Finance Minister Nirmala Sitharaman is preparing to present her sixth consecutive budget on 1 February. The budget’s focus is expected to be on putting more money in the hands of the people, with probable tweaks to tax slabs or an increase in basic deductions as possible avenues for achieving this goal.
Another recommendation is to increase finances for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) rural job guarantee plan, as well as to increase farmer payouts, news agency PTI reported.
According to analysts, women and marginsalised communities may receive additional benefits as part of Sitharaman’s effort to encourage consumption ahead of the general elections.
Interim Budgets, which are presented to the Lok Sabha before of general elections, often do not include new tax plans or initiatives.
In the interim Budget, the government will ask Parliament for approval to pay its costs for four months of the fiscal year 2024-25.
It may include ideas to solve current economic issues that cannot wait four months until the entire budget is released following the establishment of the new government.
According to analysts, there is an urgent need to address the economy’s slack consumer demand, it said.
According to Deloitte India Partner Rajat Wahi, consumer goods businesses have raised prices in the last 8-10 quarters, mostly owing to increases in input costs.
“So, global supply chain impact, input prices going up, inflationary impact, interest rates going up, all of this is impacting the lower income. It’s not only rural, it is the poor segment of urban areas that are seeing these issues,” Wahi said.
According to Wahi, the weaker sections of society are bearing the brunt of the price hike, since the frequency of loan defaults has grown dramatically.
“The agriculture growth has not been what the government had anticipated. The plan was to double agri income, we haven’t seen that come through as yet because of inflation,” Wahi added.
According to advance estimates of GDP, the agricultural sector growth is predicted to slow to 1.8 per cent in the current fiscal year, down from 4 per cent in 2022-23.
Devendra Kumar Pant, Chief Economist of India Ratings & Research, the primary aim of a vote-on-account is to allow the government to spend money on salaries, wages, interest payments and debt services for four months of the following fiscal.
“But, if there is a certain section of society which is under stress, can we wait for 4-5 months to take any action? If in 5 months, if we don’t do anything, the situation may turn from bad to worse. There may be some intervention for certain vulnerable sections (in the interim Budget),” Pant said.
The Index of Industrial Production (IIP) statistics for April-November showed that consumer durables output fell to 0.6 per cent, down from 5.3 per cent the previous year.
Although consumer non-durables output increased by 5.6 per cent over the eight months of 2023, it was on an advantageous basis, since output had decreased by 2.2 per cent between April and November of 2022.
One option to boost consumption demand is to tweak the new tax structure to make it more appealing, putting more money in taxpayers’ pockets.
“Tax slab tweaking is always a case for consideration in Budget… In the new tax regime there may be a pressure on the Government to include deductions for interest on home loans,” Deloitte India Partner Sanjay Kumar said.
The government, in any case, wants more and more people to switch to the new tax regime, which has a lower rate but fewer exemptions, from the old tax regime, which allowed taxpayers to claim a slew of deductions for specific expenses such as home loans, children’s education, PPF contributions and insurance premiums.
In addition to MGNREGA, the interim budget is expected to include funding for the PM Vishwakarma Yojana and other government skill development initiatives.
