Analysis of the Interim Budget 2024- Explained Pointwise

An analysis of the Interim Budget 2024 by different stakeholders is imminent, after the Union Finance Minister Nirmala Sitharaman presented the interim budget on 1st February 2024. The budget has been appreciated for showing remarkable fiscal restraint in an election year by not announcing any new populist schemes. However, concerns have also emerged on the expenditure cuts on various flagship schemes of the government.

Read More- Interim Budget 2024-Key Highlights

What are The Positives that Emerge Out after The Analysis of Interim Budget 2024? 

1. Reduction in fiscal deficit- The revised estimate of fiscal deficit for FY 2023-24 is 5.8% against the budgeted estimate of 5.9%. The budgeted estimate for FY 2024-25 has been kept at 5.1% of the GDP. This reduction in fiscal deficits after COVID shows that the govt is on the path of fiscal consolidation set by the FRBM Act 2003. Reduced fiscal deficit of the govt, will spur the growth of private sector borrowings from the market.

2. Increase in Capital Expenditure- The increase in capital expenditure in FY 2024-25 by 11.1% to 11,11,111 crore, will have resultant multiplier effect on India’s GDP. (Every Rs 100 spent on capex leads to a Rs 250 increase in GDP)

3. Income Tax to emerge as biggest income generator after govt borrowings- According to the Interim Budget 2024-25, income tax revenues will account for 19% of all government resources in FY25. (Govt borrowings-28%, Corporate tax-17% and GST-18%). This increase in the contribution of income tax is a result of Direct tax reforms undertaken by the govt in past decades.

4. Adoption of nano-DAP to all major agro-climatic regions- The adoption of domestically-produced Nano DAP produced in Kalol, Gujarat is set to significantly reduce the import burden of fertiliser industry.

5. Focus on Blue Economy- The interim budget 2024 provides a roadmap for Blue Economy 2.0. and enhanced budgetary allocation to the fisheries sector. This will help in augmenting India’s agri-exports and will provide support to the coastal community livelihood.

6. Focus on Innovation and Green energy sector- The corpus fund of 1 lakh crore for spurring innovation and the enhanced focus on green energy through rooftop solar schemes, mandatory blending of CBG in CNG and PNG will help India in achieving its panchamrit goals.

7. Withdrawal of old tax demands- This step will benefit one crore taxpayers and will be another milestone in the Government’s effort towards Vivad se Vishwas in matters of taxation.

What are The Concerns with The Interim Budget 2024? 

1. Muted outlook on GDP growth- The nominal GDP growth for FY 2024-25 is projected at just around 10.5%. Taking into account the inflation rates for the coming financial year, the real GDP growth rate will be subdued. This raises concerns with respect to our target of becoming the top 3 global economies of the world by 2027.

2. Missed Capex Target in FY 2023-24- The Capex expenditure target Rs 10 lakh crore set for FY-24 set in the Budget 2023-24 has not been met. The revised estimates show that the Capex for FY-24 stands at Rs 9.5 lakh crore.

3. Health, Education Budget Cuts- Budgeted cut backs in the key sectors continued in FY 2023-24. Out of the budgeted education expenditure of Rs 1,16,417 crore, the actual expenditure is Rs 1,08,878 crore. Similarly, in healthcare, out of the budgeted expenditure of Rs 88,956 crore, only Rs 79,221 crore was spent in FY 24.

4. Cuts in core schemes- “Core of core schemes” meant for the most disadvantaged sections of society, such as SCs, STs and minorities, have witnessed cuts. For ex- Revised Estimates (RE) for the Umbrella Scheme for Development of Schedule Castes are Rs 6,780 crore against the Budget Estimates (BE) of Rs 9,409 crore.

5. Neglect of the farm sector- There has not been an increase in the allocation for agricultural sector. In real terms, the allocation of Department of Agriculture and Farmers Welfare (MoAFW) has gone down in the interim budget. No step has been taken in the budget towards rationalisation of food and fertiliser subsidy.

What Should be The Way Forward?

1. Achieving Fiscal Consolidation by raising revenues than compressing Expenditure-Our fiscal deficit reduction approach must target on raising revenues rather than reducing expenditure, as expenditure multipliers tend to be higher in an economy than revenue multipliers.

2. Strategic Asset sales Programme- Asset monetisation will help in raising govt. revenues as the market condition remains buoyant. This will help in bringing down fiscal deficit without the need of reducing government expenditure.

3. Increased expenditure on health and education- The social sector expenditures by the govt. must be increased for achieving the goal of Inclusive Development.

4. Rationalisation of agricultural Subsidies- The full-fledged budget to be presented in July must take bold reformative measures of rationalisation of food and fertiliser subsidies.

5. Passing the baton to the private sector- With its initial push by increasing the Capex, the government must pass on the baton of infrastructural development to the private sector by reducing the crowding out effect in the economy. Crowding out effect can be reduced when the govt. reduces its fiscal deficit and achieves its FRBM 2003 target of fiscal deficit being 3% of the GDP.