Potential focus areas in the upcoming union budget

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UPSC Syllabus Topic: GS Paper 3– Indian Economy – Mobilisation of Resources

News: With Nirmala Sitharaman returning to the finance ministry, the primary focus will shift on preparing the Union Budget for 2024-25 and presenting it.

What is the present status of the economy?

Retail inflation is controlled but remains slightly above the government target of 4%.

GDP grew by 8.2% in 2023-24 and is expected to grow by 7.2% in the current year.

Foreign exchange reserves stand comfortably over $640 billion.

The current account deficit was well-controlled at 1.2% of GDP in the first three quarters of 2023-24 and might be even lower for the full year.

What areas can be focussed on, in the upcoming Union Budget?

Merchandise exports: Merchandise exports saw a slight decline last year, and service exports lost momentum. Ongoing geopolitical tensions may affect international commodity prices, especially crude oil.

RBI Surplus Transfer: The Reserve Bank of India’s surplus transfer this year is 133% more than expected, adding fiscal headroom of 0.37% of GDP. This additional receipt can be used to reduce the fiscal deficit, increase infrastructure investment, provide tax incentives, or create jobs.

Fiscal Deficit Management: Efficient resource management reduced the fiscal deficit to 5.6% of GDP in 2023-24, against the budget estimate of 5.9%. The finance ministry aims to reduce the deficit to 5.1% and possibly achieve the 4.5% target earlier than 2025-26.

GST Compensation Cess: The GST compensation cess collected from July 2022 to June 2024 is expected to be around ₹2.7 trillion. This revenue helps repay loans taken by states during covid-19. The government might remove the GST compensation cess or adjust it within revised rates for non-merit goods. This could align with the broader GST rate rationalization to reduce the multiplicity of rates and boost demand.

Transparency in budget: Historically, budgets presented after general elections rely on revised estimates from the interim budget. Significant differences between provisional and revised estimates have been noted in previous years, affecting the accuracy of economic assessments. This time government can Include provisional estimates along with revised estimates in the Budget to enhance transparency. It could provide a more accurate understanding of the government’s revenue collections and expenditure patterns.

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