[Answered] Critically examine the strategies outlined in the interim Budget 2024-25 for fiscal consolidation and increasing capital expenditures. How do these strategies align with India’s economic growth and fiscal discipline goals?

Introduction: Give a brief context to the question

Body: Highlight strategies for fiscal consolidation and increasing capital expenditure

Conclusion: Way forward

The interim Budget or ‘vote on account’ for 2024-25 was presented on February 1, 2024 with a  continued emphasis on increasing capital expenditures of the Union government and a continued emphasis on fiscal correction and consolidation. Union Finance Minister announced during her Budget speech that the Centre would reduce its fiscal deficit to 5.1% of gross domestic product (GDP) in 2024-25.

Strategies for fiscal consolidation and increasing capital expenditure

  • Revenue Generation: The government may aim to increase revenue through measures such as taxation reforms, broadening the tax base, tackling tax evasion, and enhancing non-tax revenue sources like dividends from state-owned enterprises.
  • Expenditure Rationalization: Rationalizing expenditure involves prioritizing spending to focus on essential areas while cutting down on wasteful or less productive expenditures. This may involve reforms in subsidy programs, public sector wage bill management, and efficiency improvements in government spending.
  • Infrastructure Investments: Investing in infrastructure projects such as roads, bridges, ports, and airports can boost economic growth by improving connectivity, reducing transportation costs, and attracting private investment.

Alignment with Economic Growth and Fiscal Discipline Goals

  • Encouraging Economic Growth: India’s economic growth objectives are probably going to be met by strategies that emphasize raising capital expenditures, especially in infrastructure and human capital development. These expenditures have the potential to increase productivity, increase demand, and draw in private capital, all of which support long-term, sustainable growth.
  • Maintaining Fiscal Restraint: While raising capital expenditures is critical for economic expansion, it’s also critical to make sure these costs are paid for in a way that maintains fiscal restraint. Excessive borrowing by the government could result in levels of debt that are unmanageable or inflationary pressures. Maintaining macroeconomic stability and investor confidence requires fiscal restraint.
  • Structural Reforms: Alongside fiscal consolidation and increased capital expenditures, structural reforms aimed at improving the business environment, enhancing the ease of doing business, and addressing bottlenecks in key sectors are critical for promoting sustained economic growth and fiscal sustainability.

Conclusion

The interim budget’s strategies exhibit a pragmatic approach to balancing growth and fiscal prudence. However, concerns remain about the pace of consolidation, sustainability of revenue projections, and effectiveness of capital expenditure utilization. The success of these strategies will depend on meticulous implementation, efficient resource allocation, and adaptability to changing economic conditions.

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