By K R Sudhaman
The interim budget 2024-25 presented ahead of the General elections in April-May is slightly different from previous interim budgets in the sense it made no major tax announcements keeping in line with the convention. What is significant is that the budget speech was short, less than an hour, and that it avoided populism as usually is the practice in the foreseeable past to get some political mileage to the ruling dispensation in the ensuing elections. But this time Finance Minister Nirmala Sitharaman has done well to avoid such indulgence. It also perhaps reflects the confidence of the Modi government to come back to power for the third consecutive term. There was smacking of this arrogance when Sitharaman said that the government will announce its detailed development agenda when the full budget is presented in July after returning to power.
Be that as it may, there are some positives in the interim budget, which needed to be highlighted. The government’s commitment to bring down the fiscal deficit to 5.1 per cent of the GDP in 2024-25 as against the revised estimate of 5.8 per cent in 2023-24. There is also a steep reduction projected in revenue deficit targets as well. This is a step in the right direction in the wake of the International Monetary Fund flagging off the problem of increasing debt burden in India. According to estimates, India’s debt has risen to 80 per cent of GDP, which rings warning bells and the IMF had warned it could rise to as high as 100 per cent in the next few years if correctives were not taken. That apart, getting back to fiscal consolidation path after covid years is important for bringing about macro-economic stability.
Accordingly, gross borrowing is estimated at Rs 14.3 trillion in 2025, which is a significant reduction from 2023-24. However, it is to be seen if the government sticks to this target in the event of the ruling party coming back to power. Anyway it is a step in the right direction to get back to fiscal prudence. One important factor that needed to be noted is that fiscal deficit compression has been achieved this financial year more because of the revenue buoyancy rather than expenditure compression. This is one area where the government needed to work on. With growth projections for coming years though good but not to the desired level of 8-9 per cent, there is a need to curtail expenditure, particularly wasteful in order to bring about fiscal stability. This however does not mean there should be curtailing capital expenditure, which will put the country’s growth prospects in difficulty. As it is, the coming years are not going to be that easy considering the geo-political situation.
Capital expenditure at Rs 11,11,111 crore may look like a big number but it is important to note that the rate of increase in capital expenditure in the previous two years was much higher. Calling India’s capex and infra spending situation to be on a ‘sweet spot’, Prime Minister Narendra Modi underlined the creation of enumerable job opportunities for youngsters in the coming years. “This budget is a reflection of the young aspirations of a young India. Two important decisions were made within the Budget. For research and innovation, a fund of Rs 1 Lakh Crore has been announced,” said PM Modi.
This move needed to be appreciated as promoting research is the need of the hour for the country to move toward to be a tech super power.
Sitharaman’s announcement of a housing scheme for the middle class, to those living in rented houses, slums, and unauthorised colonies to buy or build their own house, if implemented in right earnest will do a lot of good to pump prime the economy
Usually, the budget in most developed economies as well as China is just an annual statement of accounts as there is hardly any tinkering with tax rates. The budget does not lay out the economic agenda or roadmap of the government as in India. To that extent, the interim budget is a welcome change, as it was short and crisp and devoid of all false promises and hyperbole.
In fact, it is time India brought about stability in tax rates and it is possible to move towards this end with GST coming into being and the economy coming of age. Frequent tinkering with rates brings with it uncertainty in taxation policy. This should be best avoided for more private investments. It is also time India moved away from giving doles to industries barring some exceptional circumstances. Instead, it should work towards removing bottlenecks to industrial development by providing better infrastructure, reducing transaction costs. Digitisation has helped in moving towards this end particularly in plugging leakages.
Overall, the interim budget has set the right tone and how it is followed up in the July budget would reflect the government’s intent to bring about macroeconomic stability. Budget should be an instrument to promote only economic development and fiscal management. It should not get embroiled in the hyping political agenda of the government. (IPA Service)
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