In times of global economic turbulence, Union Budget 2024 stands as a harbinger of fiscal prudence and strategic foresight, aiming to boost the might of the Indian economy. The budget’s strategy is multifaceted, aiming at fiscal consolidation with a fiscal deficit pegged at 4.9 per cent of GDP for current fiscal year 2024-25 and 4.5 per cent for the next fiscal year, while maintaining conservative revenue assumptions, amidst economic buoyancy. Remember, in the last financial year, FY24, the Modi government managed to rein in the fiscal deficit at 5.6 per cent versus the stated target of 5.8 per cent of GDP.
Despite a robust average GDP growth of 8.36 per cent in the last 3 years and 8.2 per cent in 2023-24 (FY24), cautious fiscal management and limiting the room for prodigal policies have been the hallmark of Modinomics. Note, that global GDP growth was only a dismal 3.2 per cent in FY24. With public sector investments already doing what is needed, the private sector is poised to take up the mantle of driving the next phase of economic expansion, buoyed by healthy corporate balance sheets. Thus, the budget continues to focus on ease of business, to navigate global challenges and capitalise on emerging opportunities effectively. Don’t forget that over 1500 archaic laws have either been completely removed or decriminalised in the last 10 years by the Modi government. ‘Minimum government, maximum governance’ has indeed been the calling card of Prime Minister Narendra Modi.
Before delving deeper, food inflation based on the Consumer Food Price Index (CFPI) increased from 3.8 per cent in FY22 to 6.6 per cent in FY23 and further to 7.5 per cent in FY24. However, the Modi government took prompt actions, including open market sales, retailing and timely imports, to ensure an adequate supply of essential food items. Additionally, to ensure food security for the poor, the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), which provides free food grains to more than 81 crore beneficiaries every month, was extended for a period of five years starting from January 2024. Effectively speaking, large parts of rural and semi-urban households were completely insulated from food price inflation, thanks to the Modi government’s transformative PMGKAY. The good news is, the headline retail inflation rate was less than 6 per cent in 29 out of the 36 states and Union Territories in FY24.
Assuming a normal monsoon and no further external or policy shocks, the RBI expects headline inflation to be 4.5 per cent in FY25 and 4.1 per cent in FY26. The World Bank projects a 3 per cent decline in the commodity price index in 2024 and a 4 per cent decrease in 2025, mainly driven by lower energy, food and fertiliser prices, which will further lead to positive spillover effects in India. The moot point is this: India’s retail inflation, at a 4-year low of 5.4 per cent in FY24, remains low and stable, and is moving towards the 4 per cent target, indicating macroeconomic stability. In fact, in FY24, Core Goods’ inflation was at a 4-year low, while Core Services’ inflation was at a 9-year low, with Core inflation at a mere 3.1 per cent in June 2024. The hike in the repo rate from 4 per cent in February 2022 to 6.5 per cent in February 2023 was necessitated by inflationary challenges in the aftermath of Covid.
But let us, for a moment, go back to 2013. The benchmark prime lending rate (BPLR) was a steep 14.75 per cent under the Congress-led UPA. However, the one-year marginal cost of lending rate (MCLR) for SBI, for example, is only 8.85 per cent today. The fall in lending rates has been a significant benefit for India’s burgeoning middle class, as lower rates have made housing loans, personal loans, vehicle loans, and credit card loans much cheaper over the past 10 years under the Modi government. Under the UPA, the middle class was burdened with excessively high lending rates.
So, despite two Black Swan events—the Covid pandemic and the Russia-Ukraine conflict—the Modi government has done an outstanding job in managing the growth-inflation conundrum. Moreover, lending rates have remained relatively low over the past 10 years, resulting in substantial savings for the middle class.
The Union Budget 2024-25, like all other economic policies of PM Modi, does not discriminate. However, under Congress, budget allocation in Telangana for the Minority Welfare Department this fiscal year has increased to a substantial Rs 3003 crore, up from Rs 2200 crore under the previous BRS government. Interestingly, budgeted expenditure on the Scheduled Caste Development Department has decreased from Rs 21,072 crore in the last fiscal year to just Rs 638 crore this financial year. Similarly, spending on the Tribal Welfare Department has decreased from Rs 4365 crore to Rs 3969 crore.
