India budget: Tax giveaways and handouts for states led by Modi’s coalition partners

Opposition leaders calls budget ‘disappointing’ and an attempt to appease government’s key allies

India’s finance minister Nirmala Sitharaman poses for photos before presenting the budget in the parliament on 23 July 2024 (AFP via Getty)

Narendra Modi has been accused of using India’s 2024 federal budget to appease his most important coalition partners, as his finance minister Nirmala Sitharaman presented a package on Tuesday that included extensive tax giveaways for lower wage earners.

The first budget of Mr Modi’s third term comes after a disappointing election result for the ruling Hindu nationalist BJP, which must rely on the support of others parties to provide it a majority in parliament.

And perhaps the headline announcements of Ms Sitharaman’s speech to the Lok Sabha, the lower house, were offers of major new central funding to the states of Andhra Pradesh and Bihar, both governed by regional parties that are also Mr Modi’s most influential coalition partners.

The Indian prime minister said the budget aims to empower the new middle class and uplift Dalits (formerly Untouchables), Adivasis (an umbrella term for various tribal groups), and other marginalised classes in the country.

Setting a roadmap for the third Modi term, Ms Sitharaman unveiled nine budget priorities for 2024-25. These include agriculture, employment, energy security, manufacturing, infrastructure, and economic reforms. The budget focuses on the aspirations of all citizens, regardless of religion, caste, gender, or age, she said.

Income tax rates, always one of the most closely-watched elements of the budget, will be significantly revised, Ms Sitharaman announced, changes that the government estimates will save taxpayers an average of Rs17,500 (£162) annually.

She raised the minimum income tax threshold from Rs300,000 to Rs700,000 (£2,780 to £6,488) and adjusted other tax brackets in a way that the finance minister said will provide immediate benefit to low-income Indians.

But the opposition was quick to criticise her announcement of big financial packages for Andhra Pradesh and Bihar. Ms Sitharaman announced a financial package of Rs 260bn (£2.4bn) for Bihar to support various infrastructure projects and Rs 150bn (£1.4bn) for Andhra Pradesh to develop its capital city Amaravati and fund public works.

Bihar is ruled by Nitish Kumar’s Janata Dal (United) party, and Andhra Pradesh by Chandrababu Naidu’s Telugu Desam Party. The support of the two regional leaders is essential for the survival of Mr Modi’s government.

Ms Sitharaman also announced initiatives to redevelop Nalanda in Bihar as a prominent religious tourist destination and improve Nalanda University, located in the hometown of Mr Kumar.

Unemployment emerged as one of the biggest talking points at this year’s general election in India, with many analysts suggesting the BJP’s underwhelming performance stemmed in part from disillusioned workers unable to find jobs.

On Tuesday the finance minister introduced three employment-linked incentive schemes aimed at boosting jobs in manufacturing and other key sectors.

One, dubbed “Scheme A”, will provide a direct benefit transfer of a month’s wages up to Rs15,000 (£139) for each new employee registered with the Employees Provident Fund Organisation, which the government said would likely benefit about 21 million people.

“Scheme B” incentivises job creation in manufacturing with provident fund contribution support for the first four years. Scheme C offers employers reimbursement of up to Rs 3,000 (£28) a month for two years for additional employment in the formal sector, aiming to incentivise five million new jobs.

An internship programme will provide 10 million young people with internships in 500 top companies over five years, with monthly allowances and training costs partially covered by corporate social responsibility funds, the finance minister said.

And Ms Sitharaman announced a hefty allocation of funds for agriculture and allied sectors, emphasising farmer welfare and agricultural development. This will include a government review agricultural research to enhance productivity and develop climate-resilient crop varieties.

Former finance minister P Chidambaram of the opposition Congress party said: “Unemployment is the biggest challenge facing the country. For a few dozen vacancies or a few thousand posts, millions of candidates apply and write an examination or appear for an Interview. According to CMIE, the all-India unemployment rate is 9.2 per cent.”

He continued: “The response of the government is too little and will have only little impact on the grave unemployment situation. The claim that the schemes announced by the FM will benefit 29 million persons is highly exaggerated.”

Rahul Gandhi, leader of the opposition in parliament, wrote on X that the budget offered the BJP’s allie’s “hollow promises at the cost of other states” and “no relief for the common Indian”.

And Mallikarjun Kharge, the Congress party president, said it was “not a budget for the ‘progress of the country’, it is a ‘save Modi government’ budget!”

He claimed that “there is nothing concrete” in the budget to address the needs of young workers, farmers, marginalised classes, minorities or the rural poor.

He pointed out that there were no major plans for women and the government was overlooking pressing issues such as rising inflation and rural development.