What does India’s Interim Budget 2024 reveal?
Budget is an annual financial planning and declaration exercise undertaken by the Democratic Government as suggested by the article 102 of the Constitution of India. Union Finance Minister Nirmala Sitharaman presented her sixth Budget on 1st February 2024.
This was an interim budget prevalent till August 2024 ahead of the general elections later this year. Post elections, the elected government shall present its budget for the rest financial year of 2024-25.
The interim budget is seen as a stop-gap financial plan during an election year, aimed at meeting immediate financial needs before a new government is formed. The full union budget will only be released after the elections. Hence no major announcements are made during the same as it would be seen an act of impacting the results of upcoming elections.
- The Interim Budget 2024 was focused on youth, poor, women and farmers.
Every year’s budget has its targets and the targeted population. This year’s Budget is said that will empower the four pillars of India, namely, the young, poor, women and farmers. No new schemes have been announced but the allocation of funds for each of the above-mentioned was specifically mentioned in the budget speech to give emphasis to these aspects.
When many countries in the world are facing aging problem, India is blessed with Demographic Dividend. This demographic phase provides India with a huge labour force. Labour, which is one of the factors of production when utilized in an economic activity, yield the output. Therefore, the focus on winning the confidence of youth so that their energy can be channelized for economic growth and development.
Last year’s report by the World Bank suggested that in past few years, with rigorous efforts India has been able to substantially reduce multidimensional poverty and take millions out of the poverty. Hence the buzz around anti-poverty measures.
In India’s labour force, on one hand there is demographic dividend and on the other hand there is a falling female labour force participation rate. The existence of this unfortunate scenario calls for government intervention to empower women socially and economically.
Lastly, since the repeal of three farm laws in 2021, the government has become more conscious about steps undertaken for farmers. In this budget, no new schemes or policies have been introduced but an update regarding the progress of earlier schemes has been given.
- Nominal Gross Domestic Product (GDP) for Budgeted Estimate (BE) 2024-25 has been projected at Rs. 3,27,71,808 crore.
Based on the First Advance Estimates FY 2023-24 and projection on it, the national income or GDP of India is estimated to be 3.27 crore rupees with a growth rate of 10.5% over the earlier time. The nominal estimates rely on the current prices hence the effect of inflation that is, rise in prices is included in it. Thus, one should be mindful of before quoting and using this figure.
- Expenditure in 2024-25 budget is estimated at 47.66 trillion rupees, 6.1% higher compared to revised spending estimate of 44.9 trillion rupees in 2023-24.
- Capital expenditure will rise by 11.1% to 11.11 trillion rupees ($133.9 billion) in fiscal year 2025.
Spending of the government has an impact on overall consumption and investment in the economy. If the expenditure that the government is likely to undertake is more on capital side, it will help in building assets having multiplier effects on the economy from creating jobs to building infrastructure to boosting businesses. The increase in capex is a positive expenditure; however, overrunning of costs and time on projects delays the impact capex can have on the economy. Overall, with considering deficit situation where expenditure is more than revenue, check should be kept on spending pattern.
- Total revenue receipts in 2024-25 estimated at 30 trillion rupees vs revised estimate of 26.99 trillion rupees in 2023-24.
- Tax revenue for the year is expected to rise by 11.4% to 38.31 trillion rupees ($461.7 billion).
- There were no changes made to the direct tax and indirect tax rates.
The budget is of utmost importance to individuals as tax rate changes are announced the same. This year keeping up with tradition of interim budget tax rates shall maintain the status quo. Government of India has two revenue resources, namely, tax and non-tax revenue. In general, the government with increase in Income tax payers and GST, the government is expecting that there will be a surge in tax revenue.
- The country’s fiscal deficit (FD) for financial year 2025 will narrow to 5.1% from the revised 5.8% for 2024.
Why does it matter to lower down deficit?
Fiscal Deficit (FD) is reflective of the total borrowing requirement of Government. A high fiscal deficit can lead to increased government borrowing, which raises the rate of interest and reduces the availability of credit for private investment. Fiscal deficits have implications for inflation levels within an economy. This can hamper economic growth.
Revenue Deficit (RD) refers to the excess of revenue expenditure over revenue receipts.
