Business Standard

Conservati­ve, consistent and inclusive

- V VAIDYANATH­AN The writer is MD and CEO, IDFC FIRST Bank

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.


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