Union Budget 2024: Unreasonable aspirations have no place in the face of global difficulties

Union Budget 2024: Unreasonable aspirations have no place in the face of global difficulties

Union Budget 2024: Unreasonable aspirations have no place in the face of global difficulties

The FY20 budget deficit objective will stay between 5.2% and 5.5% below the 6% mark due to poor nominal GDP growth and a lack of disinvestment. It is crucial to follow this fiscal glide path in order to achieve a fiscal deficit of 4.5% of GDP by 2025–2026.

Realistic projections of the revenues from disinvestment will be included in the interim budget.

With the impending general elections and unstable financial markets, the Interim Budget 2024 is crucial. The battle has created geopolitical uncertainty. Energy prices have fluctuated, with Brent oil reaching $78.51 per barrel. There are hazards in the Red Sea and while taking the lengthy commercial route around the Cape of Good Hope, which causes delays in shipments. Important causes of the present stock market volatility and macroeconomic uncertainty. Therefore, the key challenge is how to influence voter consent math in the general elections of 2024 while also boosting investor confidence. The interim Budget 2024 does not cover this dual duty.

India is moving inward toward a new fiscal policy imperative that takes into account the threats posed by conflict, uncertainty, artificial intelligence, and the climate disaster. India participated in the talks on global regulatory frameworks at the World Economic Forum in Davos last week. Fears about declining employment prospects, the hazards associated with emerging digital financial infrastructure, and the grave climate issue are true. In light of this, the Finance Minister's only option for adaptation is to continue along the road of budgetary austerity in the hopes of boosting economic development.

Consolidation of the Treasury

The FY20 budget deficit objective will stay between 5.2% and 5.5% below the 6% mark due to poor nominal GDP growth and a lack of disinvestment. It is essential to pursue this fiscal glide path in order to attain a fiscal deficit of 4.5% of GDP by 2025–2026. Realistic projections of the revenues from disinvestment will be included in the interim budget. Budgetary manipulation of disinvestment revenues consistently erodes the budget's credibility. The Interim Budget 2024 will be centered on capital expenditures, which will remain a primary priority.

It would be challenging to choose a 5.9% fiscal deficit to GDP ratio for FY2024 given the drop in disinvestment revenues, the sluggish nominal economic growth, and the growing revenue spending, mostly on subsidies. Nonetheless, tax buoyancy is acceptable because tax and non-tax revenue collections surpass budgetary projections. Thus, there is room to continue on the road of budgetary consolidation. An increase in taxes rather than a decrease in spending is the best way to achieve fiscal consolidation. Before general elections, the budget includes fiscal austerity measures that may backfire if voters choose an administration that scrutinizes its own policies after the fact.

The interim budget is unlikely to include any significant tax-related announcements. The best way to guarantee redistributive fairness is not via taxation. Nonetheless, it's possible that some of the tax-related announcements, like the one that offers a unique tax exemption cap for women, are designed to draw in middle-class female voters.

preserving the legitimacy of the budget

Maintaining economic growth figures depends on the fiscal story of capital expenditure. Though not instantly, this should lead to a delayed rise in private investment. As a result, it's critical to maintain attention on infrastructure, both social and physical. It is good that capital expenditures on roads, trains, and defense will continue to be prioritized. In terms of capital spending, states are also carrying the majority of the workload. It is crucial to keep providing fiscal transfers for capital expenditures to state governments. I predict that the current budget will also include funding for interest-free 50-year loans to states.

It is necessary to examine the more general query of how budgetary arithmetic and worldwide headwinds interact. It also influences interest rate announcements made by the central bank. Within the next week, the US Federal Reserve will raise interest rates, which will lead to capital flight and have an impact on foreign currency reserves. The fiscal arithmetic would be vulnerable to these worldwide challenges.

Nonetheless, domestic borrowing accounts for the majority of India's deficit finance pattern. Since there is very little foreign debt financing, India is not at danger from external financing of its deficit. Because of the long-term loan maturity structure, there is also no rollover risk. However, as managing the public debt may become more expensive with rising interest rates, RBI interest rate management policies may have an impact on debt servicing. The RBI is forced to maintain interest rates at high levels due to the external problems of growing inflation and capital outflows.

Fiscal regulations may provide a useful financial comfort It is appropriate to advance toward a "formal" modification of the fiscal deficit-GDP limit given the volatility in Center-State budgetary relations. This has consequences for managing public debt when calculating available fiscal space, particularly in cases when revenues are unpredictable due to unstable geopolitical conditions and disruptions in international supply networks. Thus, the impoverished are not necessary during times of conflict or catastrophe.It's critical to maintain food safety precautions.

The best way to understand fiscal risks from budgetary data is to consider them in relation to four macro-fiscal parameters: (i) the ratio of the fiscal deficit to GDP; (ii) the public debt to GDP; (iii) whether or not the revenue shortfall is greater than zero; and (iv) the interest payment relative to revenue collections. However, the development of capital spending in the economy indicates large public debt during times of war and macroeconomic crises. Although it has been suggested that capital investment to boost growth is connected to the public debt to GDP ratio, there is little evidence that it has gone crazy during the Modi administration.

If announcements about social infrastructure fall within the purview of public financial management (PFM) instruments like gender budgeting and climate responsive budgeting, the anxiety around customer-based free announcements may also be allayed.

The legitimacy of the budget is the most crucial factor in pre-election budgets. The capacity of governments to predict macro-fiscal factors with accuracy is what determines budget credibility. From that perspective, it is impossible to dispute the Fiscal Council's declaration as a reliable organization capable of sustainably monitoring India's public finances.