Sitharaman’s budget has some hits but a few misses too

The uppermost issue was how the pressing demands of the two new, politically salient regional coalition partners from Bihar and Andhra Pradesh could be accommodated within the long-standing commitment to a fiscal deficit (FD) below 4.5% of GDP by 2025-26.

The FD budgeted for 2024-25 in the final budget, at ₹16.13 trillion (4.9 % of GDP), is lower than the 5.1 % of GDP targeted in the interim budget. The latest GDP estimate for 2024-25 of ₹326.37 trillion is close to that used in the interim budget. Even so, the absolute reduction in the FD budgeted, by ₹72,000 crore, is more informative than in terms of percentages of GDP.

Will this exemplary display of fiscal rectitude fend off the warning from Moody’s Ratings that poor water management in major cities might affect the country’s credit rating? 

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The final budget does have a provision for improving water supply and sanitation in 100 large cities through “bankable projects" funded by multilateral banks (MDBs), but this does not begin to address the urgency and severity of the problem. 

MDBs take their time even to formulate a project report, as the World Bank’s President Ajay Banga readily confessed at the Morocco meetings last year. Climate action seems to have been largely waved away to the Economic Survey (dealt with further below).

There are special provisions for Bihar and Andhra Pradesh. In the current fiscal year, Andhra will get support of ₹15,000 crore to fulfil promises made at the time of state re-organisation in 2014, with “additional amounts in future years." Funding for the large Polavaram irrigation project is also promised, but does not seem to have been provided for in the current year. 

Bihar gets a special share of funds for flood control ( ₹11,500 crore), road and bridge connectivity ( ₹26,000 crore), mega power projects ( ₹21,400 crore) and tourist development of religious centres, but only a part of these might impinge on the current fiscal year. Some of these are also proposed to be submitted for MDB funding.

The lower FD was achievable because budgeted total revenue in 2024-25 is ₹31.29 trillion, higher than the interim number by ₹1.28 trillion. That increase does not come from taxes, because net tax revenue to the Centre, after deduction of taxes shared with states, is actually lower than the interim number by ₹18,000 crore. 

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The rise in total revenue is on account of non-tax revenue, which is roughly ₹1.5 trillion higher than the interim expectation, entirely driven by the Reserve Bank of India’s (RBI) jumbo dividend of ₹2.11 trillion. (The dividend was declared after the interim budget, based on RBI accounts for fiscal year 2023-24). Non-debt capital receipts are about the same as expected in the interim budget (slightly lower).

So it is the enhanced RBI dividend alone that protected expenditure, while the FD was actually reduced. Jockeying within total expenditure has left capital expenditure exactly where it was, at ₹11.11 trillion, but within that, the provision for 50-year loan assistance to states for capital expenditure has been raised from ₹1.3 trillion to ₹1.5 trillion. 

The big two subsidies, food and fertilizer, remain exactly where they were in the interim budget, notwithstanding the recent hike in the minimum support price. The PM Kisan scheme for farmers also remains where it was, at ₹60,000.

In terms of the best initiatives of this budget, I would pick out three. The first is its focus on agriculture, in particular research funding for climate-resilient crops.

The second is the expansion of the Trade Receivables Discounting System (TReDS) platform, through which businesses can find buyers for their dues at a discount.

The third is the integration of company internships into Corporate Social Responsibility (CSR) funding.

There is a very elaborate set of five imaginatively conceived schemes for employment and skilling, with a total budgetary commitment of ₹2 trillion. The scheme for industrial training institutes is especially well designed. The problem is that these schemes are intricately structured, and will call for a large complement of bureaucratic time spent on administration and checking.

Also read: Budget 2024: India gives big policy boost to energy transition, curb emissions

Climate change gets two chapters in the Economic Survey. Chapter 6 deals well with green transition challenges, but has paragraph 6.20, which says “Economic growth enhances the ability of a country to take adaptation action and builds resilience. 

Therefore, from a developing country’s perspective, continued economic growth is the best insurance against climate change." What about our kind of economic growth, which destroys water bodies to build offices and residences, thereby shifting the country into reverse gear on adaptation and resilience?

Chapter 13 of the Economic Survey extols the virtues of local food and medicinal systems in bringing down the incidence of ill health. But what is the remedy for ill health that is the result of spending sleepless climate-heated nights, straining for the sound of water trickling into collection pots, while calming children crying out for water?

The government must respond to the widespread awareness that the garmi (heat), fires and floods experienced this year could be worse in years to come.