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“The Indian economy has witnessed profound positive transformation in the last ten years. The people of India are looking ahead to the future with hope and optimism” was how FM Sitharaman opened her interim Budget speech for 2024-25.

The UN World Economic Situation and Prospects (WESP) 2024 report released last January, said that gross domestic product in South Asia is projected to increase by 5.2% in 2024, driven by a robust expansion in India, which remains the fastest-growing large economy in the world.

“Growth in India is projected to reach 6.2% in 2024 amid robust domestic demand and strong growth in the manufacturing and services sectors,” the report said. India’s GDP is projected to increase to 6.6% in 2025.

The Reserve Bank of India has appeared more optimistic and projected a 7% GDP growth for the next fiscal. The Indian economy continues to sustain the momentum achieved in the first half of 2023-24, going by high frequency indicators, the central bank has observed.

Overall, investment intentions of the private corporate sector have been positive this year so far. Total cost of projects, for which loans were sanctioned by major banks/all-India financial institutions (FIs) stood at ₹2.4 lakh crore during April-December 2023, which was 23% higher than that in the corresponding period last year, the bank said.

The International Monetary Fund in its World Economic Outlook released last January predicted that India's economy is likely to grow at 6.5% in the financial year starting 

April 1, 2024 and at a similar pace the year after. The bank has also revised its projections for GDP growth in the world's fifth largest economy during the current financial year to 6.7% from 6.3% in October, 2023.

The strong growth projection for India came even as the report projected that growth in the wider region of "developing Asia" will decline to 5.2% in 2024 and 4.8% in 2025 from an estimated 5.4% in 2023. India is expected to contribute over 16% of global growth as economic reforms in key sectors like infrastructure and digitalisation have made India a "star performer" among countries, IMF has said,

Interim Budget 2024-25

On the backdrop of this positive economic outlook Nirmala Sitharaman presented the interim Budget for 2024-25. Her job this time was considerably easier with the economy growing rapidly, tax collections surpassing projections and the corporate sector once again turning positive about the future growth projections.

This is the last budget before the general election and is an interim budget. The full budget will be presented by the new government. For now the interim budget ensures the continuity of government expenditure and essential services until the new government can present a full budget after taking office.

But yet it is significant because it defines the tone for what lies ahead and outlines policy priorities, areas where money will be allocated and schemes which will set India’s growth story.

And what will be FM’s priority agenda: Inclusive development and growth. FM appears satisfied that the government's development programmes, in the last ten years, have targeted each and every household and individual, through ‘housing for all’, water at every doorstep, electricity for all, cooking gas for every kitchen, bank accounts and financial services for all, in record time. The worries about food have been eliminated through free ration for 800 million people.

The government’s new priority agenda will now revolve around four major castes. They are; poor, women, youth and farmers. “Their needs, their aspirations, and their welfare are our highest priority. The country progresses, when they progress. All four require and receive government support in their quest to better their lives. Their empowerment and well-being will drive the country forward”, Sitharaman has affirmed.

FM relies on higher capex to boost growth

Two things are important to achieve inclusive development and higher growth: Fiscal consolidation and investment. In fact, the thrust of the budget has been fiscal consolidation. The overarching objective of the government is to reduce the budget deficit to 5.1% in the fiscal year 2024-25 (FY-25), down from 5.8% in 2023-24 (FY-24).

As expected, the interim budget did not usher in any surprises with no myopic measures announced. The government has continued with its focus on infrastructure and increased the capex outlay by covering railways, ports and aviation sectors. To maintain this growth momentum Sitharaman has once again relied on higher capital spending. The strategy is simple: spend more on asset creation in the core sector and the growth will follow. A massive outlay of funds for the infrastructure projects will automatically create higher activities in a large number of core sector industries such as steel, cement and power which in turn, will generate more jobs and increase consumer demand – the two shots the economy needs right now. 

Considering this imperative, the outlay for capital expenditure in the Budget has been increased sharply to Rs 11.11 lakh crore from Rs.10 crore in the previous budget. The revised estimates for 2023-24, however, were Rs.9.50 lakh crore. This will be 3.4% of GDP and was about double the expenditure of 2021-22.

The higher capex outlay will benefit the companies across defence, infrastructure and construction sector as well. Key features of the budget are focus on tourism, logistics and innovation in research.