Does this reduction in spending for Scheduled Tribes and Scheduled Communities contrast with Congress’s proclamations of serving the interests of Dalits and Adivasis? Most certainly, yes. While Congress scion Rahul Gandhi vows to work for SCs and STs, this appears to be mere lip service and hypocrisy, at best. In reality, the Congress has been focusing its budgetary allocations on its Muslim vote bank, and doing so quite brazenly.
Here’s a breakdown of the budgeted spend on minorities in the recently announced Telangana Budget by the Congress government: Over Rs 33 crore allocated for Ramzan celebrations; over Rs 50 lakh for the repair and maintenance of Ashoor Khanas; over Rs 2.4 crore allocated for the radicalised Tablighi Jamaat; and over Rs 4.43 crore for Haj pilgrims. Incidentally, Telangana’s minority population is around 14 per cent (approximately 50 lakhs) of the state’s overall population.
In Congress-ruled Telangana, the budgetary outlay for SCs and STs has been drastically cut. While Congress discriminates, the Modi government has consistently ensured that inclusivity remains a defining feature of its budgetary exercises. For instance, Congress-ruled Karnataka received its highest-ever budgetary allocation for railway development this year, with Rs 7559 crore allocated. This is the largest allocation in any single budget year in Karnataka’s history, in addition to Rs 47,016 crore worth of ongoing work spanning across 31 projects set to be completed in the coming years.
Additional budgetary assistance has also been awarded to the Bengaluru Suburban Railway project. Along with budgetary provisions, execution efficiency has grown multi-fold under the Modi government. South Western Railway (SWR) is all set to achieve 100 per cent electrification by 2025. As an example, electrification is now happening at an average of 317 km per year, compared to UPA’s paltry rate of only 18 km per year. While Yesvantpur station’s redevelopment at Rs 367 crore and the modernisation of Bangalore Cantonment Station at Rs 484 crore are big-ticket renovation projects, there are 46 other railway stations undergoing redevelopment under Amrit Bharat Station Scheme, within Karnataka. These projects will greatly enhance amenities and passenger experience.
Karnataka is a glowing example of how PM Modi’s development model does not discriminate between BJP and non-BJP-ruled states. It is a different matter altogether that with massive freebies, crumbling law and order, rising corruption and unruly leadership, Siddaramaiah’s Congress government is slowly pushing Karnataka into the throes of financial chaos and disarray.
The key highlight of budget 2024 has been the reduction in customs duties across sectors to enhance export competitiveness. The budget aligns with trade theory, emphasising that lowering import tariffs can effectively serve as an export promotion strategy. The introduction of 109 high-yielding and climate-resilient varieties of crops and Rs 1.52 lakh crore provision for agriculture and allied sectors this year is welcome news. Employment has been a major focus, with a Rs 2 lakh crore outlay to facilitate employment, skilling, and opportunities for 4.1 crore youth over the next 5 years. The launch of PM Awas Yojana Urban 2.0 with Rs 10 lakh crore investment to address the housing needs of urban poor and middle-class families is a great step. Budgetary policies focused on energy conservation, renewable sources, and sustainable energy practices are wise steps too. The allocation of more than Rs 3 lakh crore for schemes benefiting women and girls showcases PM Modi’s renewed commitment to women-led development.
Fiscal prudence refers to the careful management of government finances aimed at maintaining fiscal discipline, sustainability, and stability. It involves making responsible decisions regarding public spending, revenue generation, borrowing and debt management, to achieve macroeconomic stability and long-term economic health. Fiscal deficit reduction is crucial for maintaining fiscal health and debt sustainability. Measures may include refinancing debt, extending debt maturities, and minimising reliance on costly forms of financing. Prudent fiscal management enhances investor confidence, and potentially leads to improved credit ratings, and reduced borrowing costs for the government and private sector alike.
India’s public debt-to-GDP ratio is steady at a reasonable 81 per cent in 2022, allowing fiscal space for public investments and social spending. Budget 2024 allocates significant funds for infrastructure projects under initiatives like PM GatiShakti. The focus is on smart cities, urban mobility, and affordable housing to support rapid urbanisation and enhance living standards. Strengthening manufacturing through production-linked incentives (PLI) and Make-in-India initiatives across sectors like electronics, pharmaceuticals, and textiles have redefined Modinomics. Simplifying regulatory frameworks, reducing compliance burden and promoting MSMEs to foster entrepreneurship and job creation have been the pillars on which the Union Budget 2024-25 stands. Implementing agri-market reforms through e-Nam, improving agricultural infrastructure and expanding irrigation facilities continue to be focus areas.
