Analysis of Union Budget 2024-25 What You Need to Know | UPSC

Introduction

• • • Finance Minister Nirmala Sitharaman presented the Union Budget 2024 today on July 23, 2024. 
    • She reiterated the government’s commitment to four sectors – the poor, women, youth, and farmers.

Major Announcements in Budget 2024-25

Employment:

• • • Scheme A: First Timers – Offers a one-month wage for individuals entering the formal workforce, benefiting 210 lakh youth. 
    • Scheme B: Job Creation in Manufacturing – Provides incentives for EPFO contributions for the first 4 years, benefiting 30 lakh youth and their employers. Scheme C: Support to Employers – Covers additional employment with salaries up to ₹1 lakh per month. 

Skilling:

• • • New Centrally Sponsored Scheme – Aims to skill 20 lakh youth over 5 years and upgrade 1,000 Industrial Training Institutes. 
    • Revised Model Skill Loan Scheme – Facilitates loans up to ₹7.5 lakh with a government guarantee, aiding 25,000 students annually. 

MSMEs:

• • • Credit Guarantee Scheme – Focused on MSMEs in the manufacturing sector to ensure financial stability. 
    • New Assessment Model and Credit Support – Designed for MSMEs during financial stress periods. 
    • Enhanced Mudra Loans – Increased availability of loans and mandatory onboarding in TReDS. 
    • SIDBI Branches – Establishing more SIDBI branches in MSME clusters. 
    • Food Irradiation and Safety Testing – For 50 MSME units to ensure quality and safety. 

Middle Class:

• • • Standard Deduction Increase – From ₹50,000 to ₹75,000 for salaried employees. 
    • Family Pension Deduction Increase – From ₹15,000 to ₹25,000 for pensioners. 
    • Tax Regime Simplification – Savings up to ₹17,500. 

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Positives of Budget 2024-25

Youth Aspirations–

• • •  The budget includes various incentives to support youth employment and skill development. 
    • Initiatives such as Scheme A for first-time employees and Scheme B for job creation in manufacturing are designed to integrate young people into the workforce. 
    • The emphasis on skilling, with a new centrally sponsored scheme to train 20 lakh youth and the upgrade of 1,000 Industrial Training Institutes, underscores the government’s commitment to aligning with the aspirations of the youth, as highlighted by the Economic Survey. 
    • These measures aim to bridge the gap between education and employment, ensuring that young people are equipped with the necessary skills to succeed in a competitive job market.

Support for MSMEs –

• • •  Micro, Small, and Medium Enterprises (MSMEs) are crucial to the Indian economy, contributing significantly to GDP and employment. 
    • The budget addresses the financial and operational challenges faced by MSMEs through various measures. 
    • The Credit Guarantee Scheme for MSMEs in the manufacturing sector aims to provide financial stability, while the new assessment model and credit support during stress periods are designed to help MSMEs navigate economic downturns. 
    • Enhanced Mudra loans and the mandatory onboarding in TReDS are expected to improve access to credit, enabling MSMEs to expand and innovate.
    •  The establishment of SIDBI branches in MSME clusters further enhances support by providing localized financial services.

Tax Relief – 

• • • The budget offers significant tax relief to the middle class, which is expected to boost disposable incomes and stimulate consumer spending.
    •  The standard deduction for salaried employees has been increased from ₹50,000 to ₹75,000, providing immediate financial relief. 
    • Additionally, the deduction on family pensions for pensioners has been raised from ₹15,000 to ₹25,000. 
    • The simplification of the new tax regime, leading to savings of up to ₹17,500, is another step towards making the tax system more accessible and beneficial for taxpayers.
    •  These measures collectively aim to ease the financial burden on the middle class and promote economic activity.

Fiscal Consolidation –

• • •  The budget maintains a clear focus on fiscal discipline by proposing a fiscal deficit reduction to 4.9% of GDP. 
    • This commitment to fiscal consolidation is crucial for ensuring long-term economic stability and enhancing investor confidence. 
    • By sticking to a disciplined fiscal path, the government aims to create a conducive environment for sustainable economic growth.
      Additionally, this approach increases the likelihood of a sovereign rating upgrade, which could further boost investor confidence and reduce borrowing costs for the country.

Support to Farmers – 

• • • The budget outlines several initiatives aimed at supporting farmers and promoting sustainable agriculture. 
    • The promotion of Atmanirbharta (self-reliance) in pulses and oilseeds, combined with a focus on agricultural research, is designed to improve productivity and resilience in the face of climate change. 
    • The establishment of large-scale clusters for vegetable production and the development of Digital Public Infrastructure (DPI) in agriculture will enhance coverage and support for farmers and their lands. 
    • These measures are expected to lead to better crop yields, improved market access, and increased income for farmers, thereby contributing to the overall growth of the agricultural sector.

