Budgeting for takeoff: The Moneycontrol Manifesto 2024-25

India’s projected 6.3-6.5 percent growth from 2023 to 2026, as estimated by the World Bank, might seem modest compared to its recent history. Yet, this positions India among the world’s fastest-growing economies and underscores its growing influence globally.

India’s economic resilience can be attributed to the government’s sharp focus on capital expenditure, relying on the assumption that higher public investment in infrastructure projects will unleash significant economic benefits. This, coupled with the spending power of Indian households, is expected to play a pivotal role in steering not only India but also the global economy through the current challenging times.

The crucial challenge for the government is fostering a policy environment to sustain India’s attractiveness to foreign and domestic investors.

Moneycontrol, India’s leading digital platform for news, information, insights, and data on finance, markets and economy, is pleased to present the Moneycontrol Manifesto.

The document aims to contribute to India’s public policy discourse ahead of the Union Budget, offering a broad matrix of fiscal, public finance and policy suggestions that our editors and experts believe warrant the attention of policymakers.

· The new income tax regime has been one way to lower individuals’ tax burden by paying lower tax rates.

· Last year, the tax slabs and rates of the new regime were rejigged, introducing the standard deduction of Rs 50,000 for salaried taxpayers and pensioners and a tax rebate on incomes of up to Rs 7 lakh. There is a case for the basic exemption limit to be raised both in the new and old tax regimes in line with inflation.

· The new tax regime is unlikely to become popular unless the old regime is made less attractive. For this, the new regime should have broader tax slabs, lower taxes, and few exemptions.

· This Budget could be an opportunity to present a simpler individual income tax slab and rate construct, replacing the dual structure in place since 2020.

· Capital gains tax is levied on gains made by selling movable and immovable capital assets. The long-term or short-term capital gains tax is levied, depending on the period of holding an asset.

· Various asset classes, such as real estate, equity investments, debt instruments, and mutual funds, attract different rates of capital gains tax. Besides, the capital gains tax could differ within the same asset class, depending on the holding period and maturity.

· The Interim Budget for 2024-25 provides an opportunity to simplify the treatment of capital gains.

· To begin with, the government should standardise the qualifying holding period for long-term capital gains (LTCG) across all financial assets, including listed and unlisted securities – both debt and equity, units of mutual funds, units of REITs/InvITs, etc., to 12 months.

· A complete elimination of security transaction tax (STT) or a reduction for the cash market is overdue.

· Introduced in 2004, STT is levied on transactions involving various types of securities. Increasing market participation has also led to higher tax collection in the form of STT for the government.

· Currently, the government taxes dividends in the hands of shareholders, leading to double taxation since the company has already paid taxes on its profits. This needs to be corrected.

· For public investment to remain one of the key growth drivers next year, it must go hand in hand with fiscal consolidation.

· Now that the debilitating effects of lockdowns and the virus are behind us and tax collections handsomely beating budget estimates, the Budget for 2024-25 should make marked progress in bolstering its fiscal health.

· The fiscal deficit should be kept between 5.8 percent and 6 percent to stay on the glide path towards a medium-term target of 4.5 percent of GDP by 2025-26.

· The Budget 2024-25 should continue with long-term loans to states to support their capital expenditure programmes. This will give states more elbow room to spend and supplement the Centre’s capital expenditure plan, which is essential to creating jobs and boosting income.

· The Centre’s Rs 13.7-lakh crore capex target for 2023-24 includes a Rs 1.3-lakh crore interest-free loan to states with a maturity of 50 years. States have welcomed this capex-only loan.

· The government must contribute to state capex as well through allocation under capital expenditure to sustain growth. Encouraging merit-based or project-specific funding and discouraging excessive market borrowing by states would be a prudent approach for the central government.

· The launch of the Pradhan Mantri Kisan Samman Nidhi, an income support scheme intended for farmers with small landholdings that provides Rs 6,000 a year in three equal instalments, has been a success story in the second term of the Modi government.

· Since its inception, the government has allocated over 50 percent of its total agriculture budget to this scheme, with an allocation of as much as Rs 75,000 crore the very first time.

· That said, the PM Kisan scheme was launched in the last Interim Budget in 2019. Five years hence, given rising inflation, the payouts are due for an appraisal.

· There is a compelling case to raise the amount to keep pace with elevated inflation levels.

· The crop insurance scheme was launched in February 2016 after rolling back earlier schemes such as the National Agriculture Insurance Scheme, Weather-based Crop Insurance Scheme and the Modified National Agricultural Insurance Scheme.

· The scheme was allotted Rs 5,500 crore in 2016-17 but exceeded the disbursement amount with a total spending of Rs 13,240 crore. The subsequent years saw the allocation rise to reach its highest of Rs 16,000 crore in 2020-21

· The scheme allocations have since hovered around the same amount, and there is merit in raising the allocations.

· Renamed Modified Interest Subvention Scheme in 2022—the scheme has been attracting significant allocations, with Rs 15,000 crore allocated in 2016-17. The allocations have risen to stand at Rs 23,000 crore in 2023-24.

·There is a case to raise it further to Rs 30,000 crore in 2024-25, to reach a level of double of eight years ago to factor for inflation.

· The country's flagship scheme for irrigation, the Pradhan Mantri Krishi Sinchayi Yojana, launched in July 2015 to increase water-use efficiency and irrigation coverage, was dissolved in the budget of 2023-24, which merged 10 schemes into the Krishonnati Yojana.

· The utilisation of funds has remained low since inception. In 2021-22, when the scheme had last been given a separate allocation, only Rs 2,000 crore out of the Rs 4,000 crore allocated was utilised.

· This needs a correction through sharply focused policy interventions.

· Micro, Small and Medium Enterprises contribute nearly 8% of India’s GDP, 45% of the manufacturing output and 40% of the exports.

· The manpower of the District Industries Centre (DIC) should be re-oriented and trained to support entrepreneurship development and mentor and handhold start-up MSMEs (with emphasis on manufacturing).

· Government programmes for funding start-ups in manufacturing, which have potential for growth, may be provided with higher levels of funding and subsidy.

More insights and analysis on Budget 2024, follow us here