Budget 2024 announced three employment-linked incentive (ELI) schemes and will allocate Rs 2 lakh crore for job creation over the next five years. Scheme A includes a Direct Benefit Transfer of 1-month salary in 3 installments up to Rs 15,000 to first-time employees registered in EPFO. Scheme B revolves around job creation in manufacturing, whereby incentives will be provided directly to both employees and employers as per their EPFO contributions. Scheme C includes reimbursement to employers up to 3000 per month for 2 years towards their EPFO contribution for each additional employee hired.
It is safe to conclude that the Union Budget builds on the successful fiscal and economic reforms implemented over the past 10 years under the aegis of Prime Minister Narendra Modi. These reforms included a revision of the Fiscal Responsibility and Budget Management Act (FRBMA), extensive corporate income tax (CIT) reforms, implementation of GST, a steady reduction in subsidies relative to GDP and implementation of schemes such as Direct Benefit Transfers (DBT), to ensure benefits reach the poorest without any leakages or pilferage. The combined tax-GDP ratio of the Centre and the states had languished in the range of 16 per cent to 18 per cent for over three decades, from the late 1980s up to as recently as 2013, under various successively corrupt Congress regimes. However, the combined tax-GDP ratio recovered to 18.5 per cent in FY24. The gross tax revenue (GTR) to GDP ratio has increased from a trough of 10.2 per cent in 2020-21 to 11.7 per cent in 2023-24, driven largely by a relatively high direct tax buoyancy. Despite a significant fall in direct tax rates for individuals, tax revenues have increased; the middle class too has benefitted substantially, thanks to rationalisation of the tax structure and income tax slabs.
The National Monetisation Pipeline (NMP), introduced in the 2021-22 Union Budget, was an important initiative. This included assets with monetisation potential of Rs 6 lakh crore from 2021-22 to 2024-25. The Modi government has realised nearly Rs 3.9 lakh crore against a target of Rs 4.3 lakh crore. On the expenditure side, the combined government expenditure relative to GDP has increased from 25.5 per cent in 2014-15 to 27.5 per cent in 2023-24. Ignoring the COVID year, the Centre’s total expenditure to GDP ratio has increased from 10.5 per cent in FY15 to 12.9 per cent in FY24. There has been a tangible increase in the share of capital expenditure in the government’s total expenditure, from 11.8 per cent in FY15 to 21.4 per cent in FY24. Correspondingly, the share of revenue expenditure has fallen. Within revenue expenditure, there has been an emphasis on reducing the share of subsidies via better targeting and delivery to the intended beneficiaries. Clearly, the quality of government spending under PM Modi’s tenure has improved dramatically with a big cut in wasteful expenditure and that is a huge achievement.
The fiscal deficit to GDP ratio fell from a peak of 9.2 per cent in 2020-21 (Covid years) to 5.6 per cent in 2023-24, which is great news. The quality of the fiscal deficit has also improved as reflected by a fall in the ratio of revenue deficit to fiscal deficit from 76 per cent in FY18 to 46.3 per cent in FY24. Debt-GDP ratio has also fallen from its peak levels in 2020-21. Currently, the Modi government’s finances appear to be on a strong footing with its tax and non-tax revenues showing buoyant performance, the structure of expenditures shifting more towards capital spending and fiscal imbalance improving significantly.
The 2023-24 Economic Survey has estimated India’s real growth to range between 6.5 per cent and 7 per cent in 2024-25. With respect to nominal growth, the Union Budget 2024-25 has assumed it at 10.5 per cent. However, nominal growth may turn out to be slightly higher as WPI inflation, which has a higher weight in the construction of the implicit price deflator (IPD), is expected to return to its normal levels after being inordinately low at (-) 0.7per cent in 2023-24. A tad higher WPI is actually good news.
