The budget has been about making the numbers add up
- It’s interim in spirit but offers enough in its calculations for assessments to be made of implications.
How does one evaluate the Union budget, especially when it is an interim one? As there is an unwritten rule-book on what can and cannot be done in such a budget, and this was reiterated by the finance minister, one cannot really discuss any exclusions or misses in the statement. Note that there is scope for new announcements in the main budget. Therefore, any comment on the tax structure—both direct and indirect—should be held in abeyance, notwithstanding the fact that there were a plethora of expectations.
The budget has primarily been one of making numbers add up, and that has been done in a thorough manner. There are two starting points. The first is the imperative of moving along the fiscal prudence path to attain a fiscal deficit ratio of 4.5% of gross domestic product (GDP) by 2025-26. This has been achieved by aiming for a deficit of 5.1% of GDP in 2024-25. The second is the overall size of the budget. This has been restrained at ₹47.66 trillion, which is ₹2.76 trillion higher than its size in 2023-24. The question is how has this been managed?
On expenditure, there is a definite thrust on capex, and while the government could have waited till June to increase the allocation for it, the crux was to ensure that past momentum is not lost. Hence, there has been an aggressive increase of 11.1%, which is higher than the nominal GDP growth of 10.5%. Interestingly, this ₹1.11 trillion hike is 40% of the total increase in government outlay. Almost 64% of this is allocated for roads, railways and defence. Given that most of our defence capex is now domestic, the multiplier effects would be significant. Another 13% goes to states, which need to expedite their plans on time. This is a major highlight of the interim budget.
Social welfare was reiterated in the budget speech, with focus on rural well-being at its core. Here the government has maintained expenditures at last year’s level. MGNREGA, Jal Jeevan Mission, PM Awas Yojana, PM Kisan, etc, have broadly seen outlays linked to either the budgeted or revised numbers of 2023-24. It can be assumed that there could be upward revisions when the main budget is presented later.
There has quite interestingly been a lower allocation made for fertilizers and food subsidies, a reduction of the order of ₹31,000 crore. The assumptions here are that the global price of crude oil remains stable and that hikes in minimum support prices are marginal. These may change over time. The same holds for the petroleum subsidy, which goes out mainly through LPG distribution. It is pegged at around ₹12,000 crore. This amount could change if crude oil price increases.
The revenue side also has some implications. The government’s gross borrowing programme is to be lower this time at ₹14.13 trillion. This signals that there will be fewer bond issuances, which has sent yields south. The net borrowing programme remains unchanged for the year. That is positive for banks. Given the status of their statutory liquidity ratio (SLR) obligations, they could channel new deposits to fund credit, rather than buying G-Secs, which will be good for the system, since there has been a persistent liquidity deficit in the last two months or so. Further, as the process of India’s inclusion in global bond indices picks up steam, financing the fiscal deficit would become relatively easier, as there will be less pressure on domestic institutions to buy G-Secs.
The other issue on the capital receipts side is disinvestment. The target for 2024-25 is ₹50,000 crore, against an expected realization of ₹30,000 crore in 2023-24. These targets have often been missed, possibly because most low-hanging fruits have already been plucked. A question that comes to mind is whether, at a theoretical level, disinvestment or even asset monetization should be kept out of the budget calculations. This can lead to more focused revenue targeting, with the proceeds being used specifically for infrastructure funding. This discussion was on the table earlier and it may be time to renew the debate. Targeting disinvestment is tricky because there are several factors that need to fall in place, especially when the government wants to sell stakes of over 51% in critical sectors.
The third component of revenue that merits some discussion is the dividend part of non-tax revenue. The numbers have been largely unchanged at ₹1.83 trillion. This leads to two conclusions. The first is that public sector undertakings will continue to do well and generate dividends for the government. The second is that the financial sector will continue to add to the government’s non-tax revenue. Last year, the government targeted ₹48,000 crore on a conservative basis, but got ₹1.04 trillion, which has been retained at ₹1.02 trillion. The Reserve Bank of India transferred ₹87,000 crore of surplus to the government. Therefore, the assumption here is that a similar amount would flow this year too.
It has been seen in the past that the numbers in the interim budget do not change significantly if the main budget is presented by the same ruling formation. Hence, while hope can be harboured for some tax concessions, the revenue implications may not be very large. The present numbers appear to be extrapolations of the 2023-24 numbers, largely, and they ensure that the government runs at the same speed as before. The main budget will throw some light on whether spending priorities have changed, with specific sectors in focus.
