A Critical Analysis of the Interim Budget 2024

Introduction

The Interim Budget 2024 paves the way for India’s transformation into a developed nation by 2047. The finance minister envisions a “Viksit Bharat by 2047,” aspiring for a prosperous nation in harmony with nature, boasting modern infrastructure, and offering opportunities for all citizens and regions to realize their full potential. In this election year, the government has chosen a cautious approach, refraining from significant policy announcements. Instead, the finance minister, in her budget speech, exuded optimism about India’s growth trajectory. Simultaneously, she outlined a targeted strategy for the ‘Amrit Kal,’ emphasizing a thoughtful and deliberate path forward. This 45,03,097-crore budget (INR) being presented by the Modi Government allocates the highest shares to sectors like defense, road transport, highways, health, welfare and Jal shakti. Guided by the mantra ‘Reform, Perform, and Transform,’ the Government is set to spearhead next-generation reforms, fostering consensus with states and stakeholders for seamless implementation. Prioritizing sustained, resource-efficient economic growth, the focus lies on ensuring energy security in terms of availability, accessibility, and affordability. The government is committed to gearing up the financial sector to meet investment needs, addressing size, capacity, skills, and regulatory frameworks. This strategic approach aims to create an environment conducive to robust economic development.

Direct Tax Proposals

(1) Extension of last date of incorporation for eligible start-up:

Announced for the very first time in the Union Budget 2017, 100 per cent tax rebate was offered to eligible startups on profits made for a period of three years in a total time frame of 10 years of operations. This tax holiday for eligible startups established on or before March 31, 2023, has been extended by one year. It is of paramount importance that the startup should not have been formed by the branching or reconstruction of an existing business well as it should include a turnover of less than ₹100 crore (INR) in any of the preceding financial years.

Valid forms of registration of the startup are –

Private limited company
Partnership firm
Limited liability partnership

Additionally, it should be actively engaged in innovation, development, or enhancement of products, processes, or services. Alternatively, it should demonstrate a scalable business model with significant potential for employment generation or wealth creation. The advantages of this tax relief for newly formed startups foster additional entrepreneurship whilst sustaining the growth momentum of already existing startups. As many as 2,975 government-recognized startups have been granted Income Tax exemptions so far, according to the Department for Promotion of Industry and Internal Trade (DPIIT). Under the ‘Startup India’ program, the government provides Income Tax exemption. Further, the government highlighted that it would benefit over 80,000 startups. All these factors collectively contribute towards creating a more conducive environment for entrepreneurial growth and further improved competing chances for Indian businesses globally.

(2) Extension of last date for providing tax incentives to IFSC:

The government has made an attempt at reinstating the faith of sovereign wealth funds and pension funds by extending the sunset clause by a year. Sovereign wealth funds are government sponsored investment funds primarily focusing on investing accumulated reserves of foreign currencies. Interestingly, Sovereign wealth funds are considered to be conceived from the British colonial government and only came under intense media spotlight in the past few years, They were initially set up by commodity-rich countries having accumulated substantial foreign exchange reserves from commodity exports. The government’s attempt at encouraging long term investments in critical infrastructure projects is effortlessly discernible. In 2020, The Indian government introduced a new section i.e. Section 10 (23FE) provides notified sovereign and pension funds, an exemption from dividend, interest and long-term capital gains income earned from investments made in specified infrastructure businesses from April 1, 2020, to March 31, 2024. Furthermore, the exemption of taxes for the specific income of non-resident IFSC banks, previously applicable only to investment operations that commenced by March 31, 2024, has now been extended by a year. This act will invigorate banks to set up their investment banking divisions at GIFT IFSC. Likewise, to foster the growth of aircraft and ship leasing companies within GIFT IFSC, the deadline for these entities to initiate operations and avail withholding tax exemption on interest and royalty payments to non-residents (on a perpetual basis) has now been extended to March 31, 2025.

