Fiscal Resilience, Social Growth: India’s Bold Vision in the Interim Budget 2024

Development strategy of the government for the period of ‘Amrit Kaal’, as reflected in the budget, prioritises sustainable economic growth, inclusive development, and productivity enhancement. Efforts of the government under the ‘Panchamrit’ goals focus on sustaining high economic growth, ensuring energy security, and promoting financial sector preparedness. Initiatives like PM Awas Yojana (Grameen), rooftop solarization, and healthcare expansions target social welfare, while agricultural advancements and self-help group programs boost farmer incomes. Through the principles of ‘Reform, Perform, and Transform’, next-generation reforms will empower Micro, Small, and Medium Enterprises (MSMEs) and accelerate development in underdeveloped areas. The strategy also emphasizes technology and innovation for economic growth, along with infrastructure development and green energy initiatives for urban transformation and climate resilience. Overall, this budget of the ‘Amrit Kaal’ aims to drive comprehensive development through inclusive and transformative policies towards an ultimate objective of a Viksit Bharat (developed India) by the year 2047.

A Budget for A Booming Economy

The global economy faced unprecedented shocks in the current decade, with the pandemic and geopolitical conflicts triggering waves of disruption. From the pandemic-induced growth contraction to the Russia-Ukraine conflict-induced cost-push inflation, global economy faced relentless challenges. However, despite global uncertainties and challenges, Indian economy demonstrated resilience. Visionary economic policies in the post pandemic budgets drove the Indian economy fast to achieve a sharp V-shaped recovery and robust economic growth. This was aided by a resurgence in private consumption, accelerated by extensive vaccination drives, a strong multiplier effect of surge in the government capital expenditure, and government’s bold initiatives, interventions and reforms.

International Monetary Fund (IMF) has upwardly revised its growth projection for India for FY 2023-24, which is an indicator of increasing global confidence. Buoyant economic activity has translated into robust revenue collections and an optimistic outlook for GDP growth in FY 2023-24. Industrial and service sector grew fast due to robust domestic demand and massive hike in capital expenditure. Agriculture sector has also shown growth despite challenges, supported by smooth procurement operations and increased food grain production. Although its export growth moderated, domestic consumption, especially in contact-intensive services, drove economic expansion. Private consumption reached 58.4% of GDP in the second quarter of FY 2023-24, the highest in years.

According to IMF projections, India, with its promising growth prospects, is poised to become the third-largest economy by 2027. Figure 1 shows growth projections by different agencies for India for FY 2023-24: NSO (7.30%), ADB (7.00%), World Bank (6.90%), RBI (6.80%), IMF (6.80%), and OECD (6.60%). Indian economy is forecasted to grow by about 6.8% to 7.0% for FY23-24, exceeding most major economies. This resilience reflects India’s ability to adapt and revive growth drivers amid uncertainties.

Receipts and Expenditure in the Budget

Receipts in the budget comprise revenue receipts¹ and capital receipts². Revenue receipts in the budget 2024 are projected to come mainly from tax and non-tax sources wherein corporation income tax, personal income tax and GST are likely to contribute about 17, 19 and 18 percent, respectively. Borrowings and other liabilities are going to be the highest contributor as in previous budgets (Figure 2). Revenue projections for FY 2024-25 reflect a forward-looking approach, with gross tax revenue estimated to grow at 11.5%. Direct and indirect taxes are expected to contribute significantly, underscoring the government’s emphasis on broadening the tax base and rationalizing tariffs. The focus on GST reforms, coupled with measures to enhance tax compliance and administration, aims to sustain revenue growth and fiscal stability.

One fifth (20%) of the whole budget is estimated to be spent on interest payment alone. This interest is paid over the accumulated burden of public debt. A part of such debt is long term in nature wherein a substantial part has been raised and accumulated by previous governments in previous decades. A level of public debt to GDP ratio of about 60 percent is considered sustainable and commensurate with the current growth pace of the Indian economy.

The expenditure is also classified as revenue expenditure and capital expenditure³. A significant allocation towards capital expenditure signals the government’s intent to prioritize investments in infrastructure and developmental sectors. Provisions for subsidies, pensions, and grants show a commitment to social welfare and inclusive growth. Furthermore, initiatives like the PM GatiShakti National Master Plan highlight efforts towards integrated planning and infrastructure development, leveraging technology for efficient resource allocation.

Targeting Poverty, Empowerment and Inclusive Development

Government of India has been persistently pushing for poverty eradication, welfare improvement and human empowerment due to which this year budget has been more nuanced toward these objectives. Finance Minister, in her budget speech, highlighted India’s significant strides in reducing Multi-Dimensional Poverty (MDP), marking a positive shift. There has been a shift towards empowering the poor rather than solely relying on entitlements, resulting in significant progress. In recent years, concerted government initiatives have economically empowered 25 crore people, leading to their greater participation in the development process. The mission of the government has been to reach out to each household for their needs like housing, water, electricity, cooking gas, bank account and financial services. Food for all has been ensured through free rationing of food for 80 crore people.

Poverty is being addressed through multiple policies like employment generation, food rationing, direct transfer of benefits through financial inclusion, water supply, sanitation, health and educational facilities, etc. Jan Dhan Yojna has turned out to be highly significant which is visible from the fact that ₹2.7 lakh crore have been saved in the Direct Benefit Transfer of ₹34 lakh crore, allowing for increased funding in poverty alleviation programs like ‘Garib Kalyan’. Initiatives such as PM-SVANidhi and PM-JANMAN Yojana target specific groups like street vendors and tribal communities, ensuring inclusive development.

