Contrary to the expected prevailing narrative of being a “1991 moment” for reforms, this Budget turned out to be a populist move. Finance Minister Nirmala Sitharaman felt the pain of the meme-game happening against her after her July 2024 disastrous “rollback budget” and sought to allay the pain of the Middle Class reeling under high taxes, depleting savings and rising inflation. The talking point of this Budget is indeed the Rs. 12 Lakh Income Tax exemption, but there are two fine prints to it.
First, according to the FM’s admission, the Income Tax exemption shall save Rs. 80,000 per year. This means a saving of just Rs. 6,666 per month, which, given overall inflation, household liabilities, and diminishing savings, is too little and too little.
Second, the FM has promised to introduce an Income Tax Bill next week during the Parliament session. We must wait for the fine print of the Bill before jumping to any specific conclusion.
One aspect of this year’s Budget is crystal clear: It lacks a definite idea of a Big Bang Structural reform. The recent spate of government-friendly opinion pieces in newspapers was expecting a 1991-like historic Liberalisation moment. But this Budget will certainly disappoint them. In the name of reforms, some sectors were given minor deregulatory tweaks here and there without any overarching Reform 2.0.
Five areas were yearning for structural reforms, these are Private Investment, Agricultural Reforms, Manufacturing & Labour, Urban Renewal, and Tourism & Hospitality. These often require an interdisciplinary approach. But instead of providing a comprehensive solution to their woes, the government chose to do what it knows best- Tinkering.
Partial measures and small adjustments in compliance, tariffs, customs duties, and regulatory frameworks do not constitute a significant narrative of liberalization or structural reforms. The Economic Survey was, perhaps, more honest in its approach, when it exhorted the government to “Stay out of the way”.
Gross Fixed Capital Formation (GFCF), a key indicator of private investment, grew at an average rate of only 1.4% from 2019 to 2023. This requires serious structural measures like incentivising investment through distant regulatory mechanisms, easier availability of land and other resources, bare minimum compliances, robust infrastructure, and a thriving financial market, among other things. But the Budget does little to inspire confidence.
Sample this. The section on “Investment as the 3rd engine” in the Budget speech talks of enhancing cost norms for Saksham Anganwadis and Poshan 2.0 Abhiyan. Then it talks about having Atal Tinkering Labs in schools and later Broadband connectivity to Primary Health Centres. These are basic needs for any developing country and need not require a Budget speech mention.
Agricultural reforms were the need of the hour. But after the disastrous episode of the three farm laws and the relentless pushback by farmers, the government was forced to recede, for which, it is for itself to blame.
The agricultural sector requires genuine freedom. This involves removing price and trade controls so farmers can trade openly, lifting capital controls like restrictive ownership and tenancy laws, and deregulating input controls by adjusting prices for fertilizers, seeds, and subsidies on water and power. A legal guarantee of MSP, as many have argued, and the farmers have demanded, could be retained, even after structural reforms.
A market for future trading of agricultural commodities should be developed to enable both government and private sector procurement of excess production. Under this regime, the government buys at MSP to meet strategic needs.
Farmers can sell ‘put options’ for any surplus. If prices drop below MSP, farmers sell to agencies like FCI at MSP. If prices exceed MSP, farmers sell in the market, losing only the premium, which the government can subsidize through Direct Benefits Transfers.
To its credit, the Budget has announced a ‘National Manufacturing Mission’, but the fine print is yet to be seen. At first glance, it looks like a revamped version of the ‘Make in India’ scheme.
The share of Manufacturing in India’s GDP has hit an all-time low of just 12.83% in 2023, a testament to the failure of the much-publicised PLI scheme. Exports are a direct function of manufacturing, and this Budget has again made half-baked attempts to revitalise them, even though tariffs by the United States stare India.
Our cities are unlivable. Instead of creating an ‘Urban Challenge Fund’ which only increases state control, the Budget could have announced some reforms in Urban local governance, by providing more financial powers to municipalities. There is no mention or policy to fight air pollution in the budget, except for some incentives for EVs.
Tourism and Hospitality has a lone announcement of identifying 50 new spots wherein hotels shall come under the ambit of infrastructure. This looks like a pilot project, given that there is no mission-mode project for the horizontal integration of tourism. This is also linked to our challenge of urban renewal and infrastructure gaps.
In conclusion, the Budget lacks ideas and imagination for reforms.
Rachit Seth is the Founder of Policy Briefcase and works as a Policy Analyst with the Indian National Congress.
Disclaimer: The views and opinions expressed in this piece are those of the author and do not necessarily reflect the views of the editorial board or the organization.