(3) Disputed Direct Tax Demands:

In line with the government’s concerted effort to reduce litigation and make the environment more taxpayer friendly, the government has again placed primary focus on the improvement of services for taxpayers. The government has proposed to withdraw petty, non-verified, non-reconciled outstanding direct tax demands up to Rs. 25,000 pertaining to the period up to FY 2009-10 and up to Rs. 10,000 pertaining to FYs 2010-11 to 2014-15. Sitharaman said the withdrawal of tax demand will benefit one crore taxpayers -filers. Withdrawal of demands means revenue foregone of over ₹3,500 crore. There are many disputed tax demands, some of them dating back to 1962 causing anxiety to the honest taxpayers by burdening them with uncertainty. These disputes arose because of missing records of tax payments before all the tax records were centralized in 2010-11. The government has also clarified that it has undertaken their withdrawal and not waived these off. This will essentially help those people who have been filing their taxes in recent years, but the income tax department has not issued them refunds because of pending older demands. With the government withdrawing these demands, the taxpayers can file returns and get whatever refunds are due to them.

Indirect Tax Proposal

Goods and Services Tax (GST):

The definition of ISD (Input service distributor) which primarily serves the purpose of distributing the credit of input services among multiple registrations has been amended to include inward supplies liable to RCM (Reverse Change Mechanism) for or on behalf of distinct persons for distribution of common ITC (Input Tax Credit) which is primarily used to offset the GST liability on the supply of goods or services by the registered person. The input tax credit can be used to offset the GST liability on the supply of goods or services by the registered person. Reverse Charge Mechanism means the liability to pay tax is on the recipient of supply of goods or services instead of the supplier of such goods or services in respect of notified categories of supply. The existing definition of Input Service Distributor has been substituted to mean an office of the supplier of goods or services or both which receives tax invoices towards the receipt of input services, including invoices in respect of services liable to tax under the reverse charge mechanism for or on behalf of distinct persons and liable to distribute the Input Tax Credit in respect of such invoices in the prescribed manner. The ISD mechanism will now therefore allow distribution of ITC pertaining to services covered under RCM as well.

Sector Wise Proposals

(1) Agriculture:

The government is deeply committed to revitalizing agriculture by channeling investments into crucial post-harvest activities like aggregation, modern storage, and efficient supply chains. These efforts, along with primary and secondary processing, underscore a focus on marketing and branding to ensure better returns for farmers. A noteworthy advancement involves the widespread application of Nano DAP on various crops across diverse agro-climatic zones, a strategic move to optimize agricultural practices and boost productivity.

In a bid to attain self-sufficiency in oil seeds such as mustard, soybean, and others, the government is in the process of formulating Atma Nirbhar Oil Seeds Abhiyan. Simultaneously, a comprehensive program dedicated to supporting dairy farmers is underway, aligning with the broader vision of fostering sustainable agricultural practices and ensuring the well-being of farmers.

The Matsya Sampada initiative, a key component of the Pradhan Mantri Matsya Sampada Yojana (PMMSY), is set for accelerated implementation. This ambitious move aims to elevate aquaculture productivity, double exports to Rs. 1 lakh crore and generate a substantial 55 lakh employment opportunities. As part of this visionary plan, the establishment of five integrated aquaparks is on the horizon, underscoring the government’s unwavering commitment to bolster the aquaculture sector.

These strategic measures collectively signify a comprehensive approach geared towards fortifying the agricultural and allied sectors, steering the nation towards greater resilience and self-reliance. It’s a robust system being built to ensure the prosperity and sustainability of our farms and fisheries for the future.

(2) Energy:

In the Union Budget 2024-25, the government has taken substantial steps to bolster the energy sector, with a keen focus on achieving the ‘net-zero’ commitment by 2070. Notably, the budget allocates resources to empower 10 million households through rooftop solarization, marking a significant move towards sustainable energy solutions. The commitment to expand and strengthen the electric vehicle ecosystem is emphasized, reflecting the government’s dedication to fostering clean and efficient transportation.

Furthermore, the budget demonstrates a strong commitment to renewable and clean energy sectors by allocating funds for initiatives such as renewable energy projects, battery storage, biofuels, and green hydrogen. The government is actively considering providing relief in the form of a reduction in the 40% import duty on solar modules, aiming to incentivize and accelerate the adoption of solar energy solutions.

