This budget is poised to be a crucial step in India’s journey towards becoming a major global economic player, with several key areas in focus specifically Foreign Direct Investment (FDI) being at the forefront for budgetary considerations. Recent years have seen the once-roaring river of Foreign Direct Investment (FDI) slow to a trickle, a trend that has set alarm bells ringing in the corridors of power. It is expected that upcoming budget may relax regulations for critical sectors such as defense, insurance, and plantations thereby attracting more investments. These changes would streamline processes and make India a more attractive destination for foreign capital, aligning with the country’s goals of “Atmanirbhar Bharat” and “Viksit Bharat” by 2047.
As the budget approaches, there are expectations for meaningful policy changes to address these issues. Stakeholders anticipate reforms that will not only halt the decline but also enhance India’s appeal as a global investment destination. The 2024 Budget presents an opportunity to refine India’s FDI strategy, streamline regulations, and create a more inviting environment for foreign investors. The Production Linked Incentive (PLI) scheme, central to India’s manufacturing revival strategy, is set for a significant boost. In the recently concluded interim budget, the Indian government has increased the allocation by 33% increase for the PLI schemes for FY25, raising it to ₹6,200 crore from ₹4,645 crore the previous year. This enhancement is expected to bolster manufacturing across 14 key sectors, including mobile phones, pharmaceuticals, automobiles, and electronics. Industry experts anticipate an expansion of the PLI scheme into new sectors such as toys, textiles, apparel, and commercial aircraft manufacturing, with a focus on increasing domestic value addition and creating employment opportunities.
The forthcoming Union Budget holds high expectations for measures to enhance ease of doing business, with a strong focus on rationalizing regulations to attract inbound investments. Key proposals anticipated include streamlining tax policies and simplifying compliance requirements to foster a conducive environment for private equity investments. By creating a robust ecosystem that supports increased influx of funds, India can strengthen investor confidence. Enhancing the tax and regulatory landscape is critical, as it directly impacts investment decisions. These reforms are expected to not only accelerate economic growth but also position India as a premier destination for global investors, driving sustainable development and innovation.
Recent statistics highlight the pressing need for Foreign Direct Investment (FDI) reforms in India. In 2023, India experienced a significant 43% decrease in FDI inflows, with the figure dropping to $28 billion. This decline occurred against a backdrop of modest 2% global reduction, emphasizing India’s challenges in attracting foreign investment. The impact of this downturn is evident in India’s global FDI rankings. The country’s position fell from 8th in 2022 to 15th in 2023, signaling a need for immediate policy recalibration. This recent performance contrasts sharply with the previous year, i.e. 2022, wherein India saw a 10% increase in FDI inflows, reaching $49 billion. The reversal underscores the volatility of global investment trends and the importance of maintaining a competitive investment environment.
For the upcoming union budget, facilitative and business-friendly tax reforms will also be at the forefront of the government’s agenda. Expectations from Indian Inc include an extension of the sunset date for the 15% tax regime for new manufacturing entities. This regime has been instrumental in enhancing India’s appeal as an investment destination for both domestic and global investors, spurring increased production and job creation. The grapevine is abuzz with speculation about doubling the long-term capital gains exemption threshold. Such a bold step could inject a fresh dose of confidence into the veins of the investor community, potentially unleashing a tidal wave of capital market investments and foreign inflows.To sustain the momentum of GDP growth and ensure its replication with manifold impact in the coming times, key budget expectations include a further reduction in corporate tax rates to align with global standards, thereby encouraging both domestic and foreign companies to invest in India. Streamlining and simplifying tax compliance procedures is crucial to reducing the administrative burden on businesses, making it easier for companies to operate in the country. Additionally, introducing tax incentives for investments in renewable energy, green technologies, and sustainable business practices will attract environmentally conscious investors. Offering tax reliefs and incentives for key sectors such as technology, healthcare, and agriculture is expected to attract sector-specific investments. Providing additional tax benefits and incentives for research and development activities will encourage innovation and attract high-tech industries. Implementing favorable tax policies and incentives for startups and small and medium-sized enterprises (MSMEs) is essential to fostering entrepreneurship and attracting venture capital. Expanding and renegotiating tax treaties with other countries will help prevent double taxation and provide certainty to international investors, thereby making India a more attractive destination for inbound investments. Finally, further reforms to improve the ease of doing business in India, including faster regulatory approvals, better protection of intellectual property rights, and enhanced dispute resolution mechanisms, may result in a more conducive investment environment.
As the D-Day approaches, the 2024-25 Union Budget looms as a watershed moment in India’s economic journey. With its strategic focus on attracting foreign investments, supercharging manufacturing through the PLI scheme, offering enticing tax reforms, and addressing structural issues, this budget holds the potential to unlock India’s economic prowess. The global community watches intently as India’s policymakers undertake the formidable task of crafting a budget that can truly catalyze change, potentially propelling the nation into the upper echelons of global economic players.
This budget represents more than just fiscal planning; it embodies India’s ambition to redefine its economic landscape and solidify its position on the world stage. The success of these initiatives could not only accelerate India’s growth trajectory but also establish it as the preferred destination for global investors in the years to come. As former Indian president A.P.J. Abdul Kalam aptly said, ‘The country doesn’t deserve anything less than success from us. Let us aim for success.’ Giving these thoughts a reminder, the India Inc expectations continue to circle from lawmakers for a budget that fuel the economic mileage and generate dividends of prosperity thereby acting as a yardstick in determining the effectiveness of government’s policy reforms.
Krishan Arora is Partner and Devika Dixit is Director, Grant Thornton Bharat LLP