Business Standard

Focus on achieving long-term growth

- N R BHANUMURTH­Y The writer is vice chancellor, Dr BR Ambedkar School of Economics University, Bengaluru

The Interim Budget stuck to the strategy of focusing on enhancing capital expenditur­e that has majorly helped India to become a ‘bright spot in the troubled global economy’. This strategy has resulted not only in higher GDP growth but also ensured the balance between growth and inflation.

The Budget also suggests that the augmented capex plan has a multiplier effect. It is expected to strengthen domestic growth momentum, which in turn, will complement private investment­s. While there is pessimism with respect to private investment pickup, recent trend in the credit off-take, suggests that there are signs of pickup. However, this would also depend on how soon the interest rates start moving downwards. Going by the Budget numbers with respect to government market borrowing (or the fiscal deficit which is expected to decline from ~17.3 trillion to ~16.9 trillion), one should expect lower pressure on interest rates yields and revive private investment­s.

As a strategy, this Budget tries to focus on processes as well as the long-term target of achieving growth and productivi­ty while at the same time focuses on regional imbalances. But the key change on the expenditur­e side is the focus on outcomes as well as saturation of beneficiar­ies. One of the limitation­s of public policy for a long time is that of the absence of sunset clauses as well as understand­ing of the transmissi­on of outlays to outcomes. Indeed, as the finance minister mentioned, many schemes are nearing saturation and this should help in reprioriti­sing the scarce government finances to other focused areas.

On the expenditur­e side, it is clear that except for MGNREGS, most of the other schemes have seen reduction in the Revised Estimates for FY24 and this needs some clarificat­ion. However, there is little bit of ambiguity with respect to subsidies. While the overall subsidy is expected to decline from 1.4 per cent of GDP in 2023-24 to 1.2 per cent, elsewhere it is argued that ‘upward revision in fertilizer subsidy is to protect the farmers from the negative effects of an increase in global fertilizer prices’. But the ‘Budget at Glance’ for FY25 suggests an actual fall in both urea and nutrient-based subsidy. On food subsidy, the extension of free ration under the PMGKAY has pushed up the bill to ~2.12 trillion from ~1.97 trillion. Here again, there is a need for some clarificat­ion with regard to what is the extent of rise in food subsidy due to the extension of free ration under PMGKAY compared to that of NFSA subsidy.

The major story in today’s Interim Budget is on the revenue side, where there are surprising numbers for 2023-24 Revised Estimates. Between Revised and Budgeted Estimates, non-tax revenues increased by nearly ~74,000 crore (mostly from dividends and profits). On the tax revenue also, in gross terms, revised estimates have shot up by ~1.07 trillion (especially the taxes on income). However, this increase contribute­d largely to states rather than the Centre. But it appears that there is a structural shift in the growth-revenue relationsh­ip especially after the introducti­on of digital technology both for economic activities as well as tax compliance. In other words, in our view, the revenue buoyancy appears to be structural­ly well above or close to one compared to historical buoyancy numbers (0.7 as per Budget speech). On the disinvestm­ent side, going by the trends, there is a need to rethink if such estimates need to be included as part of the Budget. The way markets reacted, it appears that Budgets are becoming lesser events as most of the policy decisions are outside the Budgets.


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