In the pursuit of green growth, the budget encourages private sector engagement and collaboration with venture capitalists, recognizing the pivotal role of private investments in driving sustainable development. However, it’s noteworthy that some experts have raised concerns about the budget estimates for the Ministry of Environment, Forests, and Climate Change, which amount to less than 0.07% of the total expenditure for FY 2024-25. Despite this, industry players have commended the overall commitment and initiatives outlined in the budget to propel the energy sector towards a more sustainable and eco-friendly future.

(3) Aviation:

In India’s aviation sector, the Union Budget for 2024 takes significant steps to strengthen air connectivity and airport infrastructure. The allocation of INR 75,000 crore as a fifty-year interest-free loan supports milestone-linked reforms, resulting in a doubling of airports to 149. The UDAN scheme’s role is pivotal, establishing 517 new routes and connecting tier-two and tier-three cities, benefiting 1.3 crore passengers. Despite a positive reception, experts suggest more pronounced incentives for innovation and research and development.

Simultaneously, Indian carriers ordered over 1000 new aircraft, reflecting a commitment to meet air travel demands. These efforts extend beyond acquiring aircraft, with a parallel focus on expanding and developing airports. The ongoing comprehensive approach to airport infrastructure is expected to progress swiftly, adapting the aviation network to the population’s growing needs. This holistic strategy, covering route expansion, fleet enhancement, and infrastructure development, underscores the dedication of the Indian aviation sector to adapt to the changing landscape of air travel, despite a slight decrease in the Ministry of Civil Aviation’s budget from the previous year.

(4) Women Empowerment:

In the 2024-25 budget, 30 crore Mudra Yojana loans were allocated to women entrepreneurs, demonstrating a targeted effort towards women’s economic empowerment. Female enrollment in higher education saw a significant 28% increase, with girls and women constituting 43% of STEM course enrollments, among the highest globally. Notably, over 70% of PM Awas Yojana houses in rural areas were allotted to women. The budget outlines measures for women’s empowerment, including entrepreneurship schemes like “Lakhpati Didi,” a focus on women in agriculture, and a commitment to enhancing education and healthcare for women. This underscores the government’s dedication to promoting women’s participation in various sectors and advancing gender equality.

(5) Railways:

In the Union Budget 2024, the government has unveiled a comprehensive set of measures for the railway sector, accompanied by a substantial increase in budgetary allocation. Allocating over ₹3 lakh crore for the railway sector signifies a significant 25% increase compared to the previous fiscal year, highlighting the government’s commitment to enhancing rail infrastructure. The focal points for the railway sector in the upcoming fiscal year include the ambitious introduction of 300-400 Vande Bharat trains, modernization initiatives targeting faster trains, station upgrades, incorporation of advanced safety features, and the strategic development of crucial freight corridors.

Moreover, the budget places a strong emphasis on implementing three major economic railway corridor programs. These programs encompass energy, mineral, and cement corridors, port connectivity corridors, as well as high traffic density corridors, aligning with the government’s broader vision for economic development.

In a move prioritizing passenger safety and comfort, the government plans to convert forty thousand normal rail bogies to meet Vande Bharat standards. These comprehensive measures collectively underscore the government’s dedication to the modernization and improvement of the country’s railway infrastructure and services. The implementation of the PM Gati Shakti initiative further reinforces the commitment to fostering economic development through strategic railway corridor programs.

(6) Healthcare:

In the Interim Budget for 2024-2025, the government allocates INR 90,171 crore to the healthcare sector, signaling a post-pandemic focus on bolstering infrastructure and services. Proactive measures include the establishment of additional medical colleges, utilizing existing hospital facilities, and a committee formation for meticulous examination. Emphasizing preventive healthcare, innovation, and technology investment, the government contemplates expanding coverage under the Ayushman Bharat scheme. Noteworthy is the vaccination drive for girls aged 9 to 14 against cervical cancer, reflecting a commitment to eradicating preventable diseases. Maternal and childcare initiatives undergo a comprehensive overhaul, converging into a unified program for seamless care from pregnancy to early childhood. Anganwadi centers upgrade through “Saksham Anganwadi and Poshan 2.0,” focusing on nutrition delivery and early childhood care. The U-WIN platform introduces technological innovation for nationwide immunization management, ensuring accessibility. Extending healthcare coverage to frontline workers under Ayushman Bharat demonstrates inclusivity, reinforcing a holistic approach to community well-being. The comprehensive strategy reflects a human-centric vision, laying the foundation for a healthier and more resilient society.

