Finance Minister Nirmala Sitharaman, poised for her second term, returns to the North Block with a formidable agenda, starting with the presentation of the full Union Budget for the fiscal year 2024-25. Her immediate and pressing challenge lies in curbing retail food inflation.
As the first full-time female Finance Minister, Sitharaman, 65, has the distinction of presenting six budgets, including an interim one for FY25. Adhering to tradition, the interim budget focused solely on vote-on-accounts. Now, all eyes turn to the comprehensive budget where she is expected to lay out a five-year vision accompanied by significant policy announcements. A key focus will be addressing unemployment through strategies aimed at invigorating the manufacturing sector.
On the fiscal front, Sitharaman benefits from a record surplus transfer from the Reserve Bank of India and robust tax collections, offering her a strategic advantage in managing the fiscal deficit. She faces a pivotal decision: either to reduce the fiscal deficit target of 5.1 percent proposed in the interim budget by at least 10 basis points or maintain the target and amplify public expenditure. Economists widely advocate for the latter, emphasizing the need to boost consumption.
Continuing her focus on capital expenditure, an allocation of ₹11.11 lakh crore has been earmarked in the interim budget. Although this figure is expected to remain unchanged in the full budget, Sitharaman is likely to channel additional funds towards capital expenditure in the remaining years of the Modi 3.0 administration.
Reflecting the BJP manifesto, Sitharaman is anticipated to enhance the Production-Linked Incentive (PLI) scheme or introduce innovative measures to bolster manufacturing. The manifesto envisions India as a global leader in automobile, electric vehicle, textile, and electronics manufacturing by 2030, promising to expand employment in these critical sectors.
Addressing retail food inflation is another immediate concern. Despite headline inflation hovering around 5 percent, soaring prices of vegetables and edible oils pose significant challenges. The Finance Minister is expected to introduce measures to boost horticultural production and expand cold storage facilities. While initiatives to promote oilseed production have shown progress, further efforts are necessary.
A long-standing issue on Sitharaman’s agenda is GST rate rationalization. This complex exercise, aimed at resolving the inverted duty structure, particularly in the textile sector, could shift items into higher tax brackets, potentially impacting inflation. Previous attempts to address this issue faced resistance, not only from the opposition but also from BJP-ruled states, leading the GST Council to defer its recommendations.
Another significant challenge for Sitharaman is revising the new pension scheme. A committee led by Finance Secretary T V Somnathan is currently deliberating on this matter, with recommendations expected to be disclosed soon.
In her second term, Sitharaman’s strategies and policy decisions will be crucial in steering India towards sustained economic growth, addressing inflation, and creating employment opportunities, ultimately shaping the nation’s financial landscape for the future.