Nirmala Sitharaman’s budget is one for stability

Nirmala Sitharaman’s seventh budget demonstrates a masterly balance between fiscal prudence and coalition compulsions. And why not? Let’s face facts: a budget is as much a political document as it is a statement of accounts. This budget is not a Bharatiya Janata Party (BJP) budget, but an National Democratic Alliance (NDA) budget. As was clearly evident from the budgetary allocations, with the maximum largesse extended to Bihar and Andhra Pradesh, this was to be expected.

Narendra Modi and his Finance Minister had to keep the BJP’s key alliance partners, Nitish Kumar of Janata Dal (United), the Chief Minister of Bihar, and Chandrababu Naidu of Telugu Desam Party (TDP), the Chief Minister of Andhra Pradesh, content. Without their support, the government would fall. While neither state was granted “special status,” the generous provisions extended to them more than compensate.

Bihar, being India’s poorest state with the lowest per capita incomes and development levels, received a staggering ₹58,900 crores. This includes ₹26,000 crores for highways and ₹21,400 crores for a new 2,400 megawatt power plant in Bhagalpur. Funds have also been allocated for flood relief and other welfare and developmental schemes.

Emphasis on job creation

Andhra Pradesh, needing a new capital — a dream of Chandrababu Naidu’s — was allocated ₹15,000 crores, far short of the ₹100,000 crores Naidu had requested. However, this initial amount is a good start, and Naidu is likely to secure additional funding through private investment.

Rahul Gandhi, leader of the opposition, labelled this a “Kursi Bachao” or “Save the Chair” Budget on X, a critique that resonated with other states, particularly those governed by opposition parties. Telangana, Karnataka, Tamil Nadu, and Kerala, which contribute significantly more to the Central revenue than some Hindi heartland states, felt slighted. They are all run by opposition parties.

Beyond the generosity towards Bihar and Andhra, the budget’s highlights include an increased emphasis on job creation through an internship and skill development scheme, concepts featured in the Congress manifesto. Gandhi, in his X post, also quipped that the budget was “Copy and Paste: Congress manifesto and previous budgets.” But borrowing good ideas, even from the opposition, should be seen as a compliment rather than a criticism.

There are few sops for the middle class. The slight increase in income tax slabs will have minimal impact. The slabs need more simplification and reduction in any case. Fortunately, there is no additional taxation, except for the hike in both short-term and long-term capital gains taxes and the removal of indexation benefits.

Boost investment and manufacturing 

The increase in capital gains taxes, while cooling stock market exuberance, is aimed at curbing risky speculation by small investors. The abolition of the so-called “angel tax” on venture capital has been welcomed by the start-up ecosystem. Taxes on foreign companies’ profits have been reduced from 40% to 35%, hoping to boost investment and manufacturing in India.

The budget’s tight control over the fiscal deficit, reducing it from 5.1% to 4.9%, will be welcomed not only by those favouring controlled government expenditure but also by international rating agencies. The government aims to reassure the international community of its commitment to fiscal responsibility, thereby maintaining India’s standing amid global economic, political, and security uncertainties.

The absence of major reforms in this budget is because Sitharaman will have another opportunity to present a new budget in six months. This budget is more a holding operation, reflecting continuity with the past decade rather than introducing radical changes. However, the middle classes, youth, and farmers may feel neglected.

With high unemployment and underemployment, disgruntled youth are prone to protests, especially following recent national testing scandals. The farm sector also might have welcomed additional support. Yet, with farm subsidies being already substantial and the government purchasing food grains at fixed prices even when not necessary, the focus on this sector remains high.

Given that many states are financially strained due to excessive handouts, the central government’s budget has shouldered the burden for India. This is precisely what the first budget of Modi 3.0 has achieved.