(7) Metro and NaMo Bharat:

With a rapidly expanding middle class and urbanization on the rise, Metro Rail and NaMo Bharat stand as key drivers for crucial urban transformation. Supported by compelling data, their strategic expansion, particularly in major cities, addresses the escalating demand for efficient transit solutions. The emphasis on transit-oriented development, informed by data insights, positions these initiatives at the forefront of shaping a more connected and sustainable urban future.

(8) Research and Development:

In a groundbreaking move, the Union Budget 2024-25 unveils a visionary approach towards fostering research and development (R&D) in India. With a monumental corpus of INR 1 Lakh Cr, facilitated through a fifty-year interest-free loan, the budget aims to provide a robust financial foundation for long-term financing or refinancing with extended tenors and minimal interest rates. This strategic initiative is poised to catalyze the private sector’s involvement in scaling up research and innovation across sunrise domains, signaling a transformative shift in the country’s technological landscape. Furthermore, a new scheme dedicated to fortifying deep-tech technologies for defense purposes underscores a commitment to ‘Atmanirbharta’ or self-reliance. The proposed measures also include heightened tax deductions for R&D and innovation, positioning the private sector as a vital contributor to the nation’s technological advancement. A pivotal step is the establishment of the National Research Foundation with an allocation of Rs. 50,000 crores, geared towards propelling research and innovation to new heights. With a keen focus on technology integration, initiatives such as IoT, AI, and GIS, the budget envisages not just economic growth but a holistic development trajectory for the nation.

(9) Education:

The National Education Policy 2020 champions transformative reforms, exemplified by initiatives like PM SHRI, focusing on quality teaching. Skill India Mission’s impact is evident, having trained 1.4 Crore youth, and PM Mudra Yojana’s support extends to 43 Crore loans totaling 22.5 Lakh Crore for aspiring entrepreneurs. The Budget 2024-25 underscores commitment with a substantial Rs. 73,008 crore allocation for school education, emphasizing technology integration, including AR/VR labs and robotics facilities.

Incentivizing innovation and skill development, particularly in the burgeoning edtech sector anticipated to reach a USD 4 billion mark by 2025, is a noteworthy budget highlight. The proposal for a Rs. 50,000 crore National Research Foundation solidifies the government’s dedication to fostering research and development in education.

Infrastructure overhaul remains a priority, with plans to modernize classrooms across schools and universities. This holistic approach envisions a future-ready workforce through technology-assisted learning, fostering an environment conducive to academic growth. The comprehensive vision reflects a steadfast commitment to shaping a well-rounded educational landscape, poised for the evolving needs of the nation’s youth.

Key Points

● The Interim Budget 2024-25 reflects the government’s continued focus on inclusive growth, economic stability, strategic global positioning, sector-specific developments, environmental sustainability, and tax reforms, with an overarching vision towards a developed India by 2047.

● The budget outlines a multi-pronged economic management strategy, including infrastructure development, digital public infrastructure, and tax reforms.

● The revised fiscal deficit is estimated at 5.8% of GDP for 2023-24, with a goal to reduce it below 4.5% by 2025-26.

● The seven priorities of the Union Budget are sustainable growth, financial sector reforms, infrastructure development, human resource development, clean and green India, research and development, and minimum government and maximum governance.

● The budget also proposes enhanced limits for micro-enterprises and certain professionals for availing the MSME scheme, and a scheme to support the Scheduled Castes, Scheduled Tribes, OBCs, women, and people belonging to the weaker sections.

● Private investments happening at scale, the lower borrowings by the Central Government will facilitate larger availability of credit for the private sector.

● For promoting green growth, a new scheme of bio-manufacturing and bio-foundry will be launched.

Sources

Baani Kaur

Member

Tarunima Sarawgi