A Budget for staying the course
The Interim Budget presented by Finance Minister Nirmala Sitharaman has tried to achieve the best possible balance between meeting the expectations of the business and investment community and preparing the ground for the full Budget which will be presented once a new government is formed after the general elections.
In that respect one significant element was the continuation of the focus on infrastructure building with the equivalent of $134 billion dedicated to that objective – although the 11 per cent increase compared to the previous Budget is less than what was put forward in previous Budgets. The more than 11 per cent growth in capital expenditure indicates that the country’s growth momentum – with a forecast of about 7 per cent GDP growth for this financial year - will continue to be driven by public investment.
However, the goals set in the
Budget indicate that the government is fully aware that this reliance on increased public spending has to go with a persistent drive towards a sounder public finance framework. Hence the objective of reducing the fiscal deficit to 5.1 per cent of GDP for FY 2024-25 against 5.8 per cent expected for 2023-24, and the aim of a further deficit reduction to 4.5 per cent of GDP for FY 2025-26.
While this ambitious objective may reassure the international community, it will only be achieved through a significant increase of the government fiscal revenues – beyond the 11.4 per cent increase forecast for this financial year - if the indispensable continuation, and even expansion, of infrastructure-building is to be sustained in the coming years.
To the credit of the government, there were very few measures of a populist nature to lure voters prior to the April elections. What was announced to improve the situation of the agricultural sector and the rural areas falls more into the category of the necessary drive towards more inclusiveness in the economic and social life of the country, if the trend towards the present unequal divide in the distribution of the benefits of economic growth between different states and urban and rural areas is to be stopped and then reversed. There would be no long-term sustainability of India’s growth trajectory if this is not ensured.
However, the question is whether more could not have been done to address the enduring necessity for a greater effort and more resources dedicated to building the country’s human capital. India as such, and its drive towards fulfilling its economic potential, continues to be severely hindered by the poor situation of the country’s healthcare and education systems. One can only hope that more resources will be allocated to these crucial domains in the post-election full
Budget.
Another critical point that is not really addressed in the Interim Budget of the finance minister is the fact that private investment is not moving up broadly and fast enough. The government is not yet registering the kind of progress it is aiming at in expanding and strengthening the industrial base of the country. In fact, the share of industry in India’s GDP has remained almost stagnant over the last ten years. Of course, the country’s economy continues to benefit from a booming services sector. However, there is no way that India can achieve the goal of a top global industrial sourcing base – competing with China in that domain – with a relatively limited industrial base. Incentivising and achieving a much greater investment involvement from the private sector should definitely be part of the goals for the definitive FY2024-25 Budget.
The government, and the country as such, can take satisfaction from the fact that on the basis of the current trends, India is well on its way to achieve the goal of a $5 trillion economy by the end of 2025. But there is, of course, no room for complacency, or a slackening of the effort. And, the Interim Budget, with all factors taken into account, provides reassurance that the government remains steady in its course and its objectives.
THE MORE THAN
11 PER CENT GROWTH IN CAPITAL EXPENDITURE INDICATES THAT THE COUNTRY’S GROWTH MOMENTUM — WITH A FORECAST OF ABOUT 7 PER CENT GDP GROWTH FOR THIS FINANCIAL YEAR — WILL CONTINUE TO BE DRIVEN BY PUBLIC INVESTMENT