The first budget of Modi's new government has been released, with the fiscal deficit target for this fiscal year lowered to 4.9% of GDP. The standard deduction for personal income tax has been increased from INR 0.05 million to INR 0.075 million. The tariffs on gold and silver have been reduced to 6%, and a 12.5% tax has been levied on long-term capital gains. The infrastructure budget remains unchanged. After the budget announcement, the Indian stock market and the rupee exchange rate fell, while bond prices rose.
Boost employment, lower deficit target, reduce personal income tax... Modi's new government's first budget has been released.
On Tuesday, July 23, the united government led by Indian Prime Minister Modi officially submitted the first central financial budget after the 2024 general election.
The budget shows that Modi's new government will provide a package of 2 trillion rupees (approximately 239 trillion US dollars) to increase employment and stimulate the economy.
It is reported that the new budget will replace the temporary budget launched on April 1 this year and become the first budget in Modi's third term (fiscal year 2024/25).
Lowering the fiscal deficit target, infrastructure target remains unchanged.
Indian Finance Minister Nirmala Sitharaman said that the new government will focus on employment, skills training, small and medium-sized enterprises and the middle class this year, and announced a series of corporate incentives linked to employment.
Specifically, Modi's new government's budget plan for this fiscal year mainly includes:
Provide 1.48 trillion rupees for education and skills training.
Provide 1.52 trillion rupees for agriculture.
Provide 11.11 trillion rupees for infrastructure.
Provide financing support for shrimp farming.
Provide financing support for students.
Invest 260 billion rupees to build highways and expressways in eastern India.
Build a new airport and medical college in Bihar.
Invest 214 billion rupees to build new power plants in eastern India.
During the epidemic, the deficit as a percentage of India's GDP soared to 9.2%, and the Indian government has been steadily controlling the deficit. This budget sets the fiscal deficit target for the 2024/25 fiscal year at 4.9% of GDP.
In February of this year, Sitharaman submitted the temporary budget starting in April, expecting a deficit target of 5.1% by the end of the 2024/25 fiscal year, and promised to further reduce it to 4.5% by 2025/26.
As one of the ways to boost the economy, the Modi government has doubled its infrastructure spending in the past three years. Long-term capital expenditures as a percentage of GDP have risen from 1.7% in the fiscal year 2019/20 to 3.4% this year.
Reduce personal income tax and increase support for allies.
Modi's new government has taken a series of tax reduction measures.
Sitharaman stated that the standard deduction for individual income tax (i.e. the fixed amount exempt from taxation) will be increased from INR 50,000 to INR 75,000. Sitharaman stated that under the new tax system, a salaried employee can save up to INR 17,500 in tax.
Previously, the corporate income tax for foreign enterprises was reduced from 40% to 35%, and the basic tariff for mobile phones and chargers was reduced to 15%. The tariffs on gold and silver were also reduced to 6%. However, capital gains tax on long-term investments will now be levied at a rate of 12.5%.
In terms of infrastructure, which has been a long-term focus of the Modi government, the budget will continue to provide the expense budget of INR 11.11 trillion proposed in February, accounting for 3.4% of India's GDP.
The new Modi government has also increased financial support to its allies.
According to the budget, Modi has allocated INR 150 trillion in financial aid to the Telugu Desam Party (TDP), which governs the southern Indian state of Andhra Pradesh and is one of his main allies.
In this year's Indian general election, the ruling Bharatiya Janata Party (BJP) did not win a majority of seats in the Lok Sabha (the lower house of parliament) and had to rely on allies to form a government.
Some analysts have pointed out that the new Modi government needs to balance the demands of its allies while controlling budget expenditures - containing the deficit and government debt will be key to improving India's credit rating, which is currently at the lowest investment-grade level.
"The U.S. Securities and Exchange Commission (SEC) and other regulatory agencies are concerned about this incident and may conduct a deeper examination of NYSE's operations and crisis management mechanisms. Market analysts expect that such technical failures may prompt regulatory agencies to strengthen their supervision and requirements for exchange technology infrastructure."
India's benchmark stock index Nifty 50 fell more than 1%, and the SENSEX index also fell to 1% at one point.
India's 10-year Treasury note yield fell to its lowest level since April 2022.
After announcing a reduction in gold import tariffs, the Indian rupee fell to a historic low against the US dollar, reaching the level of 83.63 rupees per dollar.
