Interim Budget 2024: Concerns over GDP, Spending Cuts; Fiscal Deficit is Bright Spot
Key Points from the Interim Budget Highlight Economic Priorities Interim Budget 2024
Finance Minister Nirmala Sitharaman presented the Union Budget for the next financial year (2024-25) on Thursday, marking her sixth consecutive budget presentation. However, this budget differs significantly as it is an interim budget. Rather than introducing major new initiatives, FM Sitharaman took the opportunity to recap the achievements of the two successive governments under Prime Minister Narendra Modi over the past decade.
Election-Eve Report Card:
The Finance Minister’s speech served as an election-eve, self-congratulatory report card on the economic achievements fostered by Prime Minister Narendra Modi and his two administrations since 2014. Sitharaman, echoing the Finance Ministry’s economic review, highlighted that the government, faced with enormous challenges, overcame them through structural reforms, pro-people programs, and the creation of opportunities for employment and entrepreneurship.
The emphasis was on an inclusive and sustainable policy approach that contributed to a more comprehensive GDP of governance, development, and performance. A confident tone resonated throughout the speech, with Sitharaman avoiding announcements that could be construed as targeting specific voter constituencies. Instead, the focus was on affirming the commitment to an inclusive policy approach.
Fiscal Consolidation and Deficit:
Examining the budget numbers, fiscal consolidation remains a priority, with Revised Estimates (RE) indicating the current year’s fiscal deficit at 5.8% of the GDP, a marginal improvement from last February’s Budget Estimate (BE) of 5.9%. Sitharaman achieved this by trimming effective capital expenditure in the RE, despite a moderation in nominal growth estimates.
For the upcoming fiscal year (2024-25), the Finance Minister projected a sharper consolidation, pegging the deficit at 5.1%. This is based on a 14% increase in revenue receipts on a BE basis, expected to offset an 11% rise in estimated capital expenditure to ₹11.11 lakh crore. While Sitharaman underscored the positive impact of a tripling in capital spending outlays over the past four years on growth and employment creation, there was a subtle oversight regarding the budgeted increase in capital spending for the next year, which is notably lower than the 28% jump in the RE compared to the last fiscal’s actuals.
Risks and Challenges:
As official estimates for private consumption spending reveal a growth slowdown since the pandemic, the Budget’s stress on fiscal prudence may carry the risk of undermining economic momentum. Additionally, there is a concern about the potential rise in inequality, posing a more significant challenge for the future.
While the budget speech served its purpose as an interim report card, the full Budget in July is expected to provide a more detailed road map, including the government’s vision for a ‘Viksit Bharat’ by 2047. The assurance of a ‘resounding’ electoral mandate underscores the government’s confidence in the upcoming elections. The evolving economic landscape will be closely watched as events continue to unfold, impacting the nation’s fiscal health and economic trajectory.
