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Business News/ Budget / News/  Sitharaman’s FY24 Budget may avoid populism, history shows why
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Sitharaman’s FY24 Budget may avoid populism, history shows why

A Mint analysis shows no fixed trend of populist spending by the government before elections

Union finance minister Nirmala Sitharaman will present the Budget on 1 February (HT)Premium
Union finance minister Nirmala Sitharaman will present the Budget on 1 February (HT)

Will the government’s last full-year budget before the 2024 national polls be filled with populist promises? A Mint analysis shows no fixed trend of populist spending by the government before elections.

The analysis shows only two of the past four pre-election budgets saw increased rural spending, and only one saw increased social sector spending. Only the 2008 budget, delivered by the first United Progressive Alliance government, showed a clear shift in priorities towards welfare ahead of polls.

Graphic: Mint
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Graphic: Mint

The analysis compared the share of spending on rural and social sectors, versus spending on defence and infrastructure, in the last full-year Budget before Lok Sabha elections in the past 20 years.

The average share in the other four years of the same government’s tenure was used to assess whether there was an increase or decrease in spending. In 2003-04, under the first National Democratic Alliance (NDA-1) government, defence expenditure declined to 15.2% of the budget size from the FY2000-FY03 average of 18%. But so did the share of rural and welfare spending. Infrastructure spending inched up marginally.

In contrast, under the first United Progressive Alliance (UPA-I) regime, spending on rural schemes shot up from 9.2% (FY05-FY08 average) to 16.2% in 2008-09, and so did welfare spending, albeit marginally. On the other hand, both defence and infrastructure expenditures declined.

Under UPA-II (in 2013), outlays for the rural sector declined significantly (from FY10-FY13 average of 12.4% to 10%), while social expenditure remained unchanged.

And in the 2018 Budget, the NDA-II government gave an infra push: disbursements went up from 6% (FY15-FY18 average) to 7.5%, and rural spending inched up marginally. Defence spending only increased in the 2018 budget out of the four budgets covered in the analysis.

“The concept of populism-led spending before the election years is perhaps a thing of the past," said Anitha Rangan, an economist at Equirus. “Particularly what we have seen in the last decade is the shift in focus from populism towards structural reforms."

It must be noted that while the budget is the big stage for populist announcements, the effort to corner votes may not always reflect in the financial maths, which partly explains the mixed trends.

Also, a scheme’s allocation may be spread over several years, because of which a single year’s budget finances may not look populist. For example, the Pradhan Mantri Ayushman Bharat Health Infrastructure Mission, a centrally sponsored scheme announced in a Union Budget speech, is spread over five years from 2021-22 to 2025-26. Governments are also likely to make populist announcements outside of the budget.

The analysis, to some extent, also points towards a shift in capital spending (on infrastructure) in pre-election year budgets under the NDA, while there was a relative thrust towards social expenditure under UPA rule. “The focus on rural areas has always been heavy as agriculture employs the largest labour in the country," Rangan said. “However, over time, with migration into urban regions and growth of the services sector’s role in domestic growth, the need for infrastructure has become glaring."

This trend is likely to continue, said Madhavi Arora, lead economist at Emkay Global Financial Services. That’s because the government does not have much fiscal space to deliver a populist budget due to its committed stance towards fiscal consolidation, high borrowings, expected moderation in tax revenue, and high levels of committed expenditure, she said.

The upcoming budget is likely to be a mix: the government will remain committed to capex but is also likely to focus on the rural sector due to the uneven post-pandemic recovery, with the rural sector still struggling, Arora noted.

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Niti Kiran
Niti Kiran is a data journalist who really likes data. With over 10 years of experience in corporate and market research, she has an eye for detail. Data research is Niti's forte and constantly fascinates her.
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Published: 29 Jan 2023, 08:52 PM IST
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