Vote for fiscal prudence

No big giveaways in election-year Budget | Push for rural housing | 15% tax on new manufacturing units ends

THE INTERIM BUDGET on Thursday shunned populism and stuck to fiscal consolidation more steadfastly than the markets expected, in a sign that the Narendra Modi government is profoundly confident of being re-elected for a third term.

The benchmark bond yield curve shifted down to close at over-a-six month low of 7.06%, on news that the net supply of government bonds next year will be 11.75 trillion, a trifle lower than in the current year.

The BSE Sensex, however, ended 0.15% lower. After pump-priming the economy for several years with aggressive public investments, the government now expects the private sector to do the heavy lifting. The pace of budgetary capex growth has been slowed to 17% in FY25, from 28% in FY 24 and 25% in FY23.

However, the Budget desisted from giving any more stimulus to private investors, other than the higher credit supplies facilitated by the tight budget. Even the 15% concessional corporate tax rate for "new manufacturing units" announced in FY20 would be out of bounds for units signing up after March 31, 2024.

What this implies is the government doesn't intend to alter the strategy of treating investments as the harbinger of growth, though there isn't sufficient proof yet of a broad-based private capex cycle.

The Budget lacked any new tax concessions or expensive dole-outs. The restraint was at odds with the ground realities private consumption expenditure is seen to grow at just 4.4% on year in FY24, the slowest rate since FY03, and the rural demand has remained tepid for long, with no rise in real income levels.

Finance minister Nirmala Sitharaman outlined the Modi government's long-term vision for Viksit Bharat@2047, and announced the intent to launch a slew of schemes, in assorted areas, including in railway and agriculture infrastructure, and green energy, but didn't provide outlays for most in FY25, except for a rooftop solar scheme.