05

Budget 2024 drew significant anticipation from various segments of society—state governments, corporations, banks, employees, economists, and farmers—eager to discern the priorities of PM Modi’s coalition government. This interest was driven by two key factors: first, after nearly

60 years, a Prime Minister in India has completed two consecutive five-year terms and is embarking on a third. Second, this is the first budget presented by the coalition government under the current Prime Minister. Economists were particularly curious to see how this budget would differ from those of the past 2-3 years, during which Finance Minister Nirmala Sitharaman made numerous announcements regarding capital expenditure, infrastructure, ration schemes, subsidized gas cylinders, and more.

Given the Modi government’s less-than-expected electoral performance, many hoped for a shift in focus from stock markets and GDP growth to pressing issues such as poverty, inflation, economic inequality, and unemployment.

However, the central government’s budget largely adhered to its traditional approach, bypassing major reforms in these critical areas. Thus, it is essential to examine what truly constitutes the core of this budget.

Receipts Analysis

The budget projects total receipts of Rs.48.20 lakh crore. Of this, approximately Rs.31.29 lakh crore will be sourced from tax (Rs. 25.83 lakh crore) and non-tax (Rs.5.45 lakh crore) revenues, Rs. 50,000 crore from disinvestment of public assets, and nearly Rs.16.13 lakh crore from loans. Compared to the previous year’s budget, the government has aimed to reduce its debt burden by increasing revenue through higher taxation. This year, the disparity between income tax and corporate tax is expected to widen, with projected income tax receipts (Rs.11.87 lakh crore) exceeding corporate tax receipts (Rs.10.20 lakh crore). The Finance Minister has not taken steps to ease the burden on individual taxpayers, who face a 30% tax rate compared to a 22% corporate tax rate.

Expenditure Analysis

In a notable shift, the Finance Minister has proposed a modest increase of Rs.1.10 lakh crore in capital expenditure, following a significant rise from Rs. 7.5 lakh crore in 2022-23 to nearly Rs.10 lakh crore in 2023-24. This raises concerns about job creation, especially since unemployment has remained high despite a previous Rs.2.5 lakh crore investment. The reduction in public investment may further exacerbate this issue. The Economic Survey forecasts a lower GDP growth rate of 7% for 2024-25, down from 8.2% in 2023-24. A quarter of the budget is allocated to servicing interest payments on government loans, a decrease from 40% in the previous year but still a substantial 37% of revenue. Spending on subsidies for food, petroleum, and fertilizers, as well as programs like MNREGA, PM KISAN, Ayushman Bharat, and Jal Jeevan Mission, has either remained the same or increased marginally. However, critical areas such as gig workers’ economic security, the Census of India, support for small businesses affected by the pandemic, and personal data protection were notably absent from the budget.

Debt Analysis

The central focus of this budget appears to be reducing the government’s fiscal deficit or debt burden. The Finance Minister has proposed borrowing Rs.16.13 lakh crore, down from Rs.17.86 lakh crore last year. Approximately 72% of this will come from bank loans, with another 26% from public deposits in small savings schemes. This suggests that external borrowing will play a minimal role in financing the government’s debt.

One key question is why the government, which relies on small savings schemes for loans, does not incentivize savings. Since 2020, the New Tax Regime has disappointed savers who benefited from Section 80C of the old tax system, and interest rates on small savings schemes have been kept low. The Reserve Bank of India’s latest annual report highlights a savings rate of 5.2% of GDP, the lowest since independence, while lending rates have risen to 5.8% of GDP. The economic pressures from demonetization, GST implementation, lockdowns (2016-2020), and international conflicts have led to inflation and reduced public savings. Given these factors, it is puzzling why the Finance Minister continues to shy away from supporting savings schemes while relying on them for government borrowing.

Additionally, the budget documents project a GDP growth rate of 10.5% for 2024-25. Subtracting an estimated inflation rate of 4.5% results in a real growth rate of 6%, lower than the 8.2% achieved in 2023-24. This raises concerns: if employment and income did not significantly improve at an 8.2% growth rate, how will unemployment decrease with a real growth rate of 6%? How will consumption, investment, and production drive economic progress?

In summary, the central government’s budget focuses on increased taxes, reduced or unchanged expenditure on developmental schemes, and a reduced fiscal deficit through borrowing from reserves or public sector entities. This approach seems designed to project fiscal responsibility, facilitating future borrowing from international markets.