New Delhi: Finance minister Nirmala Sitharaman on Thursday delivered a crisp interim budget for FY25 that reiterated the government’s commitment to fiscal consolidation and infrastructure-led growth. There were only a few announcements and no changes to taxes, in a sign that the Bharatiya Janata Party-led administration is confident of returning to power in polls due by May.
In her shortest budget speech yet, while Sitharaman conveyed the government’s focus on four key priority sectors—women, farmers, youth and the poor—she steered clear of populism. The allocation to welfare schemes (central sector and centrally sponsored schemes combined) for the next financial year was increased by just 4.7% over the revised estimates for FY24.
Overall, the budgeted increase in government spending to ₹47.66 trillion is a mere 6.1% over the revised estimates for FY24. The overall spending on subsidies is 7% lower than the revised estimates, thanks to a 13.2% lower dole on fertilizers.
The rectitude in spending meant the fiscal deficit, or the gap between revenue receipts and spending met through borrowing, for FY25 is estimated at ₹16.85 trillion, or 5.1% of GDP. Moreover, the current financial year’s fiscal deficit has been revised downwards by 10 basis points to 5.8% of GDP.
The finance minister promised that the government will continue this consolidation to bring the fiscal deficit below 4.5% of GDP by FY26. The fiscal consolidation plan is aided by an 11.5% growth in gross tax revenue in FY25, translating to a tax buoyancy of 1.1. Tax buoyancy refers to the ratio between the rate of growth in tax collections over the economic growth rate.
Bond markets cheered the move, as the government’s gross market borrowing was budgeted at ₹14.13 trillion, lower than the FY24 number, while equities were muted since there wasn’t any major measure announced to boost consumption. The benchmark government 10-year security ended 8 basis points down at 7.14%, while the Nifty 50 index closed 0.13% lower.
“Rating agencies should take on board the government’s attempt to better fiscal consolidation,” Sitharaman said at a press conference after the budget.
Capex push
The finance minister doubled down on the government’s thrust on capital expenditure. The interim budget pegged the government’s capex spend at ₹11.11 trillion, up 16.9% over ₹9.5 trillion in the revised estimate for FY24. Capex including spends by public sector enterprises is budgeted at ₹14.54 trillion, up 13.9%.
Besides, the finance minister said the 50-year interest-free loan scheme for capital expenditure to states will be continued this year with total outlay of ₹1.3 trillion, unchanged from FY24.
The budget set aside ₹2.5 trillion for the railways, little changed from the ₹2.4 trillion in FY24. Sitharaman also announced three major economic railway corridor programmes focusing on energy, mineral and cement; port connectivity; and high traffic density. She also announced the conversion of 40,000 normal rail bogies to Vande Bharat standards to enhance safety, convenience and comfort of passengers.
“The budget provides a long-term vision and, contrary to expectations of many, has not gone for any knee-jerk proposals in an election year,” said N.R. Bhanumurthy, vice-chancellor of Dr B.R. Ambedkar School of Economics University, Bengaluru.
Welfare steps
The budget proposed to construct an additional 20 million houses in the next five years under the PM Awas Yojana (Grameen). Allocation to the Awas scheme, including urban housing, rose 49.1% to ₹80,671 crore for FY25.
The government will also launch a housing scheme to help people living in rented accommodation, slums or unauthorized colonies to buy or build their own homes, the finance minister said.
She also announced that 10 million households, beneficiaries of the government’s proposed rooftop solar scheme—Pradhanmantri Suryodaya Yojana—will get free electricity of up to 300 units per month.
Among the proposals that made the cut in the interim budget, Sitharaman announced a ₹1 trillion corpus through a 50-year interest-free loan for tech-savvy youth, which will provide long-term financing or refinancing with long tenors and low or nil interest rates. This will also encourage the private sector to scale up research and innovation significantly in sunrise domains, she added.
The budget proposed to cover 10 million more women, up from 20 million, under the Lakhpati Didi scheme, which enables women to get financial assistance through self-help groups to earn sustained livelihoods. The government also plans to set up more medical colleges by utilizing existing hospital infrastructure under various departments.
“Despite the welfare focus on women, youth, poor as well as farming community, the government refrained from outright populism, whilst maintaining a continued emphasis on capex to improve the quality of spending,” said Radhika Rao, executive director and senior economist, DBS Group Research.
Tax exemptions
While there were no changes to direct or indirect taxes, the interim budget extended certain tax exemptions that were expiring in March 2024 by another year. These included exemptions to transactions done through stock exchanges in the International Financial Services Centre and income and capital gains tax exemptions for sovereign wealth funds for investments in India’s infrastructure projects.
However, there is no change in the sunset clause of beneficial 15% corporate tax for new manufacturing companies starting production before the end of March this year, explained Amit Maheshwari, tax partner at AKM Global, a tax and consulting firm.
The finance minister also proposed to withdraw some decades-old tax disputes, bringing relief to 10 million tax payers. Outstanding direct tax demands up to ₹25,000 till FY10, and up to ₹10,000 during FY11-FY15 will be withdrawn, Sitharaman said.
The budget estimates for FY25 pegged total receipts at ₹30 trillion, up 11.1%. The tax receipts are estimated at ₹26.02 trillion, an increase of 11.94%.
Growth numbers
The interim budget has projected a 10.5% GDP growth rate for FY25 in nominal terms to ₹327.7 trillion. In the current year, India’s economy is expected to grow 8.9% in nominal terms, as per the statistics ministry’s first advance estimate in January.
“This year, we took a conservative number for nominal growth, as we wanted to be realistic,” said Ajay Seth, secretary at the department of economic affairs.
Sitharaman also announced that the government will form a committee to examine the challenges arising from fast population growth and demographic changes.
The government will present a white paper in Parliament soon, detailing the progress of the economy before 2014, when it came to power, and after, “only for the purpose of drawing lessons from the mismanagement of those years,” the finance minister said.