India’s Interim Budget 2024-25: Risks, Opportunities, and Expectations
The Indian finance minister, Nirmala Sitharaman, is due to present the interim budget for the fiscal year 2024-25, due to begin on April 1, 2024. This event, referred to as the vote-on-account, is a precursor to the comprehensive budget expected after the forthcoming Lok Sabha elections. It is set in the context of India’s enduring economic strength, coupled with global economic turbulence. This article discusses potential risks and opportunities influencing this budget, and analyzes some possible policy directions.
The Risks
The major imminent risk is the upheaval in global geopolitics. Persistent tensions in Europe and the Middle East are unlikely to resolve immediately, as evidenced by escalating conflict in regions such as Israel and Gaza. These conflicts have globally disrupted shipping lanes, necessitating military protection for secure passage.
The Opportunities
Simultaneously, there are numerous potential positives. The Indian economy is showing a promising upward trend, with projected growth of over 7% in the fiscal year 2023-24. Quarter results ending September 2023 highlighted significant industrial growth, while sectors like construction are witnessing a fresh flow of investment. With thriving large industrial sectors and a renewed foreign investment influx, the Indian economy shows ample opportunities for sustainable growth.
Expected Policy Directives
It is expected that the impending budget will prioritize maintaining this robust economic momentum. Of particular importance will be facilitating competitiveness in the clean energy sector. Given the global race for ‘green super-power’ status, it is essential that the budget supports Indian companies in this endeavor.
Specifically, here are four areas we believe the budget should focus on:
Key Budget Priorities
- Sustained Capital Expenditure: Governmental capital expenditure has significantly contributed to India’s GDP growth in recent years. Ongoing emphasis on transportation infrastructure, logistics, and energy development will be pivotal for India’s competitive edge.
- Fiscal Prudence: There is an ongoing need to balance growth with fiscal responsibility. Past electoral experiences indicate that this balance is achievable without resorting to exacerbated welfare spending.
- Sectoral Support: Both the manufacturing and services sectors are crucial for job creation and economic stability. The interim budget can build on earlier initiatives like the PLI scheme and support for pandemic-affected sectors, providing continuous momentum for these industries.
- Policy Resolutions for Climate Commitments: India has made considerable commitments to clean energy implementation. The interim budget should prioritize resourcing for these objectives, including revisions on taxes and duties for essential goods and services. This includes funding for the recently launched Pradhan Mantri Suryodaya Yojana.
Conclusion
While the interim budget will be an important stepping stone, it will not be the sole determinant of success. In the face of a global economic slowdown and the changing dynamics of global trade, it is imperative for more expedient trade deals to capitalize on emerging opportunities. We look forward to the forthcoming interim budget announcement with cautious optimism.
