This is an archive article published on January 30, 2024

Opinion Express View: Interim Budget takeaways

It will provide indications of government’s assessment of the economy, and the contours of its fiscal position

Union Budget, Budget 2024, Nirmala Sitharaman, budget speech, Lok Sabha elections 2024, budget estimate, Indian economy, finance ministry, economic survey, $7 trillion economy, indian express news

According to the report, the economy is likely to grow at 7 per cent in the coming year (in real terms), with growth being driven by healthy domestic demand and supply side measures.

By: Editorial

February 1, 2024 09:17 AM IST First published on: Jan 30, 2024 at 08:10 AM IST

In a few days from now, Union Finance Minister Nirmala Sitharaman will present the interim Union budget for 2024-25. While the final budget will only come once a new government is in place after the national elections, this budget will provide an indication of the government’s assessment of India’s economy, and the contours of its fiscal position. It will be read closely for what it says on several questions.

First, at what pace does the government expect the economy to grow in the coming financial year? The last budget assumed that the economy would grow at 10.5 per cent (in nominal terms) during 2023-24. However, as per the first advances estimates, growth is expected to be slower at 8.9 per cent. Some indications of the government’s thinking can be found in a finance ministry report titled “The Indian Economy: A Review”, released on Monday.

According to the report, the economy is likely to grow at 7 per cent in the coming year (in real terms), with growth being driven by healthy domestic demand and supply side measures. It restates the expectation of India becoming the third largest economy in the world with a GDP of $5 trillion in the next three years, and says that it can aspire to become a $7 trillion economy by 2030.

Second, will the government stick to the path of fiscal consolidation? The Centre has managed to bring down its fiscal deficit from 9.2 per cent of GDP in 2020-21 to 6.4 per cent in 2022-23, and considering the trends in revenues and spending so far, most analysts expect it to meet the deficit target of 5.9 per cent this year. In her budget speech of 2021-22, the finance minister had stated her intention of bringing down the deficit to below 4.5 per cent by 2025-26. Staying with this path of consolidation implies a steep reduction in the deficit of 1.4 percentage points over the next two years.

Third, over the past few years, the government has ramped up its capital spending, expecting that it would help crowd-in private sector investments. Its capex has risen from Rs 5.9 lakh crore in 2021-22 to Rs 10 lakh crore in 2023-24 (BE). As per the finance ministry report, overall public sector capex has risen from Rs 5.6 lakh crore in 2014-15 to Rs 18.6 lakh crore in 2023-24 — an increase of 3.3 times. The question is whether, or not, public capex will see such a sustained momentum in the coming year.

Considering that national elections are just a few months away, there are expectations in certain quarters of a greater focus on specific constituencies, such as youth, farmers, and women. While political compulsions may well hold sway now, in due course of time the focus must be on pushing through reforms, including in areas such as skilling, learning outcomes and health, as outlined in the finance ministry report, to put the economy on a high growth trajectory that can be sustained.