A month after the Bharatiya Janata Party lost its single-party majority in Parliament, PM Narendra Modi has responded to the political message of the elections by directly attempting to address discontent in key voting groups - like farmers - where the BJP saw an erosion in support, a clear focus on creating jobs, new outlays for key NDA allies in Bihar and Andhra Pradesh and some tough love for the stock markets. For several weeks now, the political messaging from the BJP had been one of business-as-usual, that nothing much had changed, despite the change in Lok Sabha numbers. The framing of Finance Minister Nirmala Sitharaman’s budget is the first major public indication of a political shift.
There are five key messages from the Modi government’s first budget of its third term. First, younger voters have always been the driving force behind Brand Modi, but the government was singed by youth anger about jobs in the Lok Sabha elections. Consequently, FM Sitharaman batted on the front foot on this issue, starting the articulation of her budget with new measures on jobs. These include direct-benefit transfers of one month of salary up to Rs 15,000, over 10 million internships to be paid for by corporate social responsibility funds, and skilling plans for up to 10 million young people. The government’s own Economic Survey has predicted that India needs at least 7.8 million jobs in the non-farm sector over the next seven years to keep up with demographic changes, and this budget seems to be a direct response. It also seeks to put more money in the hands of younger taxpayers with the change in income tax slabs, which are likely to put Rs 17,500 more per head per year in the hands of those who have opted for the new tax regime. Significantly, with rising food prices hitting the poor, the setting up of a new Rs 10,000 crore price stabilisation fund for inflation signals the government’s concern on this front and its priorities.
Second, the government has responded to the depletion of support among farmers and rural India by putting its money where its mouth is. Agriculture spending is now up to Rs 1.52 lakh crore (higher by Rs 11,318 crore from last year), and rural spending has been hiked by over 10 percent to Rs 2.66 lakh crore. The BJP’s electoral hegemony in the last decade was essentially driven by its transformation into the new party of the village in north India to complement its urban dominance. Reverses in rural India, especially in Uttar Pradesh and other parts of the Hindi heartland in 2024, have led to a reset.
Budget 2024: What’s cheaper and costlier? Here's the list
Third, the importance given to Andhra Pradesh and Bihar in the budget underscores the new political realities that underpin the Modi government in its third avatar. While the central government ruled out the demands for Special Category status for Bihar and Andhra ahead of the budget, the Finance Minister’s speech outlined a clear political focus on these two states. For Andhra, this includes support for multilateral funding of up to Rs 15,000 crore for Andhra’s new capital as well as for financing and completing the Pollavaram irrigation project, which is considered a lifeline for Andhra Pradesh and its farmers. For Bihar, which is due for a critical state election next year, the FM has promised that requests from the Bihar government for external assistance from multilateral development banks will be expedited, apart from Rs 26,000 crore for road projects and Rs 21,000 crore for power projects. She also stressed the idea of temple economies, proposing support for the development of corridors around the Vishnupad Temple and Mahabodhi Temple – akin to the model of the Kashi Vishwanath Temple - along with a focus on strengthening Nalanda as a tourism centre.
Fourth, a clear leitmotif of Modi government budgets in recent years has been increasing capital expenditure to induce growth while controlling fiscal deficits. On this count, the government has indicated business-as-usual. The finance minister has affirmed that spending on infrastructure will continue as before at Rs 11.11 lakh crore and fiscal deficit is expected to be down to 4.9% (compared to 5.1% projected in the interim budget).
And finally, while the worst fears of the markets came true with the hike in long term capital gains tax to 12.5 percent (up from 10 percent), short term capital gains to 20 percent (up from 15%) and the toughening up on futures and options, the political signal is clear: cool down excessive speculation. The abolition of angel tax for all categories is expected to be fillip for startups and aimed at unleashing the proverbial animal spirits of the economy.
Any government’s first budget indicates the framework for its approach for the next five years. Modi 1.0 in 2014 was focused on the middle class, where tax exemption limits were raised while targeting low deficits. Modi 2.0 in 2019 - also Nirmala Sitharaman’s first Budget as FM - batted for investors while stumping the rich. Modi 3.0 in 2024 is high on political priorities, signals intent on jobs and is tough for investors. Sitharaman’s latest budget balances political imperatives with fiscal prudence, ensuring continuity.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
