Never before in the recent past has a Finance Minister had such favourable tailwinds as Nirmala Sitharaman prepares to present her interim budget on Thursday.
After two years of recovery post-Covid with growth rates of 9.1% and 7.2%, the current financial year (23-24) too guarantees a growth of above 7% making India the fastest growing large economy in the world. And there is consensus globally that India will be the third largest economy behind the US and China, may be by 2028.
Along with high growth, the other macroeconomic indicators which are favourable now are a low Current Account Deficit of just about 1%, foreign exchange reserves at $620 billion (10 months import cover), non-resident remittances touching $125 billion (the highest in the world), inflation trending below the target level of 6% (not shooting out of hand like in the US and UK) and a secular reduction in poverty levels (as per the Niti Aayog’s multi-dimensional poverty index indicators).
Also, political stability and policy continuity can be taken as a given, with the ruling NDA under Prime Minister Narendra Modi widely expected to win a mandate for the third time running. Apart from the figures, it is this political factor which is at the root of a new-found optimism about India’s economic future, driving investors’ sentiment and a buoyant stock market which at last count had overtaken the country’s GDP in market capitalisation ($4 trillion against about $3.5 trillion)
By conventional standards, the fiscal deficit (estimated at 5.9% in FY 23-24) is high but it has to be remembered that India’s debt is 80% domestic, contracted only in Indian rupee. Among countries with foreign currency debt, India stands 22nd while in the size of its economy it is already the fifth largest. India’s debt profile reveals that debt on the Government’s books is mainly owed to domestic entities. It is well known that the risk to this sovereign debt, if denominated in domestic currency, is that of only a rollover/refinancing. In overall debt to GDP ratios too, India stands on a better footing with a figure of 97% against 297% of China and 218% of the US.
With this background, what then will be the priorities of the Union Government in the interim budget and beyond? Will there be major announcements or will it be just a vote-on-account, a routine accountant’s exercise?
There is expectation that the Government will try to address the GYAN constituency, because it is a political imperative as also a policy compulsion. Garib, Youth, Annadata and Naari (Poor, Youth, Farmers and Women) have been identified as the focus of development schemes.
By convention, the interim budgets do not propose major changes in the tax structure as the privilege of taxation is left to the framers of the regular budget. But interim budgets in the past have made major welfare announcements. The PM Kisan cash transfer scheme under which farmers get Rs 6000 through their bank account was introduced in the interim budget of 2019-20, just before the general elections.
There have been reports of rural demand slackening with indicators from the sales of FMCG majors like Hindustan Unilever recording negative/flat growth in rural and semi-urban centres. This, coupled with the fact that the amount of Rs 6000 under PM-Kisan is more than 5 years old makes the possibility of an increase in this benefit transfer real. The amount could be raised to Rs 8000 or Rs 9000.
The Prime Minister had already announced the extension of the free ration scheme under the PM Garib Kalyan Yojana (5kg of free rice/wheat to each member of the family per month) to all ration card holders, said to benefit more than 82 crore people. The budget will highlight this major initiative with appropriate provisions under food subsidy, estimated at about Rs 2 lakh crores.
The outlays for major welfare schemes of the Government like subsidised fertilisers for farmers (urea and nutrients at low cost), Ayushman Bharat (medical facilities for the poor up to Rs 5 lakh), the Jal Jeevan Mission (safe drinking water to all) and the housing scheme under PM Awas Yojana.
The interim budget will also have to address the issue of unemployment as about 10 lakh people are entering the job market every month.Unemployment has been a major concern but there have been differing estimates from the Government and private agencies like CMIE about the extent of joblessness.
If we take demand under MNREGA as a proxy for unemployment, the work generated under the programme has recorded a high of 230 crore person days for the 9-month period ended December, 2023. This is only the second highest in the last 6 years. If this figure under MNREGA (whereby all rural households are assured of a minimum of 100 days of work at minimum wages) is any indication, then the hunger for jobs is unsatiated. The number of active workers registered is 14.36 crores.
Infrastructure spend assumes importance in this context. There is no other area where a rupee spent brings greater dividends spurring overall demand and creating jobs. The outlay under infra was increased to Rs 10 lakh crores in the last budget from about Rs 7.5 lakh crore in the previous year. Progressively, the thrust on public spending for infra has shown a welcome increasing trend in the recent past. The interim budget for 24-25 can also be expected to increase the outlay to at least Rs 12/12.5 lakh crore.
So, along with additional spends on the welfare schemes for the poor and the farmers, a continued thrust on infra spend will constitute the least common denominator for interim budget 24-25.
(The author is a commentator on banking and finance. Views are personal)
