By: Dipak Kurmi
The FY 2024-25 Interim Budget, recently unveiled by Finance Minister Nirmala Sitharaman, marks a departure from the typical democratic playbook observed in the weeks leading up to the Lok Sabha general election. Traditionally, this period sees a flurry of short-term welfare measures and tax concessions aimed at winning over voters. However, in a surprising twist, the budget for the upcoming year lacks any populist measures designed for short-term electoral gains. Notably, the fiscal deficit for FY 2023-24, standing at 5.8%, is projected to be even lower than the ambitious target of 5.9%, with a further decrease anticipated to 5.1% in FY 2024-25. This reduction is accompanied by a substantial decrease in borrowings, with Rs 52,000 crore less this year compared to the previous, and a planned further reduction of Rs 49,000 crore for the next fiscal year.
In an unprecedented move for a growing economy, both in absolute terms and as a percentage of GDP, such reductions during an election period are highly unusual and potentially unprecedented in India’s recent history. The current year has witnessed a remarkable 28.9% increase in capital expenditure over the previous year, with an additional estimated rise of 16.9% slated for the upcoming fiscal year. Furthermore, a record-breaking allocation of Rs 11,11,111 crore for the Union’s capital expenditure alone in FY 2024-25 highlights a concerted effort towards growth. This budget not only refrains from succumbing to the allure of short-term populist measures but also showcases a commitment to fiscal discipline, adhering to the roadmap of fiscal consolidation. In a political landscape where election-year budgets typically include additional welfare measures, the emphasis on growth-centric capital investments is a noteworthy achievement in the democratic context.
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Maintaining a delicate equilibrium between social welfare and economic growth is a commendable feat in the intricate landscape of a tumultuous democracy, especially in the weeks leading up to seeking the electorate’s mandate. Striking the right balance involves navigating the perpetual trade-off between the immediate political gains and the pursuit of sustained long-term growth. The primary challenge in a developing nation lies in harmonizing short-term welfare initiatives with the overarching goal of long-term public well-being. In this regard, the 2024-25 Budget emerges as a success story. This budget signifies three key aspects: firstly, the quiet confidence of the Union government in the people’s recognition and appreciation of their decade-long achievements; secondly, a steadfast commitment to fiscal prudence and the promotion of investments; and thirdly, a clear acknowledgment of the indispensable role of financial stability in fostering sustained investment and long-term growth.
During the peak of the pandemic in FY 2021, the Union’s fiscal deficit soared to 9.2% of the GDP. Looking ahead to FY 2025, there is an estimated reduction to 5.1%, with further expectations of it falling below 4.5% in FY 2026, contingent upon the continuation of the current trajectory of fiscal consolidation and prudent management of public funds. Dispelling a prevalent misconception, it’s crucial to understand that both the Union and state levels grapple with stretched public finances; the notion of the Union having abundant funds for unrestricted transfers to states is inaccurate. In FY 2024-25, the Union’s gross tax and non-tax revenues amount to Rs 42.33 trillion. However, transfers to states alone, encompassing Finance Commission devolution, other grants, and centrally sponsored schemes, stand at Rs 22.75 trillion, representing approximately 53.7% of the total revenues. When factoring in interest payments and establishment costs, expenditures surpass total gross revenues, excluding Union subsidies. This underscores the imperative need to persist on the path of fiscal consolidation for the sustenance of robust economic growth.
States bear a multitude of governance responsibilities, inevitably leading to fiscal stress. However, there exists a considerable divergence in fiscal management among states. Surprisingly, even in some affluent states, the control over short-term welfare measures has faltered, resulting in extravagant spending on unproductive schemes, including those categorized as capital investments. This fiscal extravagance has manifested in expanding revenue deficits, where current expenditure surpasses revenues, compelling states to borrow for day-to-day expenses. Conversely, certain states with lower per capita income exhibit commendable fiscal restraint, achieving healthy revenue surpluses while concurrently fostering investment and growth. Uttar Pradesh, boasting a revenue surplus of Rs 74,000 crore in FY 2024-25, and Odisha, with a surplus of Rs 23,000 crore in FY 2023-24, exemplify instances of sound public finances and prudent management, successfully retaining public support. The instances underscore that effective economic management does not necessarily translate into a political liability.
It is imperative that our public discourse transcends divisive subjects and primal allegiances tied to caste, religion, and region. Instead, the focus should pivot towards tangible issues such as economic growth, employment generation, and the eradication of poverty. Political endeavors ought to center around effective governance, with the overarching goal of propelling rapid economic expansion and fostering prosperity. At the core of this pursuit lies prudent fiscal management, serving as the indispensable cornerstone for both growth and prosperity. To achieve these objectives, a concerted effort is needed to enhance capacities, productivity, and opportunities, with a strategic emphasis on quality education, skills development, and healthcare. Striving for fairness, balanced growth, and fostering healthy competition can be achieved through initiatives like small-town development, in situ urbanization, expeditious and equitable dispute resolution, and a resolute crackdown on widespread corruption and harassment – both of which act as deterrents to wealth creation.
In short, our governance must center around achieving equilibrium in growth, fostering opportunities, generating employment, and actualizing genuine wealth creation. The optimistic aspiration is that the noteworthy Union budget for FY 2024-25 will serve as the catalyst for a positive trend in these crucial aspects. (The writer can be reached at dipaknewslive@gmail.com)
