And today 11% on a high base looks low. (Allocation of) ₹11 lakh crore is going into capital expenditure and you are seeing that the private sector is also coming with their investments. When the government wants to spend through capital expenditure, it could be for triggering the economy so that the private sector also comes in," says Sitharaman at a post-Budget press conference.

Meanwhile, the highway ministry received a capex allocation of ₹2.72 lakh crore, compared with ₹2.59 lakh crore in FY24, while railway ministry has been allocated funds worth ₹2.52 lakh crore for capital expenditure against ₹2.40 lakh crore allocated in Budget 2023. "India is a infrastructure-deficient country. Although we have seen progress in both physical and digital infrastructure in the last decade or so, we are in a unique position to invest in infra for the next couple of decades to unleash the potential that lies ahead in improving productivity and efficiency, thereby reducing the overall cost of doing business. The Interim Budget has ensured continuity of policies to unleash investments and spur domestic demand," says Amit Mohan, president, logistics and infrastructure, Kotak Mahindra Bank.

Fiscally Responsible

Government of India's gross and net market borrowings through dated securities during FY25 are estimated at ₹14.13 and ₹11.75 lakh crore, respectively, pegging both at levels lower than FY24. The Budget puts across the view that since private investments are happening at "some scale" — at least in some sectors (energy transition, e-mobility, construction, semiconductors — lower borrowings by the Centre will facilitate availability of more credit for the private sector. Meanwhile, lower government borrowing augurs well for the economy as it softens bond yields and interest rates, leading to growth. This could come as a major reprieve especially at a time when policy rate cut by the RBI is not imminent. One of the immediate impacts of lower borrowing was on India's 10-year bond yield, which went down by 1.09% immediately after the finance minister's Budget speech from a day ago and stood at 7.066.

Thanks to lower borrowing, the Centre has been able to project a fiscal deficit of 5.1% of GDP in FY25 compared with the FY24 budget estimate of 5.9%. For the current fiscal, too, fiscal deficit has come down to 5.8% in the revised estimate.

Fiscal restraint ahead of the budget is rare. Politicians hardly miss the opportunity to appease voters for electoral gains at the expense of fiscal slippage. "The Interim Budget accords the highest priority to fiscal consolidation. It shows the reduction in fiscal deficit to GDP ratio by 60, 70, and 60 basis points in three consecutive years so as to reach 4.5% of GDP by FY26," says D.K. Srivastava, chief policy advisor, EY India.

"Accordingly, the reduction in the Centre's debt to GDP ratio from 60.8% in FY21, which was at its peak in the Covid year, to 56% in FY25 budget estimate is 4.8%. This will have a positive impact on the ratio of interest payments to revenue receipts. In terms of the FRBM debt to GDP benchmark of 40%, the government still has some distance to cover," adds Srivastava.

The move is aimed at attracting foreign investments as one additional engine to bolster economic growth. The Budget announced that foreign direct investment (FDI) inflow during 2014 to 2023 was $596 billion, thereby marking a golden era. It is twice the inflow during 2005 to 2014. Additionally, for sustained foreign investment, the country is negotiating bilateral investment treaties with foreign partners. Sticking to the fiscal glidepath, therefore, assumes a lot of significance. In fact, Sitharaman has asked ratings agencies to take note: "We have not only aligned with the fiscal roadmap we gave earlier, but we have bettered it, is the simple, straight forward message, which ratings agencies should take on board," she says.

With tabling the Interim Budget, the government made it clear that once it comes back to power, it will unveil a 23-year agenda till 2047. The provisions made in the Budget once announced at full scale will boost consumption, though in an indirect manner. Rooftop solar campaign is expected to help 1 crore families get free electricity, while also earning ₹15,000-18,000 per year by selling excess power to the government, thereby stoking consumption in the economy. Income tax remission scheme is also expected to provide relief to about 1 crore citizens belonging to the middle class. Upgrade of 40,000 normal rail bogies to Vande Bharat standards will provide a fillip to demand of commodities such as steel.

Prime Minister Narendra Modi has endorsed the Budget, terming it a Budget for building the future of the country, which carries the guarantee of strengthening the foundation of 'Viksit Bharat' by 2047. Targets have been set and promises have been made. The curtain has been raised.