Major expenditure items may go out of control, raising concerns about the budget's feasibility; moreover, the Government's gross tax revenue target of Rs 38.40 lakh crore is overly ambitious

On top of a GDP (gross domestic product) growth of 8 per cent plus for three consecutive years, the Union Budget for FY 2024-25 presented by Finance Minister Nirmala Sitharaman on July 23, 2024, has all the ingredients to sustain the momentum during the current year as well. For the current year, she has proposed capital expenditure at Rs 1111,111 crore, which is 17 per cent higher than the revised estimate (RE) for FY 2023-24.In her Budget for 2019-20, she had laid a roadmap for catapulting the Indian economy to US$5 trillion by 2024-25. In sync with this target, she had projected an investment requirement of over Rs 100 lakh crore to build the infrastructure over five years.

Out of this, 39 per cent or Rs 39,00,000 crore was to come from the Centre and states each and the balance was Rs 22,00,000 crore from the private sector.The Centre’s capital spend during the previous four years was 2020-21: Rs 439,000 crore; 2021-22: Rs 554,000 crore; 2022-23: Rs 750,000 crore; 2023-24: Rs 1000,961 crore. This adds up to Rs 2700,000 crore. Add to this Rs 1111,111 crore for 2024-25, the total over five years comes to Rs 3800,000 crore which is more or less close to the amount the Centre intended to contribute. The Central government has also been helping the states to boost their capital spend. During 2022-23, it provided them with 50-year Rs 100,000 crore interest-free loans. During 2023-24, such transfers were Rs 130,000 crore. For the current year, the transfers are kept at Rs 150,000 crore.

To promote investment in the private sector, the Centre has reduced the corporate tax rate to 15 per cent for new manufacturing enterprises and 22 per cent for existing enterprises. In this year’s budget, the corporate tax rate on foreign firms has been reduced from extant 40 per cent to 35 per cent.  With this and assuming that private consumption/demand remains strong (a relief of around Rs 17,500/- in personal income tax or PIT resulting from the change in tax slabs under the New IT regime and increase in a standard deduction by Rs 25,000/- will give some boost) besides exports getting a leg up, courtesy rebound in the US economy, India could achieve growth even higher than 6.5 – 7 per cent projected in the Economic Survey for 2023-24.           But, there is a flip side to it.This has to do with the fiscal deficit or FD (excess of total expenditure over total receipts). Sitharaman has set it at 4.9 per cent of the GDP which is 0.2 per cent less than a target of 5.1 per cent fixed in the interim budget. This has been made possible due to a mammoth dividend transfer of Rs 210,000 crore by the Reserve Bank of India (RBI) to the Central Government from its operations during the FY 2023-24 which is Rs 130,000 crore higher than the provision of Rs 80,000 crore made in the interim budget.   It won’t be easy to achieve the 4.9 per cent target during the current year. This is because the gross tax revenue (GTR) target of Rs 3840,000 crore is over-ambitious and the budget assumes receipts of Rs 50,000 crore from disinvestment of government shares in PSUs, a program it has decided not to pursue. Even major expenditure items could get out of control as the year progresses.   

For instance, the ‘fertilizer subsidy’ is budgeted at Rs 164,000 crore during 2024-25. This is based on the assumption that the declining trend in the international price of fertilizers and raw materials used in their production seen during 2023-24 continues during the current year as well. It takes a small disruption in the global supply chain (given the current highly uncertain geo-political situation, this is quite likely), for this assumption to go haywire.  That apart, to go down from 4.9 per cent to 4.5 per cent next year set by the FM her 2021-22 budget (this by itself is far more generous than FD of 3 per cent that was to be achieved in 2020-21 as per the amendment to the FRBM Act, 2018) can be daunting, all the more when the RBI is unlikely to repeat its bonanza/gift to the Center. During an interactive with the press, Sitharaman alluded to the Centre’s plan to design fiscal trajectory in a manner such that from FY 2026-27 onward, its debt to GDP ratio starts declining. Sans target setting, this may not instil confidence.

Yet, she won’t set the target as these are often missed. The Center’s debt-to-GDP ratio is currently around 57 per cent against the 40 per cent mandated for 2024-25 under the FRBM Amendment Act (2018).

Meanwhile, to address the concerns on employment, MSMEs (micro, small and medium enterprises) and agriculture, the budget has proposed several initiatives. For MSMEs, it proposes a new credit guarantee scheme to facilitate term loans to enable them to purchase machinery and equipment without requiring collateral or third-party guarantees (a self-financing guarantee fund is mooted that could provide each applicant with guarantee coverage of up to Rs 100 crore); increase in the limit of Mudra (Micro Units Development Refinance Agency, a subsidiary of SIDBI) loans to Rs 2000,000 for those who have repaid previous loans; expanding SIDBI branches to provide the much-needed access to credit and additional support for further growth.

The initiatives on employment all aligned to the EPFO (Employees Provident Fund Organization) enrollments include Scheme A: a one-month wage payout of up to Rs. 15,000 per month (payable in three instalments) to first-timers in the workforce, with all formal sectors with an eligibility limit of a salary of Rs 100,000 per month. Scheme B: meant for creating ‘additional’ jobs in the manufacturing sector linked to first-time employees; it includes an incentive to employees and employers concerning EPFO in the first 4 years of employment.

These schemes are expected to benefit 240 lakh youth. Scheme C meant support to employers to enable them to give additional employment in all sectors for those earning up to Rs 100,000 per month. The government will reimburse employers up to Rs. 3000 per month for two years towards EPFO contribution for each additional employee. This Scheme will benefit 50 lakh persons. To make the youth employable, Sitharaman has announced a new centrally sponsored scheme for skilling in collaboration with States and industry. 2000,000 youth will be skilled over five years under this scheme.

One thousand industrial training institutes (ITIs) will be upgraded in the hub and spoke arrangement, with course content aligned to the skill needs of the industry.  In agriculture, the measures include initiating 10 million farmers into natural farming in the next two years; releasing 109 climate-resilient new seed varieties across 32 field and horticulture crops in the next 100 days; Jan Samarth-based Kisan Credit Card in five States to give a boost to shrimp farming and export; launch a national cooperation policy; digital public infrastructure (DPI) to create a registry of 60 million farmers with the details of their land over the next three years; developing large-scale vegetable clusters closer to major consumption centres; promoting FPOs, cooperatives and start-ups for vegetable supply chains; pursuing the mission for pulses and oilseeds production etc. All the above announcements sound like the proverbial ‘Many a slip between the cup and the lip’. For instance, on employment, Sitharaman clarified ‘the government can only nudge private firms.’

(The writer is a policy ananalyst; views are personal)