Primary Deficit is measured as Fiscal Deficit less interest payments.
Central Government’s Debt comprises all liabilities of Central Government contracted against the Consolidated Fund of India (defined as Public Debt), other liabilities in the Public Account, (called Other Liabilities) and liabilities of Extra Budgetary Resources (EBR) raised by issuing Government of India (GoI) Fully Serviced Bonds. The General Government Debt includes debt of both the Centre and the State Governments.
All these forms the component of debt or burden that gets transferred to next generations hence they should be kept in control.
From the fiscal stance, now we move onto the budget related policies that have an effect on citizens. This times budget provided an overview of various schemes that have reached certain milestones. To match the schemes with their potential outcome, the system requires some changes.
In the speech FM Sitharaman announced a new definition of GDP as Governance, Development and Performance.
On the same lines, ‘Governance, Development and Performance’ reforms required to implement the following Budget announcements effectively:
- R&D- A corpus of ₹1 lakh crore will be created to provide 50-year loans at low or nil interest rates to encourage the private sector to scale up research and innovate in sunrise sectors. Proper channelization of funds allocated for R&D will require to set up research-oriented ecosystem that contains institutions; matrix measuring success of research; and mindset of researchers.
- Business– Funds allocated to Production Linked Incentive (PLI) scheme have increased by 33.5%, 6200 crore rupees. To boost manufacturing sector, the government initiated PLI scheme identifying 14 strategic sectors from specialized steel to pharmaceutical element to renewable energy and so on. The public dissemination of information regarding the perks of this scheme is found to be limited. If the scheme has to yield its objectives, then it needs to reach to the masses. One way to do it could be hackathons and marathons that were organized by NITI Aayog should be conducted with different associations of industries so that information would reach to the mass member companies and people associated.
- Human Capital- Healthcare cover under Ayushman Bharat will be extended to ASHA workers, Anganwadi workers and Helpers. In NFHS rounds it has been found that number of women using bank accounts by themselves has increased. There is a need to create awareness among women regarding usefulness of health covers then and only then women will participate in it. There are many families where say of a woman is not considered. Hence awareness sessions shall emphasize the need of Aayushman Bharat and boost their confidence. The salaries and wages of Anganwadi workers or ASHA is limited, if that can be increased it will lead to their direct empowerment.
- Transportation & Connectivity– Sitharaman spoke extensively about developing India’s air connectivity with introduction of new 517 routes, citing Indian carriers ordering more than 1,000 aircraft in the recent past, and emphasizing that the “development of new airports will continue expeditiously.” Before implementing or expanding newer routes, the government should focus upon improving existing ones. The airports in India have limited spaces, with introduction of new routes the rush at the airports will increase making it an unmanageable affair. Once already existing airports and routes are streamlines with proper SOPs, similar exercise can be undertaken for new ones as newly created will require more amount of investment.
- Infrastructure- As much as 750 billion rupees at a 50-year interest free loan will be set aside for states to boost tourism, Sitharaman said. The loans provided to the States come with a lot of conditions. Hence a very few States who can pass the fiscal and institutional eligibility exam gets the funds from the Centre. While giving loans to States to boost tourism, a proper analysis of resources available in that State such as skilled human capital (guides, service providers) and infrastructure (government accommodation, hotels, toilets in public places) should be undertaken. If any lacuna found, the State government can tackle the challenge and upgrade the place so no tourist be local or international faces service challenges.
- Governance– Lastly the FM said the next generation of reforms will be carried out in consultation with State governments. This step is of prime importance for the development of India as it is a union of States and not a federal structure as per the Constitution of India. The States play an important role but face a lot of financial, political and social challenges compared to Central government. A coordination between two level of government is a must for a policy to be reached to grass-root levels to all beneficiaries in India.
The government should carve its path to manifesto keeping into the mind the ground realities of policies and schemes so that improvement can be made for the ultimate goal of Developed India.
Ms. Vaibhavi Pingale is a Visiting Faculty of Economics at Gokhale Institute of Politics and Economics, Pune & at Savitribai Phule Pune University. She is pursuing her PhD. She has been actively writing media articles other than academic research.