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‘The fiscal arithmetic and the macro-policy stance in the Budget signal continuity and a carrying on with fiscal consolidation efforts’
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The short Budget speech by the Union Finance Minister is marked by clarity on three aspects. First, the intentions and vision for Vikisit Bharat@2047 are spelt out through the nine priority areas, a long-term vision, to which we expect that subsequent Budgets would adhere, to accomplish these goals. Second, there is an explicit recognition of the problem of unemployment in the economy. Addressing this has been a challenge and the Budget devotes considerable space in listing out initiatives towards generating employment. Third, the compulsions of a coalition government surface in parts, but are hidden in some of the specificities. These three have guided the strategy and the approach of the Budget. On the face of it, the policy slant reveals good intentions, but the ways and the means to accomplish the ambitious goals set out are not divulged, casting a shadow on the possibility of realising the targets set.
A signal of continuity
The fiscal arithmetic and the macro-policy stance in the Budget signal continuity and a carrying on with fiscal consolidation efforts. The overall fiscal deficit has been lowered to 4.9% compared to 5.1% targeted in the interim Budget. A large part of the surplus received from the Reserve Bank of India has been used to buttress fiscal prudence. The anticipated reiteration of the reduction in the fiscal deficit to below 4.5% of GDP in FY2026 is welcome. The new medium-term fiscal consolidation path has been linked to a reduction in the debt/GDP ratio instead of continued compression of the fiscal deficit/GDP ratio. This will allow the government flexibility to chart an appropriate fiscal course that builds in higher capital spending as well as support to meeting climate goals in an uncertain global environment.
The size of the Budget has gone up only marginally. This also means that the overall borrowing programme of the government is almost unchanged — in fact, it has come down marginally though the cut in borrowings is smaller than what could have been possible with the buoyant revenue collections.
While there has been a slight increase in overall expenditure, capital expenditure remains more or less unchanged. There are two discomforting trends on the expenditure side. First, the Budget estimates for 2024-25 show only marginal increase in allocation in most of the items of expenditure compared to that of 2023-24. In fact in some of the key items, it shows a decrease. In the case of commerce, industry and energy, we find a decline in Budget estimates for 2024-25. Second, in many items of expenditure, the revised estimates for 2023-24 are lower than the Budget estimates for the same year. Social welfare and scientific departments are notable in this context.
Effective capital expenditure, which is capital expenditure plus the grant in aid for creation of capital assets, have come down when we compare revised estimates and provisional actuals for 2023-24. The decline in revised estimates compared to Budget estimates is an indication of the lack of capacity of the government to spend, which is likely to undermine the expected multiplier effects of such expenditures. Thus, we need to wait and watch as to how much of the proposed outlays are utilised. Further, the same levels of capital expenditure imply that the government would bank more on private investments, as indicated in the Economic Survey, which has not yet registered a significant increase in recent years.
Consumption and employment
The Budget relies on two measures to bolster demand and increase private consumption. It takes the route of tinkering with the new income-tax regime to leave slightly more disposable incomes for a section of taxpayers, which is expected to stimulate demand. Given the growth in indirect tax collections, there was more room for income-tax reliefs, which could have been useful to not only stimulate demand but also increase dwindling household savings. This is an opportunity missed. Second, the Budget expects employment growth to take place, imparting more incomes, and, hence, higher demand in the economy.
The internship scheme, the direct thrust on channelling funds to first-time employees with commensurate benefits to companies to incentivise a hiring of more people and providing salary top up for first time employed are unlikely to create more jobs as they do not address the questions of social aspirations and technological changes which directly impinge labour market outcomes. Moreover, implementing these schemes is not straightforward. The internship scheme has the additional risk of becoming a short-term urban employment programme, which only creates a pool of the unemployed in the future.
Employment growth is also expected to take place with the revival of the Micro, Small and Medium Enterprises (MSME) sector through the credit route with a guarantee scheme being launched, besides asking banks to have their own models for lending that is not linked with collateral. Assistance to States such as Andhra Pradesh, Bihar, Odisha and Jharkhand is also expected to give an indirect push to investment and employment along with the thrust to housing in urban and rural areas.
It needs to be noted that MSMEs need to have not only credit but also a conducive environment to operate for their growth. Hence, the efficacy of providing only credit and leaving the rest to market forces might not generate the desired results.
The omissions
Barring the announcement of tax benefits for Indian start-ups and their investors, including scrapping the contentious angel tax for all classes of investors and aligning capital gains rates between listed and unlisted equity and the increased limit of Micro Units Development and Refinance Agency Ltd. (MUDRA) loans from ₹10 lakh to ₹20 lakh, the big push for the industrial sector is conspicuously absent in the Budget. Neither was there any mention of the Railways, PLI Scheme, Gati Sakthi and the Census. The list of omissions could be longer, but a lack of clear initiatives towards the education and health sectors to tap demographic dividend might not augur well with the vision of 2047. Equally important is to strike a balance between cities and rural economy and to make a distinction between jobs and internships. With the macroeconomy well poised at the moment, some bold steps and details of the journey to 2047 could have been outlined.
M. Suresh Babu is Director, Madras Institute of Development Studies. The views expressed are personal
