Truly, an interim Budget!

A broader roadmap to the goal of becoming a developed economy by 2047 is to be laid out, and that promises a lot for all stakeholders.

This could well have been the shortest budget presentation by Finance Minister Nirmala Sitharaman; and not to many people’s surprise, it turned out to be a quintessential interim budget for the year 24-25. As widely anticipated, the fiscal and macro-economic proposals revolve around select themes, i.e. continuity of the capital investment cycle, providing yet another nudge to ‘transition to green economy’, predictable tax regime (with no change in headline tax rates, not even import duties) and augmenting taxpayer services. It’s refreshing to see an interim pre-election budget document not laced with populist dole outs; perhaps, the government has saved the best for the full budget speech. A broader roadmap to the goal of becoming a developed economy by 2047 is to be laid out, and that promises a lot for all stakeholders.

Transition to green economy has been at the forefront of many macro-economic policies and the budget yet again underpins this overarching goal. Proposals to promote manufacturing of EVs and charging infrastructure, will certainly give a fillip to the EV ecosystem. Viability gap funding is the least that is needed for offshore wind development to take off. With this budget, the government has steered in the right direction for the 1GW capacity addition goals. The emphasis continues on reducing dependency on imported gas and proposals to set up 100MT tonnes of coal gasification and liquefication capacity is another crucial step in this journey. Clearly, the greening of the economy’s energy mix stays at the centre of policies.

Another crucial infrastructure sector that rightfully found a mention is defence. Even as the budgetary allocation for defence capital acquisition hasn’t been substantially enhanced since last fiscal, an imminent launch of policy framework for harnessing deep-tech ecosystem can go the distance in accelerating indigenous defence manufacturing and allied sectors. With the vision of making India one of the most desirable destinations for carrying out high end research and development activities, the government has proposed to launch a funding corpus (Rs 1 Lakh Crore) to scale up R&D, more significantly in sunrise domains. While the list of eligible categories will be rolled out subsequently, most emerging sectors could likely benefit out of this policy move.

Tax proposals are aligned to the theme of pursuing a stable and predictable tax regime. The government has clearly done well in resisting from tweaking the headline tax rate and even import duties. Admittedly, the present corporate tax rates are amongst the lowest in Asia Pacific, and even globally; little headroom could be made despite strong tax collection trends to move it further down. There are however several structural fixes that could have been considered which will witness another wholehearted attempt to deal with, when the new government presents the full year budget. This could be to relook at dividend tax rate, at simplifying the capital gains tax structure and in ensuring a better playing field for foreign long term debt financing for infrastructure projects.

Amongst a few cheers specifically, extension by a year of tax exemption for foreign Sovereign Wealth funds and for pension funds in respect of investment made in eligible sectors, is a welcome move. Alas, a similar extension was not proposed for manufacturing unit’s eligibility to lower corporate tax rate of 17% in cases where the units are commencing their operations after March 31, 2024. To many, this may appear to be a case of oversight, but I would expect the Finance Minister to remain open to representation from the industry in this matter, as part of the post-budget debrief. It makes simpler sense to continue the lower tax rate for new manufacturing companies without any further sunset as the past few years have shown; that lower tax rate is a catalyst to promote manufacturing index of the economy, especially since the global supply chain shift is showing promising signs for India as a preferred destination for multinational enterprises to move from competing locations within Asia Pacific itself.

From an indirect tax standpoint, little is expected as part of the annual budget exercise as the buck stops with the GST Council meetings. Even the Customs duties have remained unchanged, though select sunrise industries will continue pursuing targeted rationalization of duties in the run up to the full budget.

Overall, the government has pulled off a rather satisfactory interim act. All eyes out for another budget speech of the year, hopefully a longer and meatier one!

Sumit Singhania is Partner, Deloitte India. Inputs from Tushar Aggarwal, Senior Manager, Deloitte Touche Tohmatsu India LLP. Views are personal, and do not represent the stand of this publication.