In its first budget of the third term, the Modi government has maintained its tradition of financial discipline. In the midst of volatile global and domestic environments, Finance Minister Nirmala Sitharaman has attempted to strike a balance. Avoiding the announcement of major giveaways, she has prudently utilized government funds in essential areas.
The government has used the healthy revenue collection and additional dividends from the Reserve Bank of India to reduce the fiscal deficit and spend in necessary areas. The focus has been on the rural economy, skill development, job creation, MSMEs, urban housing, and controlling inflation. Though these expenditures may seem substantial, they are productive and will be beneficial in the long run.
Skill development increases employment opportunities and provides industries with necessary workers. Urban housing construction will generate employment and meet residential needs. Such steps increase participation in economic activities, thereby boosting the economy.
Despite increasing expenditures in various sectors, the government has successfully brought the fiscal deficit down to 4.9% of GDP, which is better than the interim budget estimate of 5.1%. The Finance Minister has announced plans to further reduce the deficit to 4.5% in the next fiscal year and reduce borrowing.
An increasing fiscal deficit means greater reliance on external borrowing, leading to higher interest payments and financial resource constraints. Hence, controlling it is essential, and the Modi government has met this challenge.
The government has continued to increase capital expenditure. By emphasizing infrastructure development, the government has coordinated efforts with state governments and the private sector. Infrastructure development is beneficial at multiple levels, creating a conducive business environment.
To support the private sector, the budget has reduced duties on various items, making the production of mobile phones and chargers more affordable. The reduction in duties on valuable metals and other goods will also reduce their prices, which is necessary in the current circumstances.
Extending the credit guarantee scheme for MSMEs in manufacturing and expanding Mudra loans are commendable steps. Initiatives related to skill development and internships will expand job creation and support enterprises. Incentives of ₹3,000 for hiring additional employees will promote new jobs.
The government has prioritized controlling inflation. Inflation is related to supply chains rather than monetary policies, so the government has taken steps to improve the supply chain. New crop varieties unaffected by climate change have been introduced to reduce crop losses and stabilize supplies. Steps have also been taken for the storage of agricultural produce.
Minor adjustments have been made to personal income tax rates, which may lead to dissatisfaction among the salaried class. Negative reactions have been received regarding the level of taxes in the capital market, but this can be seen as a step towards consistency. The removal of the angel tax is a welcome move.
After electoral setbacks, the budget could have been populist, but the government has avoided this. Maintaining financial discipline is necessary in view of the current global situation. The government, banks, and industries are in a better position, but it is important to maintain security in an unstable global environment.
Major Budget Priorities of the Government:
- Supporting the rural economy
- Skill development and job creation
- Encouraging MSMEs and manufacturing
- Resolving urban housing problems
- Controlling inflation
- Infrastructure development
- Reducing the fiscal deficit
This budget is an important step towards achieving the goal of a developed India, with an emphasis on financial discipline and balance.
