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INDIA INTERIM BUDGET ANALYSIS – 2024-2025 -Paving a Way to a $7 trillion Economy!

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1. Economic Performance – Total Budget Size – INR 47.66 tn ($574 bn)

  • Borrowing and other liabilities have reduced by 6% owing to India’s consistently rising and Income Tax (Individual Income tax by +4%) and GST (Goods and Service Tax)collections(+1%)
  • GDP Growth Rate and Deficit Target – India is poised to become the 3rd largest economy by FY26-27; with the Government targeting a fiscal deficit of 5.1% in the upcoming year. India  aspires to become a USD 7 trillion economy by 2030.
  • Disinvestment and Central Government’s Debt – During FY24-25, the Indian Government expects to raise USD 6 billion from disinvestment of stakes in various state-run companies. As private investments increase, there will be less pressure on the Central Government, leading to greater availability of credit for the private sector.
  • Inflation and Interest Rates – CPI (Consumer Price Index )peaked to 7.4% in July which came down to 5.7% in Dec ’23, as RBI (Reserve Bank of India)seeks to achieve inflation target of 4%; RBI has maintained repo rate at 6.5%. Inflation rate for housing, clothing and footwear segments slowed down at 3.6% (YoY% in Dec ‘23). Inflation rate for fuel and light steeply declined from 10.9% in Dec ’22 to -1.0% (YoY%) in Dec ‘23
  • Foreign Direct Investment(FDI) – FDI inflows doubled to USD 596 billion during 2014-2023 as compared to inflows recorded during 2005-2014. Sectors Attracting Highest FDI Equity Inflows (FY23-24) – **Services, Construction, Computer-Hardware and Software,Trading, Automobiles,Chemicals-other than Fertilizers and Telecommunication.

**Service sector includes banking, financial, insurance, non-financial business, outsourcing, R&D, courier, technology testing & analysis

2. India – Then and Now

  • Growth of GDP – Within one decade, India has risen up the ranks from being the 10th largest economy to 5th largest, achieving the highest growth rate among major economies. India’s economy has demonstrated strong post-pandemic recovery, becoming the fastest growing economy among G20 countries with an estimated real GDP growth rate of 7.3% in FY23-24.
  • Investments – Capital expenditure has tripled in the past 4 years( From 41Bn USD in FY 2019 to 133.9USD in FY 2023 (Budget Estimate)) which has provided impetus to economic growth and employment creation. India has liberalized FDI policy to allow 100% under automatic route in almost all key sectors including telecom and insurance.
  • Infrastructure – Indian Government has launched several programs for infrastructure development –Bharatmala (Indian Road Connectivity Project) for road Connectivity, Sagarmala (Indian Sea Network Connectivity Project) for port infrastructure, UDAN scheme for new airports and air routes, and implementation of railway corridor programs. This steady push to infrastructure has improved India’s ranking in World Bank’s Logistics Performance Index from 44 in 2018 to 38 in 2023!
  • Healthy Financial Sector –  India’s Jan Dhan Yojana program has significantly increased the number of people with bank accounts, enabling Direct Benefit Transfer (DBT) which formalized the economy. Adoption of Unified Payments Interface (UPI) has increased multi-fold from $0.8 Bn in FY16-17 to $1.8 tTn by Dec 2023. 12Copyright(C) Nomura Research Institute, Ltd. All rights reserved.
  • India has taken steps to improve the health of financial sector as well as increase formalization of economy by implementing digital technologies
  • Skill Development – Expanding network of premier higher educational institutions has increased opportunities for the aspiring youth of India to attain world-class training. There has been an increase of 43.8% in the number of IITs – India’s Premier Engineering and Research Institutes and 214.3% increase in AIIMs – Premier Medical Institutes of India in the last decade.

3. Infrastructure – Continuous and significant focus on multi-modal connectivity will bring direct positive impact to manufacturing, logistics, agriculture and tourism sector as a whole.

