Budget may focus on welfare, infra, adhere to fisc glide path
The BJP will maintain a continuity between the interim and the full budgets for 2024-25 as it is confident of a third-term (2024-29), the three officials said.
New Delhi India will meet its fiscal deficit target of 5.9% of GDP in 2023-24, and largely adhere to the envisaged glide path to bring it below 4.5% by 2025-26 on the back of robust GDP growth, buoyant tax collections, and better targeting of expenditure, officials familiar with the matter said, adding that public spending on welfare schemes and infrastructure development will continue with a focus on inclusive growth while keeping retail inflation low.
This will be evident in the interim budget that will be presented on February 1, they added, asking not to be named.
The proposals of the interim budget have been prepared keeping the full financial year 2024-25 in mind. It will be a pro-poor budget with a focus on farmers, women, youth and vulnerable groups such as those belonging to Scheduled Castes and Scheduled Tribes, three officials aware of the development said . Union finance minister Nirmala Sitharaman is scheduled to present an interim budget on Thursday ahead of the summer’s general election; the new government will present Union Budget 2024-25 in July.
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The Bharatiya Janata Party (BJP) will maintain a continuity between the interim and the full budgets for 2024-25 as it is confident of a third-term (2024-29), the three officials said. “The Modi government has responsibly prepared the Interim Budget because it is sure of getting a third-term, and cannot escape from implementing the Budget promises. Besides, the Interim Budget will be in sync with the full Budget as a pathway to a ‘Vikshit Bharat’ [developed India] by 2047,” one of them said. “The full Budget may enhance allocations further rather than reducing outlays,” a second official added.
Speaking at the start of the budget session of Parliament on Wednesday, Prime Minister Narendra Modi said the government usually does not present the full Budget close to the General Elections. “Following the same tradition, we will bring the full Budget after the new government is formed,” he said expressing confidence over securing a third-term. He said the finance minister would present a “disha nirdeshak” [directional] budget on Thursday.
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“The interim budget on Thursday will focus on inclusive growth, a precursor of the full Budget, with a double-digit jump in allocations for key sectors,” the third official said. The government’s priority sectors are agriculture, rural development, micro, small and medium enterprises (MSMEs), health, education, defence and the Northeast region, he added. The governments will allocate larger outlays to areas that will accelerate economic growth, create jobs and bring ensure societal well-being, this person added.
Allocations for various ministries in 2023-24 (Budget Estimate or BE) were: ₹2.70 lakh crore for road transport and highways, ₹2.41 lakh crore for Railways, ₹2.06 lakh crore for consumer affairs and food distribution , ₹1.96 lakh crore for home , ₹1.25 lakh crore for agriculture and farmer’s welfare , and ₹1.60 lakh crore for rural development . While the government raised outlays for defence by 13% on an annualised basis to ₹5.94 lakh crore in 2023-24 (BE), it enhanced its capex 33% to ₹10 lakh crore.
That will continue, the officials said.
“The government’s three-year capex push will continue, albeit on a higher base to crowd in private investments and maintain current rate of economic growth,” the first official said. “Capex proposed in the interim budget may not be treated as rigid as it could be tweaked in the full budget depending on changed global and domestic factors in the next six months. The government’s capex push, however, remains one of the prime growth drivers,” he added.
The government is also committed to fully fund flagship programmes even if their initial budget may see a sharp year-on-year jump, officials said citing examples of food security, fertiliser subsidies and schemes such as the Jal Jeevan Mission, Pradhan Mantri Aawas Yojana, Startup India, and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
“It has planned expenditure for 2024-25 on a high base keeping robust revenue inflow in mind, hence any major deviation from envisaged fiscal deficit glide path is not expected,” the second official said. “Estimated fiscal deficit target of 5.9% of GDP in the current financial year [FY24] is expected to be achieved because of robust growth and high tax collections. The government may not stray from the glide path and reiterate its intent to bring fiscal deficit below 4.5% by 2025-26,” he added. According to this official, fiscal deficit could be gradually reduced to 5.2% in 2024-25, 4.5% in 2025-26 and 4% in 2026-27.
Despite global headwinds such as the conflicts in Ukraine and Gaza and the disruption in Red Sea trade , India’s first advance estimates of growth released on January 5 projected a higher-than-expected GDP growth of 7.3% in 2023-24. The International Monetary Fund (IMF) on Tuesday revised its growth forecast for India in 2023-24 to 6.7% from 6.3% earlier. EY India’s chief policy advisor DK Srivastava said in the latest edition of his bulletin, Economy Watch that “maintaining a high growth in government capital expenditure is critical to support overall growth as long as the external sector constitutes a major constraint. Thus, a careful calibration of capital expenditure growth is called for in the next few years to enable a suitable fiscal consolidation path.”
Experts said revenue growth is in sync with India’s economic growth. India’s gross direct tax collections in the current financial year (up to January 10, 2024) jumped by 16.77% on an annualised basis to ₹17.18 lakh crore, highlighting the robustness of the economy and enhanced compliance. One of the key indirect taxes – the Gross Goods and Services Tax (GST) – saw an increase of 11.6% in the first 10 months of the current financial year (April 2023-January 2024) to ₹16.69 lakh crore.
The interim budget will also emphasise on active participation of states in capital expenditure, ease of living, and implementing reforms, the officials said. “The participation of the states will be fuller when reforms encompass changes in governance at the district, block, and village levels, making them citizen-friendly and small business-friendly and in areas such as health, education, land and labour in which states have a big role to play,” the finance ministry’s review document released on Monday said.
According to the officials, the budget will focus on women with a roughly 30% year-on-year jump in gender budgeting in line with the September 2023 Delhi Declaration under India’s G20 presidency. HT reported this on October 18, 2023.
In order to attract investments in manufacturing, “ another extension of the 15% tax rate provision for new manufacturing units beyond March 31 is expected,” the third official said.
Experts said they don’t expect big announcements in the interim budget, but are confident of continuity in the government’s economic policies . “The economic policies of the Modi government have been globally acknowledged. They not only helped the economy to quickly recover from Covid disruptions but also made India the fastest growing major economy of the world. Investors want this policy continuity along with political stability, which the Modi government provided for the last 10 years,” said Nilaya Varma, CEO and co-founder of Primus Partners, a consultancy.
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