Budget 2024 has assumed a buoyancy of gross tax revenue (GTR) at 1.03. This results in a growth of 10.8 per cent in GTR. The net tax revenue is now budgeted at Rs 25.8 lakh crore. By adding non-tax revenue of Rs 5.46 lakh crore (mainly owing to RBI’s enhanced dividends), the resultant revenue receipts amount to Rs 31.29 lakh crore. To this, if we add non-debt capital receipts (comprising disinvestment) of Rs 78,000 crore, we get non-debt receipts amounting to Rs 32.07 lakh crore. Thus, as compared to the interim budget, the total additional resources at hand amount to Rs 1.27 lakh crore. This was utilised to reduce the fiscal deficit by a margin of Rs 72,182 crore as compared to the interim budget level, while revenue expenditure has been increased by Rs 54,744 crore.
Most of this increase is directed towards spending in agriculture, labour and employment, housing, urban development, and renewable energy. Capital expenditure was maintained at Rs 11.11 lakh crore, the same level as in the interim budget.
Transparency in fiscal policies, practices to build trust among citizens and investors and accountability mechanisms, such as regular audits and reporting of government finances that are essential to ensure that public funds are used efficiently and effectively, remain the cornerstones of Modinomics.
In Budget 2024, the Modi government has projected a tax revenue growth rate of 10.8 per cent against a nominal GDP growth rate of 10.5 per cent. This estimation aims to ensure realistic revenue targets amid global geopolitical uncertainties. There is a focus on increasing capital expenditure relative to revenue expenditure. This shift aims to enhance productivity, create long-term assets and stimulate growth in key infrastructure sectors. Budget 2024 emphasizes strategic investments in sectors such as infrastructure, healthcare, education and technology. These investments are crucial for enhancing productivity, competitiveness, and overall economic growth.
The Budget outlines reforms in the financial sector to strengthen regulatory frameworks, enhance transparency, and mitigate risks associated with financial markets. Policies aimed at rationalising tariffs and enhancing the ease of doing business contribute to a conducive environment for private sector investments and economic growth. Union Budget 2024 underscores the importance of enhancing India’s global competitiveness through structural reforms in factor markets (land, labour, and capital). This strategy aims to foster equitable growth and reduce regional disparities.
Budget 2024 will take forward the Modi government’s high growth trajectory, with a focus on welfarism and improving the lives of India’s aspirational middle class. The BSE Sensex closed the Budget week at 81332, up almost 1293 points, while the Nifty closed at 24834, up 429 points, in a telling sign of things to come. Capital of Rs 10.9 lakh crore was raised from the markets in FY24, covering 29 per cent of the total capital formation and seemingly, it will only get better in FY25. Overall exports rose to a whopping $776.7 billion in FY24, with services exports alone rising to a solid $341 billion. External debt at 18.7 per cent of GDP, with forex reserves at an all-time high of $671 billion, vouch for the resilience of Modinomics.
The growth strategy of focusing on private investment, MSMEs, green transition financing, and the education-employment gap will be game changers. Non-fossil sources constitute 45.4 per cent of India’s total installed capacity, underlining PM Modi’s emphasis on “Green Growth”. A healthy Rs 36,000 crore was raised last year for emission reduction projects. Ayushman Bharat scheme has generated 34.7 crore cards and covered 7.37 crore hospital admissions, saving over Rs 1.25 lakh crore in out-of-pocket expenses, reinforcing PM Modi’s commitment to last-mile delivery.
Unemployment rate at a record low of 3.2 per cent, with EPFO net payroll additions doubling in the last five years, are robust signs of a resilient economy. The livestock sector grew at 7.38 per cent CAGR and the fisheries sector at 8.9 per cent CAGR, in FY24. Digital agriculture mission and e-NAM for smart agricultural technologies are driving rural India. The 9.5 per cent industrial growth in FY24, is the precursor of a strong year ahead in the fields of manufacturing, construction, and mining. In FY24, for instance, a record 997.2 million tonnes of coal were produced, reducing import dependence and giving new wings to the very concept of “Atmanirbhar Bharat”.
Last but not least, by managing deficits, the Modi government has mitigated inflationary pressures without curtailing public spending. It goes to Prime Minister Narendra Modi’s credit therefore that while promoting growth, he has always chosen the path of fiscal prudence and not fiscal profligacy.
Sanju Verma is an Economist, National Spokesperson of the BJP and the Bestselling Author of ‘The Modi Gambit’. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect News18’s views.
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