Interim Budget may see measures to boost consumption demand, push agri economy

Finance Minister Nirmala Sitharaman is likely to step up efforts to boost consumption and rural economy while keeping inflation under check when she presents her sixth straight Budget on February 1.

Experts said one way to boost consumption is to put more money in the hands of people, and one of the possible ways of doing it is by reducing the tax burden through tinkering with tax slabs or increasing the standard deduction.

Another proposal is related to increasing the funds under the rural employment guarantee scheme MGNREGA and higher payout for farmers.

Women and marginalised communities may get additional sops as part of Sitharaman's effort to boost consumption ahead of the general elections, experts said.

Usually, interim Budgets, which are presented in the Lok Sabha ahead of the general elections, do not contain fresh tax proposals or new schemes.

In the interim Budget, the government will seek permission from Parliament to meet its expenses for 4 months of the 2024-25 fiscal.

It may contain proposals to address immediate economic problems, which cannot wait four months when the full budget is presented after the formation of the new government.

According to experts, there is an urgency to address the issues concerning slack consumption demand in the economy.

Deloitte India Partner Rajat Wahi said that in the case of FMCG and most of the products people consume on a daily basis, consumer goods companies have increased the prices in 8-10 quarters mainly due to an increase in input costs.

"So, global supply chain impact, input prices going up, inflationary impact, interest rates going up, all of this is impacting the lower income. It's not only rural, it is the poor segment of urban areas where are seeing these issues," Wahi said.

Wahi said the bigger impact of the price rise is being felt by the poorer section of society as the number of loan defaults has significantly increased, he added.

"The agriculture growth has not been what the government had anticipated. The plan was to double agri income, we haven't seen that come through as yet because of inflation," Wahi added.

According to advance estimates of GDP, the agriculture sector growth is expected to decelerate to 1.8% in the current fiscal from 4% in 2022-23.

India Ratings & Research Chief Economist Devendra Kumar Pant said the main purpose of a vote-on-account is to allow the government to spend money on salaries, wages, interest payments, and debt services for four months of the next fiscal.

"But, if there is a certain section of society which is under stress, can we wait for 4-5 months to take any action? If in 5 months, if we don't do anything, the situation may turn from bad to worse. There may be some intervention for certain vulnerable sections (in the interim Budget)," Pant said.

The Index of Industrial Production (IIP) data for April-November revealed that the output of consumer durables decelerated to 0.6%, against 5.3% in the same period last year.

Although the consumer non-durables output rose to 5.6% during the eight-month period of 2023, it was on a favourable base as the output had declined 2.2% in the April-November period of 2022.

One of the ways by which consumption demand can be increased is by tinkering with the new tax regime by making it more attractive, thus leaving more money in the hands of taxpayers.

"Tax slab tweaking is always a case for consideration in Budget... In the new tax regime there may be a pressure on the Government to include deductions for interest on home loans," Deloitte India Partner Sanjay Kumar said.

The government anyway wants more and more people to migrate to the new tax regime, which has a lower rate but with fewer exemptions, from the old tax regime in which a taxpayer can claim of host of deductions for specified expenses like home loans, children's education, PPF contribution, and insurance premium.

In addition to MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), the interim budget is also likely to allocate funds for PM Vishwakarma Yojana and other skill development programmes of the government.