Nirmala Sitharaman, India’s Finance Minister, made history by presenting the Union Budget for the seventh consecutive year. This budget marks the start of the newly elected government’s third term, underscoring sustained support for its economic policies and vision for a ‘Viksit Bharat’. Budget 2024 focuses on crucial areas such as self-sufficiency in food grains and oilseed production, preparing well-trained and job-ready youth, promoting entrepreneurship, research, and innovation, developing world-class infrastructure, and ensuring adequate energy resources.
The Union Budget for 2024-25 marks the inaugural budget of the new government, which has a full term ahead to focus on medium-term goals. This budget outlines a comprehensive vision through nine key priorities: agriculture, industry and services, infrastructure, employment and skill development, future reforms agenda, innovation and scientific research, urban development, social sector reforms and social justice, and energy security.
The Union Finance Minister’s Budget speech is marked by clarity in three key aspects. Firstly, the intentions and vision for Vikisit Bharat@2047 are articulated through nine priority areas, presenting a long-term vision that we expect future Budgets to follow to achieve these goals. Secondly, there is a clear acknowledgement of the unemployment problem in the economy. The Budget addresses this challenge by outlining various initiatives aimed at job creation. Thirdly, the constraints of a coalition government are evident in some parts of the Budget, though they are subtly embedded in specific details. These three elements have shaped the strategy and approach of the Budget. While the policy direction reflects good intentions, the methods to achieve the ambitious goals remain undisclosed, casting doubt on the feasibility of meeting the set targets.
Wait and Watch
The Budget reflects a commitment to maintaining fiscal discipline and continuing consolidation efforts. The fiscal deficit has been reduced to 4.9%, down from the 5.1% target set in the interim Budget. A significant portion of the surplus from the Reserve Bank of India has been allocated to support fiscal prudence. The projected reduction of the fiscal deficit to below 4.5% of GDP by FY2026 is encouraging. The new medium-term fiscal consolidation strategy focuses on lowering the debt-to-GDP ratio rather than just reducing the fiscal deficit-to-GDP ratio. This approach provides the government with the flexibility to enhance capital expenditure and support climate goals while navigating an uncertain global environment. However, the Budget size has increased only slightly, leading to a nearly unchanged overall borrowing program for the government. Borrowing has decreased marginally, though the reduction is smaller than what might have been achieved given the strong revenue collections.
Despite a slight rise in overall expenditure, capital expenditure has remained relatively stable. There are two concerning trends regarding expenditures. First, the Budget estimates for 2024-25 indicate only a modest increase in most expenditure categories compared to 2023-24, with some key areas showing a decrease. Notably, the allocations for commerce, industry, and energy have decreased in the 2024-25 Budget. Second, for many expenditure items, the revised estimates for 2023-24 are lower than the original Budget estimates for that year, with social welfare and scientific departments being prominent examples.
The effective capital expenditure, which includes both capital expenditure and the grant in aid for creating capital assets, has decreased when comparing the revised estimates with the provisional actuals for 2023-24. This reduction in the revised estimates compared to the Budget estimates suggests a potential shortfall in the government’s spending capacity, which could diminish the anticipated multiplier effects of such expenditures. Therefore, it is crucial to monitor the actual utilization of the proposed outlays. Additionally, the consistent levels of capital expenditure imply that the government may rely more on private investments, as highlighted in the Economic Survey, which has not shown significant growth in recent years.
The private sector faces significant expectations to address the employment challenge. The ‘Prime Minister’s Package for Employment and Skilling’ aims to tackle this issue through government-funded internships, incentives for EPFO enrolments to formalize jobs, and various skill-development programs. However, the budgetary allocations for these initiatives seem underwhelming. The entire package has a ₹2 lakh crore allocation spread over five years, much of which relies on the industry’s response. Additionally, private companies are expected to use their CSR funds to contribute to this package, effectively subsidizing their wage costs with funds intended for broader social impact. This approach shifts the focus from addressing issues like weakened demand and stagnant wages to incentivizing the private sector to boost employment. Previous attempts with similar schemes have not been very successful, and it remains to be seen whether this package will fare any better.The significant corporate tax cut implemented in 2019 did not notably boost capital expenditure in the non-financial private sector. Similarly, the Budget’s approach of addressing unemployment by incentivizing private sector employment through wage subsidies and skill development seems to be a rigid strategy that doesn’t align with the current realities on the ground.