  • Railways:
    • Highest ever capital budget allocation. Allotted 22.5% of total capital budget in FY24-25,i.e. INR 2.5 tn ($30.1 bn)
  • Roadways:
    • Received 2nd largest share of total capital budget. Allotted 25% of total capital budget, i.e. INR 2.7 tn($32.8 bn), 60% of this budget allotted to NHAI for Bharatmala Pariyojana.
  • Airways:
    • Allocation of INR 5 bn ($60 mn) for revival of 22 airports and commencement of 124 regional air routes. With Boeing recently launching its largest engineering & technology facility outside US, India presents numerous untapped opportunities in the aviation sector for foreign companies

4. Energy and Sustainability

  • Clean Energy – To achieve India’s Net Zero targets, Government has increased its budgetary allocation for expansion of solar, wind and green hydrogen production capacity
    • Rooftop solarisation of 10 mn households – Free solar electricity for low-middle incomes households resulting in annual savings ranging from INR 15,000 ($80) to 18,000 ($217). Surplus energy to be sold to distribution companies
    • Support from Central Government in development of offshore wind energy of 1 GW through viability gap funding
    • Development of Green Energy Corridor (GEC-II) through budget allocation of INR 6 bn ($72 mn)
    • Push for Green Hydrogen Mission to help India achieve its 5 MMT production target by 2030
  • Carbon Neutrality – India aims to achieve energy security through reducing its import dependency on alternative fuels and establish a biomass based ecosystem
    • Coal gasification & liquefaction capacity of 100 metric tonnes to be setup by 2030 through financial assistance of INR 85 bn ($1 bn)
    • Plans to mandate phased blending of CBG(Compressed Biogas) in CNG(Compressed Natural Gas)for transport & PNG(Piped Natural Gas) for domestic usage
    • Push for bio-manufacturing and bio-foundries – the government plans to provide environment friendly alternatives like biodegradable polymers, bio-plastics, bio-pharmaceuticals & bio-agri-inputs

5. Agri and Aquaculture

  • Focussed approach on improving farmer’s income leading to higher rural consumption, creating new opportunities for consumer companies.
  • Improve aquaculture productivity and exports – Establish 5 integrated aquaculture parks.Enhance export opportunities from India for fisheries (including shrimps) and dairy.
    • Implement vaccination programs and disease surveillance for Foot & mouth and other diseases.
    • Announced grants to dairy farmers for promoting use of technologies to improve milk quality and productivity.

6. Manufacturing

  • Manufacturing
    • Enhanced budget allotment to Product Linked Incentive (PLI) scheme. A boost to EV (electric vehicle) adoption along with battery storage PLI to establish a robust EV ecosystem in India
    • Increased budget by 36% from INR 45.5 ($0.5 bn) to 62.0 bn ($0.7 bn) in 2024-25 to promote domestic manufacturing in electronics and IT /ITES sector
    • Development of Automobile Industry – Allocated outlay of INR 26.7 bn($321.8 mn) under FAME (Faster Adoption and Manufacture of Electric Vehicles)II scheme for FY24-25. Significantly enhanced PLI allocation for battery storage of INR 2.5 bn ($30.1 mn) for FY24-25
  • Technology and Innovation
    • Laid opportunities for technology companies to support strengthening deep-tech technologies in the defense sector.
    • Announced corpus of INR 1.0 tn ($12.0 bn) to provide long term finance at nil or low interest rate for research and innovation by private in sunrise domains.

7. Inclusive Development: The Government aims for all round development through social and geographical inclusivity measures.

  • Geographical Inclusion
    • Long-term interest free loans to be provided to states to finance development of tourism centers and global scale branding & marketing
  • Women Empowerment
    • Target to make women under the Lakhpati Didi Initiative (annual income of INR 0.1 mn or $1200) for 30mn women, by supporting Self Help Groups(SHGs)
  • Affordable Housing
    • Housing for Middle CLass Scheme – A scheme to be launched for helping the middle class,living in rented houses, slums or unauthorized colonies, to buy / build their own houses.
    • Prime Minister Housing Scheme(Pradhan MantriAwas Yojna – PMAY – a budget allocation under PMAY scheme increased to INR 807.0 bn ($9.7 bn) in FY 24-25 to achieve an additional target of 20 mn houses in next 5 years.
  • Financial Inclusion
    • Credit-linkages for micro food processing enterprises
    • Increased budget for wage employment programme
    • Budget increased for PM’s People Health Scheme (PM-Jan Arogya Yojana) to INR 75.0 bn($0.9 bn) in FY 24-25 to increase access to health insurance
  • Skill Development and Education
    • Increase budget allocation to INR 60.5 bn ($0.7bn) in FY 24-25 to transform existing schools under PM-SHRI (Schools for Rising India)
    • Plan to set up more medical colleges by utilizing the existing hospital infrastructure for growing medical aspirants. The more number of medical professionals shall boost the healthcare sector.

Disclaimer: India view point.
Source: Government budget documents, Central Statistics Office,RBI,Department of Industrial Policy and Promotion, Press Information Bureau,Press Articles and Releases