Interim Budget 2024: What to Expect?

Published: Jan 2024

Finance Minister Nirmala Sitharaman is set to unveil the Budget 2024 on February 1. However, economists are suspicious that the interim budget would be used as a tool of political messaging, highlighting the government's commitment towards inclusive growth, and adopting a cautious approach towards spending. Furthermore, the recent welfare programs highlight the change in the pattern of big spending, which is redirected to infrastructure spending to maintain economic growth and reduce fiscal deficit, with a continued focus on capital expenditure. 

The estimations could be substantiated by the recent policy changes including, 

  • The doubling of the annual payments to the female farmers to INR12,000.0 (around $145), would cost $1.4 billion annually. This is seen as a tactic to win female voters.
  • PM Modi extended the free food grain program for the next five years. Although the program will require minimal additional spending, provided the several years of operations of subsidized foodgrain program.   

Key Expectations from the 2024 Budget

Economists believe that the central government is likely to prioritize capital expenditure with a motive to push investments and elevate the quality of expenditure. The RBI's monthly bulletin highlights that capex has considerably helped the masses in making private investments. It also highlighted that the high corporate profitability has supported the increase in fixed assets. The government is expected to make substantial infrastructure spending and drive initiatives to attract both foreign and domestic investments. Comparatively, the revenue expenditure is estimated to increase less substantially. Among these the key spendings are expected to remain consistent at around $48.0 billion, exhibiting the government’s conservative approach towards spending. 

Another major expectation from the interim budget is the attainment of the fiscal deficit target of 5.9% of GDP for FY24, as the government aims to cut down the fiscal deficit by 50 basis points. This would be possible by maintaining a high growth in the capital expenditure, to support the overall growth. Success on the fiscal consolidation path would require the balancing of the external sector constraints and the achievement of the initial FRBM target, which demands a fiscal deficit of 3.0% of the GDP. 

Provided that the budget will align the government's efforts with the beneficiary schemes, primarily attributed to the General elections, the Fintech, and tech-based gold loan industry are gaining the spotlight, as these industries play a pivotal role in reshaping the financial services. Thus, policies particularly supporting the growth of Tier 2, 3, and 4 cities are anticipated. This would concentrate on integrating the rural communities into the formal banking systems and the empowerment of the SMEs.

The energy sector is likely to be another point of discussion in the upcoming budget, attributing to the commitments of the last budget and the inherent complexity of the industry. The budget might incorporate some initiatives to achieve net zero targets and energy security. This might include measures to maintain its pledge, during the last budget, of tripling the global revenue energy capacity by 2030. However, it is estimated that the allocation towards priority capital investments to enable energy transition would be limited after the benchmark of INR35,000.0 crores (around $4.2 billion). Additionally, any revised targets on ethanol blending use are unlikely.

The budget last year focused on the higher adoption of EVs in India, initiating the consumers to make more greener and smarter choices. Thus, as per a report by Zoomcar, this year it is anticipated that the government might focus on sustainable mobility solutions and drive economic resilience, to support the evolution of transportation in the automobile industry. 

The government is also anticipated to prefer infrastructure development through the interim budget. According to the Ministry of Finance, the government is rendering focus on the expansion of the rail and air networks at a record pace. The road network is also undergoing substantial development in terms of the total lengths of the highways and the freight corridors. 

Expected Railway Budget 2024: An Overview

Finally, people are eying the railway budget, and the effect of record capital expenditure outlay in new trains, including Vande Bharat Sleeper, Amrit Bharat Express, Vande Bharat Express, and the roll-out of the safety strategy namely, Kavach anti-collision train system. This budget will also be announced by Finance Minister Nirmala Sitharaman along with the Interim Budget 2024, on February 1.  The anticipated key highlights of the railway budget might include: 

  • The finance minister is likely to announce the record capital expenditure for Indian Railways, which is anticipated to be around INR 3.0 lakh crores (around $36.3 billion).
  • Railway Minister Ashwini Vaishnaw, mentioned the introduction of 3000 new trains, over five years. The Vande Bharat trains have been introduced over the semi-high-speed premium connectivity network. Thus, the introduction of new amenities focused on trains is anticipated during the Interim Budget 2024.
  • The Vande Bharat sleeper and the Amrit Bharat trains might find a mention in the Budget 2024. The Vande Bharat sleeper version is expected to be rolled out in the coming months. 
  • The Indian Government has been focusing on the development of new railway lines for a while now, and the coming year seems to be no different. These are looked upon to free up the highly dense networks, to facilitate the faster movements of the trains. 
  • The indigenous Kavach system is likely to be mentioned in the 2024 Budget. The anti-collision is said to be at par with similar systems in Europe, however, they are comparatively far more economical.  

Income Tax Expectations from Interim Budget 2024

There are estimations that the government might further add some tax concessions under section 87A, increasing the overall tax exemption limit to INR 8.0 lakhs ($9.6 thousand), compared to the present bar of INR7.0 lakhs ($8.4 thousand). This might be accompanied by a revision in the tax slabs. Also, it is anticipated, that the new tax regime (if any) would be declared as the default tax regime. This could be accompanied by the standardization of the capital gains taxation regime. The last budget focused on the standardization of the tax slabs and the elimination of the various deductions, to simplify the tax calculations. The same is reflected in the interim budget, across various investment avenues, including equity funds and debt funds. If enforced, it would significantly simplify the process for the NRI (as they pay tax in more than one country), to claim a foreign tax credit overseas for Indian taxes or vice versa. 

Other amendments to the structure might include an increase in the standard deduction from salary income might be introduced, for the benefit of the salaried individuals. The masses are also looking up to the incorporation of HRA deductions, and the deductions under sec (80D) and sec (80E), as in the old regime. Furthermore, people also desire exemptions or deductions related to electricity and electronic gadgets, due to the shift of the work culture into hybrid models. However, it should be noted that these deductions are only the desires of taxpayers, and no efforts in this regard are yet evident on the part of the government.  

Encapsulating, there are high expectations from the interim budget, accounting for some major policy decisions and the exceptional economic performance of the country in the past year. Considering the accelerating home sales and the record high rates of real fixed investments in FY24, a year-on-year 20.0% jump in CAPEX is anticipated, reaching INR11.5-12.0 lakh crore (around $138.4 billion- $144.5 billion), by value in FY25. This is likely to facilitate the private sector investment cycle to gain momentum. National Statistical Office (NSO) the economy will grow 7.3% in 2023-24, while the Reserve Bank of India (RBI) has projected a growth rate of 7.0% for the current fiscal year. 

Note: Numbers are rounded off after currency conversion*