Housing Push –

• • •  The budget demonstrates a strong commitment to providing affordable housing for all through substantial increases in allocations for the Pradhan Mantri Awas Yojana (PMAY). 
    • The urban component of PMAY has seen a budget increase of 37%, while the rural component has received a 70% increase. 
    • These enhancements are expected to accelerate the construction of affordable housing units, making homeownership more accessible to a larger segment of the population. 
    • By prioritizing housing, the government aims to improve living standards and stimulate economic activity in the construction sector.

Boost to PLI Scheme- 

• • •  The budget significantly increases the outlay for the Production Linked Incentive (PLI) scheme by 75%, reinforcing the government’s commitment to promoting domestic manufacturing and self-reliance. 
    • This increase is accompanied by adjustments to sectoral custom duties to support local industries. 
    • The PLI scheme is designed to incentivize companies to enhance production capacities and invest in local value addition, thereby reducing reliance on imports and strengthening the domestic manufacturing ecosystem.
    •  This initiative is expected to create jobs, boost exports, and contribute to the overall economic growth of the country.

Concerns with Budget 2024-25

Social Sector Cuts –

• • •  The budget has seen significant reductions in allocations for social sector schemes, which is a matter of concern given the importance of these sectors in achieving inclusive growth. 
    • Notably, the outlay for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is at a nine-year low, constituting only 1.78% of the overall budget. 
    • Such cuts may adversely affect rural employment and development, limiting the impact of government efforts to reduce poverty and improve living standards in rural areas. 
    • Additionally, reductions in funding for education can impede progress in enhancing the quality and accessibility of education, which is vital for long-term economic growth and social development.

Reduction in Schemes for Minorities –

• • •  The budget has significantly reduced the allocations for education schemes targeting Madrasas and Minority communities, from ₹10 crore to ₹2 crore. 
    • This sharp reduction could hinder the progress of educational initiatives aimed at empowering minority communities, thereby exacerbating existing socio-economic disparities. 
    • Education is a key driver of social mobility, and cuts in these schemes may limit opportunities for minority students to receive quality education and skills training, ultimately affecting their employability and economic prospects.

Removal of Indexation –

• • •  The decision to remove indexation for calculating the value of long-term assets, such as real estate, has raised concerns about increased tax burdens.
      Indexation helps adjust the purchase price of assets to account for inflation, thereby reducing the taxable capital gains. 
    • Without indexation, taxpayers may face higher taxes on the sale of long-term assets, potentially discouraging investment in real estate and impacting the overall growth of the sector. 
    • This policy change could also affect the affordability of real estate for middle-class investors and homebuyers.

No Railway Announcements – 

• • • The budget’s omission of specific announcements for the Indian Railways, the country’s largest employer, has been a notable oversight. 
    • The railway sector continues to face significant challenges, including low freight and passenger capacity, staff shortages, and safety issues. 
    • Without targeted investments and reforms, these issues may persist, hindering the railways’ ability to serve as a key driver of economic growth and connectivity. 
    • The lack of focus on this critical sector raises concerns about the government’s commitment to addressing the infrastructure and operational needs of the railways.

MSME Indirect Tax Issues – 

• • • Despite various measures to support MSMEs, the budget fails to address long-standing demands for simplification and rationalization of the Goods and Services Tax (GST) regime. 
    • The complexity and high compliance costs associated with the current GST framework continue to pose significant challenges for MSMEs, impacting their ease of doing business and overall competitiveness. 
    • Simplifying the GST process and reducing compliance burdens would have been beneficial in enabling MSMEs to focus on growth and innovation rather than administrative tasks.

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Way Forward

Employment Scheme Performance Measurement –

• • • Assess schemes against the need to generate 78.5 lakh non-farm jobs annually. Example: Regular monitoring and evaluation of employment schemes to ensure they meet job creation targets.

Fiscal Consolidation via Revenue –

• • • Focus on increasing revenues rather than cutting expenditure for deficit reduction. Example: Implementing measures to enhance tax compliance and broadening the tax base.

Strategic Asset Sales –

• • • Utilize asset monetization to boost government revenues. Example: Selling underutilized government assets to raise funds without reducing public services.

Increase Social Sector Spending –

• • • Enhance expenditures on health and education for inclusive development. Example: Allocating more funds to healthcare and educational initiatives to improve overall social well-being.

Private Sector Involvement –

• • • Reduce crowding out by encouraging private sector participation in infrastructure development, aiming for the FRBM target of 3% fiscal deficit. Example: Public-private partnerships in infrastructure projects to leverage private investments.