The budget does well on both the big Cs: Capex and consolidation

The government’s concerted focus on capex-led growth has kept the economy in good stead, aiding its emergence as the fastest-growing major economy in the world for three consecutive years by logging 7%-plus real gross domestic product (GDP) growth. The high multiplier effect of capital spending helps by spurring investment-led growth, as it creates jobs, leading to a further increase in spending. This has been effectively used in the last two years to step up the growth momentum.

Continuing with this strategy, the government’s proposal to keep up the momentum of capital expenditure by budgeting a 17% increase in 2024-25 over an already high base of the revised estimate for 2023-24 (and a 11.1% hike over the budget estimate of ₹10 trillion) is well-intentioned. Importantly, the transparency seen in successive budgets, by relying on gross budgetary support for capex rather than on public sector units (PSUs), or the internal and external budgetary resources (IEBR) route (also referred to as ‘off-budget’) is laudable. States that have been at the forefront of capex spending in the current year got a further leg-up with an allocation of ₹1.3 trillion to be provided as 50-year interest-free loans for their capex and ₹75,000 crore linked to state-level reforms. In addition, the PM Gati Shakti rail corridors are expected to improve logistics efficiency while bringing down costs.

Despite the imperative of supporting growth, a focus on fiscal consolidation continues in the interim budget. The fiscal deficit for next year is budgeted at 5.1% of GDP, compared with 5.8% in the current year (revised estimate). This reduction in the target for next fiscal is attributable to lower revenue spends, especially on subsidies, and robust revenue collection. This keeps the economy on course to achieve the government’s fiscal deficit target of going below 4.5% by 2025-26.

Encouragingly, this increase in fiscal restraint is unlikely to be a growth spoiler. The reduction in fiscal deficit creates headroom for the central bank to undertake rate cuts, which along with lower government borrowings will boost the availability of funds for the private sector. The tardy progress made in disinvestment and realizations under the National Monetisation Pipeline, however, remain an area where improvements can be sought in the full budget due after this year’s general elections.

With the budget hitting full throttle on the two Cs, another critical area of attention was the focus on prioritizing welfare through inclusion and empowerment. The budget ticked all the boxes on announcing the right mix of targeted policies for critical sectors and the government’s four focus sections—the poor, women, youth and farmers.

For the poor, the extension of the PM Awas Yojana (Gramin) to build 20 million more houses in the next 5 years is an excellent move. The spend under this head gives a boost to the construction sector, which has the highest economic multiplier in terms of boosting consumption and jobs. Additionally, budget announcements that focus on creating post-harvest infrastructure, achieving atmanirbharta (self reliance) in oilseeds and dairy development, the promotion of fishing and aquaculture and the creation of an additional 10 million lakhpati didis are all expected to invigorate rural demand.

The budget also underscored the importance of women to be viewed as equal partners in contributing to and partaking in the growth story of India. While highlighting that the empowerment of women through entrepreneurship and ease-of- living measures has gained momentum in the last 10 years, the budget announced several steps to galvanize it further. The allocation of ₹500 crore under the Namo Didi Yojana, which will aim to provide 15,000 drones to women self-help groups (SHGs), is expected to empower women in the farming community.

For the aspirational youth population, notable announcements include the proposal to set up more medical colleges and create a corpus of ₹1 trillion by means of a 50-year interest-free loan for India’s tech-savvy youth to undertake research and development (R&D) in sunrise sectors. These measures are expected to build on the existing schemes in place for making the country’s youth “rozgaar-daata" (job providers), such as Start Up India and Fund of Funds.

Recognizing the valuable contribution of our farmers, who are the Annadaata (food bestowers) of our country, successive budgets have placed concerted emphasis on the farming sector. This budget is no different. Measures for strengthening the electronic agricultural mandi network, the focus on promoting private and public investment in post-harvest infrastructure, as well as efforts for increased value addition under the existing PM Kisan Sampada Yojana and PM Formalisation of Micro Food Processing Enterprises scheme are expected to generate beneficial outcomes for farmers. In addition, the announcement of the expansion of nano-DAP across all climatic zones points to the promotion of new-age fertilizers to eventually help ease the burden on both farmers and the government.

Overall, the finance minister has announced a growth-oriented budget that favours investment, job creation and social welfare as well as rural and urban development. Its emphasis on fiscal consolidation and its capex thrust are the most noteworthy features of this year’s interim budget announcements.