Leave no one behind: The interim budget's guiding principle

Leave no one behind: The interim budget's guiding principle

Leave no one behind: The interim budget's guiding principle

The Finance Minister described his budget as primarily focused on fiscal consolidation, calling it a "humanitarian" budget. It is good to see the focus on "beyond GDP," which takes into account issues like human capital building, economic inequality, and climate change.

Beyond the estimated 5.1% fiscal deficit to GDP ratio for FY2025, the greater revenue deficit in the interim Budget 2024–25 is startling. Maintaining the revenue shortfall at two percent of GDP for FY2015 is a stark reminder to concentrate on the main issues confronting the Indian economy in light of growing unemployment and inequality.

In the midst of the polycrisis, the Interim Budget 2024 examines the issue of macroeconomic stability after establishing a solid foundation for redistributive justice. Regarding fiscal consolidation, the Finance Minister is unwavering. The fiscal consolidation route is rigorously adhered to in the interim Budget 2024–25, with the fiscal deficit–GDP ratio set at 5.1 in FY20 and RE at 5.8% for this fiscal year.

The fact that the updated estimate of tax collections is greater than the projected estimate is encouraging. The revenue shortfall as a percentage of GDP decreased from 2.8% in 2023–2024 (RE) to 2% in 2024–2025 (BE) because to the enhanced tax buoyancy. To lessen the revenue gap, a little reordering of revenue expenditures has also been carried out. On the other hand, the post-pandemic budgetary approach does not allow for the gradual elimination of the revenue deficit.

The interim budget has targeted capital investment at 3.4% of GDP for FY20 in order to sustain the economic pace. It is really good to see the capital spending growth rate for FY20 at 11.1%. Since it "crowds out" private investment, high public infrastructure expenditure has been a significant predictor of the latter. Estimates of the gains from disinvestment, however, lack fiscal credibility. In contrast to BE of Rs 61,000 crore for 2023–24, only Rs 30,000 crore was obtained in RE 2023–24. At Rs 50,000 crore, the budget forecast for 2024–2025 is rather reasonable.

What the government plans to borrow in FY25 is a topic of great interest to investors. The government projects that it would borrow Rs 14.3 lakh crore in gross borrowing to cover the deficit in FY25, a little less than in FY24. The ten-year bond, which is due in January 2024, has a cut-off yield rate of around 7.17 percent. Macroeconomists are occupied with accusing the government deficit of being the cause of the rising interest rates. But the tale we often overlookThe management of public debt and inflation targets are at odds with one another. The deficit is now being impacted by higher interest rates. The cost of managing public debt has gone up due to rising interest rates, and repaying debt has also gotten more difficult. It is anticipated that the ratio of interest payment expenditure to GDP would rise from 3.22 percent in FY24 (RE) to 3.63 percent in FY2025 (BE).

In general, the Finance Minister has called for "leaving no one behind" and referred to his budget as a "humanitarian" budget with budgetary austerity. It is good to see the focus on "beyond GDP," which takes into account issues like human capital building, economic inequality, and climate change. Analyzing whether the budget announcements are supported by sufficient funding, however, is premature. An impending exercise in comprehending fiscal accountability—that is, the discrepancy between budgetary commitments and actual allocations of these announcements—is the analysis of the regional spending budgets for FY2015.

The Fiscal Council has made no clear commitment to follow the macro-fiscal criteria of its fiscal policy. But there are other policy forums where such declarations might be made outside the interim budget. It is detrimental to conclude that using the revenue shortfall as a post-pandemic budgetary strategy. According to the Annual Periodic Labor Force Survey, the unemployment rate decreased from 6% in 2017–18 to 3.2% in 2022–2023 years. Separate examination of the numbers, however, showed that almost 57% of the workers were independent contractors, 22% were part-time workers, and 18% supported their family businesses as assistants. Consequently, addressing the issue of development's unemployment problem is the largest difficulty. Since the GDP is not going to decrease, now is the right moment to address these issues. It is thus desirable to maintain a large income deficit in order to solve these issues.

Retrospective policy and program analysis is a preferred method of voting, according to voting model estimates. To make matters worse, women's voting behavior in India has become a significant factor in determining the results of democratic elections as they have nuclear decision-making ability. The Finance Minister has announced various steps to increase women's economic participation via Nari Shakti initiatives in response to these political economics issues. These announcements' main initiatives have to do with gender budgeting. Through digital infrastructure in public finance, credit accessibility and financial inclusion are enabled. With allocations rising in FY2015, gender budgeting is a potent public financial management (PFM) instrument to alleviate gender inequities. Prior to these new production variables, women's access to formal credit markets was restricted to loans with collateral in the context of digital infrastructure.

Without pledges to address the climate change challenge, no budget is complete. In view of the dearth of tools available to monetary policies to address the climate catastrophe, national adaptation communication and fiscal policy positions are critical to addressing the energy transition. Last but not least, the Union Budget 2024 reaffirms that fiscal consolidation procedures have solidified the joint progress of the energy and fiscal transitions. Reforms in the electricity industry are directly related to the process of bringing down the state budget deficit to 0.5 percent of GDP. The narratives of the fiscal and energy transitions from the Interim Budget 2024 are anticipated to be combined within the analytical framework of India's cooperative federalism by the 16th Finance Commission.