The same old story
The 2024 Budget continues the trend of previous years, maintaining similar allocations for the social sector despite the identification of youth, farmers, women, and the poor as key focus groups. According to the Economic Survey’s chapter, ‘Social Sector: Benefits that Empower,’ India’s robust and sustained economic growth is coupled with social and institutional progress. This progress is driven by the transformative and effective implementation of government programs, which are increasingly characterized by a more empowering approach to welfare. However, this approach seems to be marked by a reduction in real-term allocations for various social sector schemes.
The budget allocation for school education has seen a modest increase of ₹5,000 crore, while higher education has received a slight boost of ₹3,000 crore. However, the projected ‘recoveries’ from these sectors are notably higher than in previous years, suggesting an increase in fees and self-financing mechanisms at educational institutions. The Department of Health and Family Welfare’s allocation has risen marginally by ₹1,500 crore compared to last year. The funding for MGNREGA remains unchanged from the revised estimates of the previous year, reflecting a fixed budget for the scheme that influences the work available to states. Similarly, the food subsidy allocation has seen little to no increase, despite the need to adjust for population growth (the PDS still uses 2011 Census figures) and the rising costs of food grains.
Smaller but crucial programs targeting vulnerable populations have not received much attention. The Budget estimate for 2023-24 allocates ₹12,467 crore to the POSHAN scheme (school mid-day meal), a slight increase from ₹11,600 crore in the previous year. However, this amount is still less than the actual expenditure of ₹12,681 crore in 2022-23. The Saksham Anganwadi scheme, which supports children under six years, pregnant and lactating women, and adolescent girls, has been allocated ₹21,200 crore for 2023-24, up from ₹20,554 crore in the previous year. Unfortunately, there are no provisions for increasing the salaries of Anganwadi workers (which have remained unchanged since 2018), higher honorariums for mid-day meal cooks, or increased funding for supplementary nutrition for children.
The allocation for Samarthya, encompassing maternity entitlements under the Pradhan Mantri Matru Vandana Yojana (PMMVY) and creche schemes, has been cut to ₹2,517 crore from the ₹2,582 crore budgeted for 2023-24. The PMMVY continues to exclude at least half of the eligible women, and the ₹5,000 benefit per pregnant woman has not changed since the scheme’s introduction in 2017. Additionally, the budget for the National Social Assistance Programme (NSAP), which provides social security pensions to the elderly, single women, and disabled individuals, remains steady at ₹9,652 crore. This maintains a reduction in real terms and fails to account for either an increase in coverage or adjustments for inflation. The central contribution to these social security pensions has been fixed at ₹200 per person per month since 2009.
To clarify, these reductions cannot be justified by the introduction of superior schemes. In some cases, the government appears to be shifting focus towards contributory schemes, such as the Atal Pension Yojana for pensions. In other areas, like education and health, the trend is moving towards privatisation and commercialisation, emphasising ‘cost-effectiveness’ in social spending. The Economic Survey describes this as one of the “pillars of the new approach to welfare.” However, this approach does not adequately address the issues of applying market principles to social services or consider the long-term economic benefits of improving human development outcomes. Moreover, it overlooks important equity considerations.
Aside from the announcement of tax benefits for Indian start-ups and investors—including eliminating the controversial angel tax and aligning capital gains rates between listed and unlisted equities—the Budget seems to lack a significant focus on the industrial sector. Key areas such as the Railways, the PLI Scheme, Gati Sakthi, and the Census were notably absent. Additionally, there were no substantial initiatives targeting the education and health sectors to harness the demographic dividend, which could impact the vision for 2047. It is also crucial to address the balance between urban and rural economies and differentiate between jobs and internships. With the macroeconomy in a favourable position, more ambitious steps and a clearer roadmap for 2047 could have been outlined.
The writer is a tax specialist, financial adviser, guest faculty and public speaker based in Goa. He can be reached at [email protected] or 9822983420
