Modi's new government's first budget was released. The fiscal deficit target for the current fiscal year was lowered to 4.9% of GDP, the standard deduction for the personal income tax system was raised from 0.05 million rupees to 0.075 million rupees, tariffs on gold and silver were reduced to 6%, and a 12.5% tax was levied on long-term capital gains. The infrastructure budget target remained unchanged. After the budget was announced, the Indian stock market and the rupee exchange rate fell, and bonds rose.
Boosting employment, lowering deficit targets, reducing personal income taxes... Modi's new government's first budget is out.
On Tuesday, July 23, the coalition government led by Prime Minister Narendra Modi officially submitted the first central budget after the 2024 general election.
According to the budget, Modi's new government will provide a package of 2 trillion rupees (about 239 trillion US dollars) to increase employment and stimulate the economy.
According to reports, the new budget will replace the provisional budget launched on April 1 this year, and will be Modi's first budget during his third term (2024/25 fiscal year).
The fiscal deficit target was lowered, and the infrastructure target remained unchanged
India's Finance Minister Nirmala Sitharaman said the new government will focus on employment, skills training, micro, small and medium-sized enterprises and the middle class this year, and announced a series of employment-linked corporate incentives.
Specifically, Modi's new government's budget plan for this fiscal year mainly includes:
Providing 1.48 trillion Indian rupees for education and skills training.
Providing 1.52 trillion Indian rupees for agriculture.
The basic setup provides 11.11 trillion rupees.
Providing financial support for shrimp farming.
Financial support for students.
Invest INR 260 billion to build highways and expressways in eastern India.
Construction of a new airport and medical school in Bihar.
Invest 214 billion rupees to build a new power plant in eastern India.
During the pandemic, the deficit soared to 9.2% of India's GDP, and the Indian government has been steadily controlling the deficit. The budget targets the fiscal deficit for the 2024/25 fiscal year at 4.9% of GDP.
In February of this year, when submitting an interim budget beginning in April, Sitharaman anticipated a deficit target of 5.1% for the 2024/25 fiscal year, and promised a further reduction to 4.5% by 2025/26.
As a way to boost the economy, Modi's government has doubled infrastructure spending in the past three years. Long-term capital expenditure as a share of GDP has risen from 1.7% in 2019/20 to 3.4% this year.
Reduce personal income taxes and increase support for allies
Modi's new government has taken a series of tax cuts.
Sitharaman said the standard deduction for the personal income tax system (that is, a fixed amount without tax payment) would be raised from Rs50,000 to Rs75,000. Sitharaman said that under the new tax system, a salaried employee can pay as much as 17,500 rupees less in tax.
Previously, foreign corporate income tax was cut from 40% to 35%, basic tariffs on mobile phones and chargers were reduced to 15%, tariffs on gold and silver were reduced to 6%, etc., but long-term capital gains were taxed at a 12.5% rate.
In terms of infrastructure, which the Modi government has long emphasized, the budget continues the 11.11 trillion rupee spending budget proposed in February, accounting for 3.4% of India's GDP.
Modi's new government has also increased financial support for allies.
According to the budget, Modi disbursed 150 quadrillion rupees in financial aid to one of his main allies, the Telugu Samu Party (TDP), which governs the southern state of Andhra Pradesh (Andhra Pradesh).
In India's general election this year, the ruling BJP did not win more than half of the seats in the Wolesi Jirga (lower house of parliament), and only gained the right to form a cabinet by relying on allies.
Some analysts point out that Modi's new government needs to balance the demands of its allies while controlling budget spending — curbing deficits and government debt will be the key to improving India's credit rating, which is currently at the lowest level of investment grade.
Market reaction
The Nifty 50 Index, the benchmark stock index for the Indian stock market, fell more than 1%, and the SENSEX index also fell to 1% at one point.
India's 10-year Treasury yield fell to its lowest level since April 2022.
Following the announcement of a reduction in import tariffs on gold, the Indian rupee fell to a record low of 83.63 rupees against the US dollar against the US dollar.