Budgetary allocations under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) peaked during the pandemic year, 2020-21, and thereafter witnessed a cut in recent years. However, compared to the budgeted allocations for the year 2023-24, this year budget for MGNREGS has been hiked by ₹26,000 crore (holding at 2.4% of Revenue Expenditure).

In agriculture, schemes like PM-KISAN SAMMAN Yojana provide direct financial aid to 11.8 crore farmers annually, while PM Fasal Bima Yojana offers crop insurance to 4 crore farmers. The Electronic National Agriculture Market integrates mandis, benefiting 1.8 crore farmers. Allocations for the Department of Agriculture and Farmers Welfare have been increased by about ₹2,000 crore over the previous year’s budget allocations.

Youth empowerment initiatives include the National Education Policy (NEP) 2020, PM SHRI schools, and Skill India Mission, which have trained and upskilled millions. PM Mudra Yojana has sanctioned loans worth ₹22.5 lakh crore for entrepreneurial ventures, while various schemes support startups and employment generation.

Women’s empowerment has seen significant progress, with initiatives like the Mudra Yojana empowering 30 crore women entrepreneurs. Female enrollment in higher education has increased by 28%, with a significant presence in Science, Technology, Engineering and Mathematics (STEM) courses. Over 70% of houses under PM Awas Yojana in rural areas are owned by women that further promotes gender equality.

The budget also promotes the Aspirational Districts Programme (ADP) that aims to assist and transform 112 under-developed districts swiftly and effectively through faster development and employment generation. It emphasizes convergence, collaboration, and competition among districts, driven by a mass movement.

Central Government Subsidies Trends

Food, Fertiliser and petroleum are the three major subsidies of the Central government. Additionally, subsidies are also provided on interest payments on variety of loans. Figure 6 shows a declining trend in these subsidies as a percentage of revenue expenditure:

Source: Union Budget Documents of Different Years (% of Revenue Expenditure).

Sustainable Development & Net Zero 2070

The government’s commitment to achieve ‘Net Zero’ by 2070 is marked by various initiatives in the Interim Budget. These include providing viability gap funding for wind energy, establishing coal gasification and liquefaction capacity, and promoting the use of renewable energy sources like compressed biogas. Phased mandatory blending of CNG, PNG, and biogas is prioritized, along with financial assistance for biomass aggregation machinery. Additionally, schemes like rooftop solarization and e-buses for public transport aim to reduce carbon footprints. Supporting the e-vehicle ecosystem and launching bio-manufacturing initiatives further demonstrate a commitment to environmentally friendly alternatives, alongside significant distribution of LED bulbs and LPG connections.

Overview of Fiscal Aspects & Deficit Trends

The Interim Budget 2024 focuses on macroeconomic stabilization along with fiscal correction. Fiscal Responsibility and Budget Management (FRBM) Act, 2003 mandated the Central and State governments a reduction in their fiscal deficits, revenue deficits and primary deficits⁴. Government has been very conscious in its management of finances to meet the revised target of 4.5 percent of GDP of fiscal deficit of the FRBM Act by the year 2025-26. Fiscal deficit and revenue deficit have been targeted at 5.1% and 2% of GDP respectively for FY 2024-25.

However, completely eliminating the revenue deficit is not considered feasible in the post-pandemic fiscal strategy. Despite cautious projections, disinvestment proceeds are estimated at ₹50,000 crore for FY 2024-25. Gross borrowings for FY 2024-25 are estimated at ₹14.3 lakh crore, that is slightly lower than previous years, indicating a restrained borrowing approach. In Figure 7, Central government finances show a trajectory of fiscal consolidation:

Capital Expenditure and Infrastructure Development

India’s aspiration to achieve developed nation status by 2047 heavily depends on its ability to transform infrastructure. In this direction, government’s commitment is visible from a substantial allocation of 3.4% of GDP to capital expenditure in FY 2024-25. Roads & Highways have received the largest share of investment, followed by Railways and Urban Public Transport. Ambitious targets include expanding the national highway network by 2025, developing airports, operationalizing waterways, and establishing Multi-Modal Logistics Parks under PM GatiShakti and the National Logistics Policy.

Focus on Tourism & Transformative Rail Infrastructure

The Budget 2024 proposes a transformative agenda for the tourism sector, particularly emphasizing rail travel enhancements. A significant announcement entails converting 40,000 regular train bogies into Vande Bharat coaches, promising passengers a high level of comfort and efficiency, thereby reducing travel time substantially. Moreover, the introduction of NAMO trains and expanded metro rail services underlines government’s commitment to enhance public transport accessibility, particularly to tourist destinations. Additionally, interest-free loans to states aim to elevate tourism infrastructure to international standards, with a special focus on island destinations like Lakshadweep.

Conclusion

Contrary to expectations of a pre-election populist budget, the interim budget harmoniously aligns with the government’s ‘Viksit Bharat’ vision, embodying the ethos of inclusive development and collective trust. Prudent fiscal policy, revenue forecasts, and strategic expenditure allocations in the budget shows that India is poised for both stability and advancement. By prioritizing poverty alleviation, job creation, MSME recovery, tourism, agricultural development, rural welfare measures, empowerment of youth and women and environment concerns, the budget fosters inclusive growth and societal transformation. The budget will drive the nation further towards the envisioned ‘Viksit Bharat’ that is a prosperous Bharat in harmony with nature, modern infrastructure and opportunity for all. It extends the development mantra further from sabka saath and sabka vikas to sabka saath, sabka vikas, and sabka vishwas.