India’s 2024-25 Union Budget: A Detailed Analysis On The Schemes

On July 23, 2024, India’s Finance Minister presented her seventh consecutive Union Budget. This year’s budget, being the first after the elections, has stirred a considerable amount of debate and discussion across the nation. The primary focus of this budget revolves around four major themes: employment and skilling, MSMEs, farmers and rural development, and the middle class. While the budget aims to project a growth trajectory, its impact and reception are varied.

Employment and Skilling

The government has set an ambitious goal to facilitate employment and skill development for 41 million youth over a five-year period with a central outlay of ₹2 lakh crores. The initiatives under this theme include:

1. First-time Job Seekers: A scheme offering one-month wage in three installments up to ₹15,000 for first-time job seekers registered under the Employee Provident Fund Organization (EPFO).
2. Manufacturing Sector Incentives: Incentives for both employees and employers in the manufacturing sector to encourage job creation for freshers.
3. Employer-focused Schemes: Employers creating additional employment opportunities within a salary of ₹1 lakh will receive reimbursements towards EPFO contributions.
4. Women’s Workforce Participation: Establishment of working hostels in collaboration with the industry to increase women’s participation in the workforce.

While these schemes look promising on paper, there is skepticism about their effectiveness. Many business owners argue that the primary issue is not the financial incentives but the lack of skill and education among freshers. Instead of financial incentives, investing in high-quality education and training infrastructure could potentially yield better results.

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MSMEs (Micro, Small, and Medium Enterprises)

MSMEs are a crucial part of India’s economy, contributing to 30% of GDP and 50% of exports. However, only 14% of MSMEs have access to credit. The budget has introduced several measures to support MSMEs:

1. Credit Guarantee Scheme: Providing term loans without collateral for MSMEs in the manufacturing sector.
2. In-house Credit Assessment: Public sector banks to develop in-house capabilities for credit assessment of MSMEs.
3. Continued Funding During Stress: Ensuring MSMEs receive continued funding even during market shocks.
4. Trade Receivables Discounting System: Reducing the turnover threshold for converting trade receivables into cash from ₹500 crores to ₹250 crores.
5. Export Hubs: Establishing export hubs to facilitate trade and export services for MSMEs in the international market.

These measures are aimed at addressing the primary issues of credit accessibility and cash flow problems faced by MSMEs, and they are expected to provide substantial support to the sector.

Farmers and Rural Development

The budget has allocated substantial funds for agricultural and rural development, increasing agricultural spending to ₹1.52 lakh crores and rural spending to ₹2.66 lakh crores. Key initiatives include:

1. Research and New Age Farming: Introducing 100 new high-yielding, climate-resilient crop varieties to boost productivity.
2. Natural Farming: Promoting natural farming practices and supporting certification and branding for 10 million farmers.
3. Rural Connectivity: Providing connectivity to 25,000 villages under the Pradhan Mantri Gram Sadak Yojana.

While these initiatives aim to increase productivity and resilience in agriculture, their success will depend on effective implementation.

Middle Class and Taxation

The budget introduces revised tax slabs aimed at reducing the tax burden on salaried employees. The new tax regime includes:

1. Revised Tax Slabs: New income tax slabs offering marginal tax reductions.
2. Standard Deduction Increase: Increasing the standard deduction from ₹50,000 to ₹75,000.

However, these tax reductions are offset by increases in capital gains taxes:

1. Short-term Capital Gains Tax: Increased from 15% to 20%.
2. Long-term Capital Gains Tax: Increased from 10% to 12.5%.

These changes have caused discontent among the middle class, who feel the overall tax burden remains high despite the new tax regime.

Fiscal Management

India’s fiscal deficit is projected to reduce from 9.2% post-COVID to 4.9% in the coming year, which is a positive development. The government’s efforts to manage finances are evident in the reduced reliance on borrowings, decreased debt-to-GDP ratio, and improved external debt ratios.

Political Allocation

The budget has been criticized for favoring certain states like Andhra Pradesh and Bihar, which are politically significant for the ruling party. Special allocations for these states have been viewed as strategic moves to secure political gains.

Conclusion

The 2024-25 Union Budget reflects a mix of ambitious initiatives and contentious policies. While it addresses key areas such as employment, MSMEs, rural development, and fiscal management, its impact on the middle class and the perceived political favoritism have sparked significant debate. The true effectiveness of these measures will only be revealed through their implementation and the resulting economic outcomes.

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