The Budget for the fiscal year 2024-25 is expected to be presented in Parliament in late July. Finance Minister Nirmala Sitharaman will likely start pre-Budget discussions with industry groups around June 20.

The Indian government is reportedly considering rationalizing the current income tax structure, particularly for lower income levels, to enhance consumption. An Indian Express report suggests that Budget 2024 may prioritize tax cuts for low earners over welfare spending. These tax cuts aim to increase disposable income, thereby boosting consumption and economic activity.

The report highlights concerns over the “steep rise” in marginal income tax rates. In the new tax system, the initial 5% tax slab starts at Rs 3 lakh, but by Rs 15 lakh, the rate jumps to 30%. Thus, while income increases fivefold, the tax rate increases sixfold, which is viewed as excessively steep.

This proposed tax relief is seen as crucial for reviving demand and restarting the investment cycle, particularly in consumer-focused sectors. It could also help increase GST collections.

The upcoming Budget will outline the Modi 3.0 government’s economic agenda. Finance Minister Sitharaman faces the challenge of stimulating growth without increasing inflation while securing resources for coalition government commitments. The agenda aims to position India as a USD 5-trillion economy soon and transform the nation into a ‘Developed India’ by 2047.

The Reserve Bank of India projects a 7.2 percent growth for the Indian economy this fiscal year, driven by improving rural demand and easing inflation. The Modi 3.0 government inherits a strong economy with established fiscal discipline, bolstered by the RBI’s highest-ever dividend of Rs 2.11 lakh crore for FY24.

Key priorities for Prime Minister Modi’s third term include addressing agricultural challenges, job creation, sustaining capital expenditure, and increasing revenue growth to maintain fiscal consolidation. Rating agency S&P has upgraded India’s sovereign rating outlook to positive, reflecting approval of the economic policies over the past decade. There is potential for a further rating upgrade in the next 1-2 years if the government meets its fiscal deficit targets.

While tax revenues are strong, non-tax revenue remains a challenge due to limited progress in strategic disinvestment, apart from the sale of Air India.