The budget has its shortcomings which may be on account of the government leaving new policy initiatives for the full budget after the general elections.
The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman along with the Ministers of State for Finance, Shri Pankaj Chaudhary, the Union Minister of State for Finance, Dr Bhagwat Kishanrao Karad arrives at the Parliament House to present the Union Budget 2024, in New Delhi on February 01, 2024.
The “vote-on-account” or interim budget for the financial year 2024-25 presented by Union Finance Minister Nirmala Sitharaman is visionary and a “model document” of how a vote-on-account Budget should be.
She now has the distinction of presenting six consecutive Budgets, equalling former prime minister Morarji Desai.
The announcements in the document placed before Parliament were non-populist (that too in an election year), firm on how our resilient economy should move, despite global headwinds and uncertainties.
Sticking to the fiscal glide path by committing to a fiscal deficit of 5.8 percent of GDP for the current financial year, which is a “googly”, and 5.1 percent of the GDP estimate for FY 2024-25, the minister has ensured fiscal rectitude with a strong message of the “quality of the spend” and also ensuring growth with social justice with a focus on protecting the vulnerable sections of the society and thrust to “GYAN” — Garib (the poor), Youth, Agriculture, and Nari Shakti (power of women).
The drivers chosen to keep the present momentum and nominal GDP projection of 10.5 percent for FY 24-25 are driven by a capital expenditure (CAPEX) allocation of ₹11.11 lakh crore (11 percent more than the previous year, and 3.4 percent of the GDP) and increased allocation to housing of ₹80,671 crore (₹79,590 crore in FY-24) under the Pradhan Mantri Awas Yojana-Grameen (PMAY-G).
Boost to private CAPEX
This is possible because of the buoyant tax collections, with the tax buoyancy at 1.3 percent, which will reduce the borrowing costs of corporates and MSMEs. This will, in turn, facilitate kickstarting the nascent private CAPEX.
These main drivers will create the virtuous cycle of pump priming investment, employment, income, consumption, and savings cycle via the multiplier effect, including a great push to the private investment, which is at an ebb.
The PMAY(G) is close to achieving the target of 3 crore houses with a mandate of an additional 2 crore for the next five years.
This will have a multiplier effect, leading to massive employment and income generation in the main housing sector and the 130 ancillary industries and MSMEs related to the construction/real-estate sector.
A new housing scheme targeting the middle class is also in the anvil to supplement the urban part of PMAY — the contours of which will be announced shortly.
Under PMAY, to qualify for benefits under affordable housing, the area specification has to be 90 sq m for Middle Income Group (MIG)-1 and 110 sq mt carpet area for MIG-2.
However, the GST council shockingly stipulates 60 sq m in non-metros and 90 sq m in six metros by capping the value of the apartment at ₹45 lakh to avail of the 1 percent GST benefit without the input credit. This makes the candle burn at both ends.
Hopefully, this anomaly will be ironed out and addressed in the new policy.
Recognising the states’ role as partners in progress, which have also shown fiscal prudence, the finance minister has continued the long-term interest loans to states to encourage development, which will in turn ensure a trickle-down effect of reaching/reaping the benefits to the beneficiaries/people.
The rooftop solarisation plan, which is expected to benefit 1 crore households, will enable them to obtain up to 300 units of electricity per month and sell the excess power to the local electricity boards. This initiative is estimated to generate household savings of ₹15,000-20,000 per month, augmenting consumption and alleviating rural stress.
Disappointment has been the status quo maintained concerning direct and indirect taxes, with no increase in the standard deductions, rebates especially under Section 80C — separately ₹1.5 lakh additional for principal deduction of housing loan EMIs, not to be clubbed with the “omnibus” benefits under the Section 80C and Section 24 — deduction under interest paid for housing loans to be enhanced from the present ₹2 lakh to at least ₹3 lakh.
Since the push for affordable housing has been visible and to achieve the cherished goal of “shelter for all” by December 2024, the expectation was that the limit of ₹2 lakh would be raised to ₹3 lakh under Section 24B — for home loans availed on or after 1 April 1999 and limit raised from the present ₹1.5 lakh to ₹2 lakh under Section 80EEA for apartments/house properties, having a stamp value of ₹45 lakh.
From the supply side, to nudge builders to take up affordable housing projects, the expectation was an extension of the tax holiday on profits earned from affordable housing projects under Section 80IBA by at least another year for projects approved until 31 March, 2023, facing liquidity crisis with lukewarm demand for the purchase of apartments coming under the ambit of affordable housing.
The re-introduction of the Credit Linked Subsidy Scheme (CLSS) under the PMAY until December 2024 to align with the extended timeline has not materialised, including not granting the ‘infrastructure’ status to the entire real estate sector, which is presently restricted to affordable housing. All these continue to remain on the wish list.
I hope the full-fledged budget, which will be presented by the new government in July 2024, will address the anomalies and critical areas left out.
The finance minister has been highly conservative in the estimation of tax revenues with a nominal GDP RE of ₹297 lakh crore for the present FY-24 and a nominal GDP of 10.5 percent growth at ₹327 lakh crore for the ensuing financial year 2024-25.
(S Narendra is a Bengaluru-based banker, economist, and guest columnist.)
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