When the Finance Minister Ms. Nirmala Sitharaman rises to present the final Union Budget for the fiscal year 2024-25 today at 11 AM, she will be creating a unique record. She will become the first finance minister of India to present six consecutive union budgets (2019-2024, in addition to an interim budget presented in February 2024. Prior to this, the record was held by the former prime minister Morarji Desai, who presented five consecutive union budgets (1959-1963). He had presented two interim budgets (1962 and 1967) also.
Ms. Sitharaman’s record is impressive, in my view, because she has survived the worst economic slowdown and fiscal slippage (FY21 GDP Growth -5.8% and Fiscal deficit of 9.17% of GDP) in the history of Independent India caused by the worst pandemic since 1917 Spanish Flu; a below par election performance of her party in 2024 general elections, apparently due to sub-optimal performance on inflation and employment generation fronts; sharp criticism on GST management from businesses and states; rumors of lack of support from her own party members and family; and persistent calls for her removal from the market participants.
Now coming to the budget to be presented today.
In the post liberalization (1991) days, budget presentations used to be an event of interest to a large section of urban India (Rural India did not have much TV in those days).
Changes in excise duty rates had immediate impact on businesses and household budgets. Introduction of new trains and changes in train fares affected a large number of people. Tax rates were consistently reduced; tax slabs rationalized; tax incentives on investments and savings increased; and basic exemptions increased resulting in many taxpayers getting out of the tax net or their tax liability lowered.
A large number of changes in tax laws would keep students (CA, CS, LLB etc.) also hooked to the budget. Many people would fill fuel tanks of their vehicles to make some savings on likely higher fuel prices, and buy one month of liquor and cigarette stocks a day before the budget presentation.
But nowadays nothing of this sort happens.
Goods and Services Tax and excise duty is now not part of the finance bill. Most of it is managed by the GST Council; through notifications issued from time to time, or by the respective state budgets. New trains are not announced in the budget and fares hikes are also announced outside the budget. Income tax rates have mostly stabilized. Only minor changes in the return filing and assessment procedures are announced in annual budgets.
Presently, the emphasis of the government is on bringing more people into the tax net and increasing the effective tax rates. In the past decade Tax Collection at Source (TCS) for a variety of transactions has been implemented. A variety of cess have been imposed to augment the tax collection. Incentives on investment and savings are being withdrawn gradually.
The budget documents are more like colorful corporate presentations. These omit much more information than these include. The budget speeches sound like the election manifesto of the ruling party. The finance ministers frequently announce “intent” to launch random programs in future, with no money provided in the current year’s budget.
For electronic media it is a major marketing event to enhance their TRPs and revenue. In essence, the format of their election coverage and budget coverage is the same. There is absolutely no correlation between the pre-election & pre-budget analysis, and forecasts to the actual outcome. Also, it is difficult to make any sense from the post-election and post-budget analysis and commentary.
Hours of airtime have already been spent on the pre-budget analysis this year also. Besides, hundreds of reports have been printed to guide investors about the investment themes that may emerge from the budget. What I gather from various sources is that the five most common points of the pre-budget speculations this year are:
What will the finance minister do with the bounty (Rs2.11trn) it received from the RBI as dividend? Whether the excess funds will be used to reduce the fiscal deficit; or these will be used to fund some populist programs to win forthcoming assembly elections; or these will be granted to the key NDA allies (JDU and TDP) to meet their demand for additional resources for their respective states.
Will allocation for Capex be increased materially or focus will shift to consumption and social programs? It is basically a speculation on the impact of the latest Lok Sabha elections on policy making.
Will the impetus to private capex be enhanced? The speculations are broadening the scope of PLI schemes; relaxation in FDI norms for certain sectors; etc.
Will the finance minister afford more cash in the hands of households to support consumption growth – the missing piece in India’s growth in the past few years? The speculations are tax relief for salaried classes; disincentive for 80C savings; increase in cash payout for farmers etc.
Will there be any change in the Long-Term Capital Gains tax regime? There are speculations of more uniformity in LTCG rules for various asset classes.
A majority of the market participants watch the budget speech to take advantage of swing trade opportunities that may arise from uttering some specific jargon by the finance minister. The empirical evidence shows some gain and most lose money in this joyride.
I am taking my daughters shopping today at 11AM and will be reading the Finance Bill and other budget documents in the evening.
What about you?
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