Conservative, consistent and inclusive
Budget FY25 is prudent, growth-oriented and represents the confidence that our economy is healthy and growing. It continues to build on the strong foundation and sustains the past initiatives. The gross domestic product (GDP) for FY25 is estimated at ~327.7 trillion ($4 trillion) against ~296.6 trillion ($3.6 trillion) for FY24. I am happy to note that we will enter the $4 trillion club next year.
Secondly, the numbers assumed in the Budget are conservative and chances are high that the government will do better. The growth in tax revenues for FY25 is estimated at only 11.5 per cent, assuming nominal GDP growth of 10.5 per cent and tax buoyancy of 1.1. Tax growth could turn out to be 14-15 per cent, based on a more realistic estimate of nominal GDP of say, 11.5 per cent, and tax buoyancy of say, about 1.2. Further, the fiscal deficit has been trending down since Covid-19, down to 5.1 per cent of GDP, and guided for 4.5 per cent in FY26. The conservatism in budgeting demonstrates high governance. Rating agencies would hopefully pay attention to this conservatism.
Thirdly, it is a pleasant surprise that the gross market borrowings are estimated at only ~14.13 trillion and net borrowing at ~11.75 trillion, which is even less than that of FY24. This will facilitate a larger availability of funds for the private sector and can help reduce the cost of capital for private capex.
Fourthly, the continuity of approach of the Budget in all areas, including in promoting foreign direct investment and capital expenditure, is a huge positive for our country. This creates a sustainable model of growth. Growth stimulated through spending can cause inflation, while growth through capacity creation and capital investments creates sustainable growth. The capital expenditure of ~10 trillion ($120 billion) for Budget 2024 was already up 30 per cent over ~7.5 trillion ($90.4 billion) in FY23, which has further been increased by 11.1 per cent over FY24, taking the total budgeted capital expenditure for FY25 to ~11.11 trillion ($134 billion), up 50 per cent in two years. This includes investments in PM Gati Shakti for enabling multimodal connectivity and dedicated freight corridors, which will improve logistics efficiency and reduce the cost of goods. Airports in the country have already doubled to 149, further being extended to Tier-ii and -III cities to boost regional interconnectivity. All these initiatives make growth more sustainable in the longer term.
Fifthly, in terms of inclusion, the government has already built 40 million homes and is planning to build another 20 million homes for the poor. We are also making progress on last-mile connectivity to reach cooking gas, bank accounts, housing, tap water, and electricity connections. The government plans to enhance the target for self-help group beneficiaries from 20 million to 30 million. Programmes for allied agriculture sectors such as fisheries, dairy, oilseeds, and investment in post-harvest processing, modern storage, efficient supply chains, primary and secondary processing, and marketing and branding will also help in enhancing rural incomes.
Sixth, it is a proud moment that our tax collection can touch 18 per cent of GDP (including states and Centre), the highest ever, considering that the Centre’s tax collection is expected to rise to 11.7 per cent of GDP for FY25. What is more important is that this is not through increasing taxes, but by increased compliance.
Seventh, there is a focus on green growth through promoting rooftop solarisation, green energy, developing electric charging ecosystems, biomanufacturing, biofoundry and blue economy.
If we stay consistent in our approach towards investment-led growth, coupled with capability building and a human-centric approach, we can look forward to making our country a developed economy, Viksit Bharat, by 2047.
THE CONSERVATISM IN BUDGETING DEMONSTRATES HIGH GOVERNANCE. RATING AGENCIES WOULD HOPEFULLY PAY ATTENTION TO THIS CONSERVATISM