Focus on fiscal discipline

Sushma Ramachandran

Senior Financial Journalist

A pre-election Budget is expected to have many populist promises, even if it cannot offer true-blue sops. The interim Budget presented by Finance Minister Nirmala Sitharaman on Thursday is instead workmanlike, with the focus on maintaining fiscal discipline and building on existing policies. The infrastructure push continues with an 11.1 per cent rise in the capital expenditure outlay, while state-level reforms to ease the process of doing business have been given big credit support.

The deep confidence that the Modi government will retain power and present a full Budget in July permeates the FM’s speech. This includes the reference to a more detailed roadmap of policies in July as well as the comparisons made between governance prior to 2014 and the past 9-10 years.

In this backdrop, the highlight of the Budget is that the fiscal deficit for 2023-24 has been contained at 5.8 per cent, lower than the targeted 5.9 per cent. The target for 2024-25 has been kept as low as 5.1 per cent with the aim of bringing it down to 4.5 per cent by 2025-26. The nominal GDP growth during the year is now expected to be 10.5 per cent.

The healthy fiscal position has been made possible by buoyancy in the collection of both direct and indirect taxes. Subsidies have also been pared down despite the substantial outgo on free foodgrains. The detailed estimates show that food subsidy is set to fall marginally in 2024-25. But the biggest dip is in fertilisers, largely due to a decline in global prices. The net result is that the total subsidy bill is projected to fall by as much as roughly Rs 40,000 crore in 2024-25 compared to the revised estimates for 2023-24.

It has also been possible to offset the shortfall in revenue expected from public sector disinvestment by higher dividends and profits from these enterprises.

On the policy side, there are a few highlights that could yield positive results in the long run. The first is the decision to set up a corpus of Rs 1 lakh crore for research and development in sunrise sectors. This could potentially give a push to innovation in a country that has traditionally spent little on research. The second is the proposal to provide long-term loans to states to carry out more reforms to ease the process of doing business.

The investment in infrastructure may be slightly lower than in the past two years, but the outlay of Rs 11.1 lakh crore, constituting 3.4 per cent of the GDP, has come along with allocations for key projects. This includes three special railway corridors for energy and minerals, port transport and high-traffic regions. An expansion of the aviation sector, spreading Metros to more cities and green energy projects are also in the pipeline.

The decision to set up tourist centres in states, along with providing long-term, interest-free loans for their development, is a much-needed measure to revitalise a sector that has huge employment potential. The development of Lakshadweep, which was in the news recently over PM Modi’s visit and three Maldivian ministers’ objectionable remarks against him, was referred to in this context, though ecological considerations must be kept uppermost.

As far as job creation is concerned, the mention of a middle-class housing scheme as well as widening of the rural housing programme, Pradhan Mantri Awas Yojana, indicate that this is going to be a critical element in future policymaking. Expansion of the construction sector has a cascading effect in terms of jobs and incomes.

Agriculture was expected to have a prominent place in the interim Budget, given the lag in rural growth compared to urban areas. Initiatives have definitely been outlined in the areas of oilseeds, dairy development and aquaculture, but these are not the anticipated short-term policies that could spur consumption. In the case of oilseeds, the aim is to implement comprehensive policies covering research, market linkages and value addition to bring about self-reliance in this commodity. Programmes to support dairy farmers as well as promote seafood exports have also been highlighted.

The Budget proposals have only touched upon most sectors, indicating that details will be provided in a full Budget after the elections. For the critical micro, small and medium enterprises segment that is now driving much of economic growth, it was stressed that timely finance and relevant technology would be provided to help them compete globally. Besides, orienting the regulatory environment to facilitate their growth would be an important element of the policy mix.

Promoting solar energy and the electric vehicle ecosystem is among the eco-friendly initiatives that figure in the Budget. The rooftop solarisation scheme is expected to enable one crore households to obtain 300 units of free electricity every month. The setting up of bio-manufacturing and bio-foundries have also been highlighted as green energy projects.

Despite the brevity and business-like nature of the proposals, the Budget still has an election flavour with the four ‘castes’ in special focus being mentioned as gareeb (poor), mahilayen (women), yuva (youth) and annadata (farmers). A new acronym has been floated: GDP — Governance, Development and Performance.

The interim Budget has thus unveiled few schemes and looked more towards the long-term impact of existing policies. With the economy projected to turn in 7 per cent growth during the current fiscal, the approach seems to be to avoid tinkering with successful programmes. In sum, it is the Budget of a government expecting another term to present a fresh roadmap for growth and development.

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