For financing infrastructure needs, the stepping-up of public investment will need to be complemented by private capital at a significant scale. Measures will be taken to enhance financial viability of projects including PPP, with technical and knowledge assistance from multi-lateral agencies. Enhancing financial viability shall also be obtained by adopting global best practices, innovative ways of financing, and balanced risk allocation, FM has promised.

This huge increase in capital spending in the last two budgets clearly suggests that the government is considering the infrastructure sector to act as a growth multiplier in the coming years. The question is how soon will this expanded public spending lead to an increase in private sector investments too? Another question is: does India have enough ready to implement infrastructure projects if the government continues with this policy for the coming years as well?

Another issue relating to long gestation period big infrastructure projects must bother the policymakers. Understandably, these projects would create jobs and raise consumer demand while under construction but for sustainable growth the country has to wait for their implementation.

But there is a caveat; according to a report by the ministry of statistics and programme implementation last December, of the 1,820 such projects, worth Rs.150 crore and above as many as 431 or about 24%  of the total reported cost overruns and 848 were delayed.

"Total original cost of implementation of the 1,820 projects was Rs. 25,87,066.08 crore and their anticipated completion cost is likely to be Rs.30,69,595.88 crore, which reflects overall cost overruns of Rs.4,82,529.80 crore (18.65 per cent of original cost)," the ministry's latest report for December 2023 said.

Out of the 848 delayed projects, 202 have overall delays in the range of 1-12 months, 200 have been delayed for 13-24 months, 323 projects for 25-60 months, and 123 projects have been delayed for more than 60 months. The average time overrun in these 848 delayed projects stood at 36.59 months.

Reasons for time overrun, as reported by various project implementing agencies, include delay in land acquisition, in obtaining forest and environment clearances, and lack of infrastructure support and linkages.

Clearly, allocating more money on infrastructure projects in itself does not guarantee growth, smooth and timely implementation of projects remain the key factors.

Social sector spending rises

While India relied heavily during the peak of the pandemic on its welfare architecture, trends on the release of funds by the government during the current year gives an indication that while keeping the fiscal deficit in check has become a priority for the government, the social sector welfare remains at the heart of growth narratives.

The government has set ambitious targets for the education and health sector and the allocations by the finance minister for 2024-25 in the Budget reflect the government's commitment. The new education policy of the government had envisaged an allocation of six per cent of gross domestic product to education (combining both the Centre and states’ spending) but if this appears a difficult task to achieve immediately, the budget has increased allocation on education by a healthy 14.5% over the revised estimates for 2023-24. What is significant, however, is that while the National Education Policy 2020 advocates that 6% of the GDP should be spent on the sector, the present allocation falls much below that threshold. In fact, at 6% of GDP, the figure comes to Rs.19,66,309 crore, but in the current budget, education was allocated a paltry Rs.1,24,638 crore.

Likewise, the allocation for the health sector too was stepped up by about 14% compared with the revised estimates for 2023-24. The interim Budget 2024–25, with an allocation of ₹ 90,171 crore for health, aims to improve access to healthcare services and infrastructure in India. The government's announcement to establish more medical colleges by utilising existing hospital infrastructure will address manpower shortages while also increasing access to healthcare education.

However, the implementation of these recommendations will be critical here and the financial and logistics issues which some of the private sector hospitals may face, needs to be looked into.

Recognising the need to enhance and stabilise farmer’s income, over the years, several initiatives have been undertaken by the government to expand marketing opportunities for farmers and to create an efficient and competitive marketing system. National Agriculture Market (e-Nam) and the recent e-commerce platform Open Network for Digital Commerce (ONDC) have addressed the infrastructural bottlenecks. So far, 1389 markets in 23 States and 4 Union Territories have been linked to e-NAM. In ONDC, so far 4000 farmers producer organisations (FPOs) have joined the ONDC platform with as many as 3,100 varieties of value-added agricultural products sold using the facility. The government wants to bring 6000 FPOs into the pan-India digital market place by the end of FY24.

FM has proposed to build two crore more houses under PM Awas Yojana (Grameen) during the next 5 years. Already three crore houses have been constructed under PM Awas Grameen, Sitharaman claimed. She has also promised to launch a scheme soon to help people living in rented houses, slums or chawls – to buy or build their own houses. These will support the housing market to grow. This will not only create a lot of job opportunities for those in the housing and construction industry but will also provide a lot of scopes on the ancillary industries like cement, steel, bricks and paint.

That is, the interim Budget 2024-25 while has talked of fiscal consolidation and of inclusive growth, it has similarly stepped up social welfare initiatives too.