Budget 2024: Key numbers underline smart spending, fiscal consolidation ahead of Lok Sabha polls

In the wake of the upcoming Lok Sabha elections, the Union Budget 2024 stands out as an interim arrangement, with the full budget slated for presentation in July. Finance Minister Nirmala Sitharaman's 58-minute address laid bare the government's fiscal strategy amidst electoral anticipations, marking a notable departure from typical election-year extravagance.

Let’s have a look at crucial numbers and their economic impact:

SUSTAINABLE REVENUE AND SPENDING STRATEGY

The Interim Budget reveals a nuanced approach to financial stewardship. The Finance Ministry reports the smallest budget gap since the pandemic's onset in the fiscal year ending March 31, showcasing a robust economic recovery that has significantly reduced the country's budget deficit. This budgetary prudence is underscored by an improved spending framework, suggesting a shift towards tighter budgetary controls without compromising growth potential.

FISCAL TRENDS AND PROJECTIONS

The government's dedication to fiscal consolidation is evident, with a projected budget deficit of 5.1 per cent for fiscal year 2025. This marks a slight reduction from the current year's 5.8 per cent to narrow it further to 4.5 per cent by fiscal year 2026. Such a trajectory is notable given the spike in the deficit to over nine per cent of economic output in 2021, a historic high.

During a press briefing, Sitharaman's assurance that the government is on track to meet its fiscal targets underlines ongoing efforts to manage the deficit, which peaked at 9.2 per cent of GDP during the pandemic, down to 4.5 per cent by fiscal year 26. This fiscal discipline is critical for enhancing India's credit rating and the attractiveness of its bond market, especially in light of India's integration into global bond indexes this June.

TAX REVENUE BREAKDOWN

In fiscal year 2025, central government tax revenue is forecasted at Rs 38.31 trillion, up 11.5 per cent from this fiscal year. Corporate and income tax collections are expected to rise by 13 per cent and 13.1 per cent. Excise duty collections are likely to increase by five per cent, reaching Rs 3.19 trillion. Goods and Services Tax collections are projected to grow by 13.1 per cent to Rs 9.18 trillion.

The budget maintains current tax rates for individuals while adjusting subsidies for fertilisers to Rs 1.64 trillion and food to Rs 2.05 trillion for the following year. This stability in tax rates, coupled with strategic subsidy management, aligns with the broader fiscal objectives.

SPENDING FOCUS

Capital expenditure is prioritised for long-term assets. The 2024-25 budget allocates 23.3 per cent for this, the highest since 1995. At Rs 11.1 trillion, it's a record high, continuing the upward trend. Spending on infrastructure like roads and buildings has increased by about one-third annually for three years.

BUDGET SIZE AND STRATEGIC ALIGNMENT

The budget's composition relative to GDP reflects a strategic alignment with pre-pandemic levels, totalling Rs 47.66 trillion or 14.5 per cent of GDP for fiscal year 2025, a 6.1 per cent increase from the previous year. This careful calibration of budget size focusses on economic stability and growth.

Ahead of the elections, the government has doubled down on support for cooking gas subsidies, allocating Rs 0.11 trillion for fiscal year 2025, and maintained steady funding for the Mahatma Gandhi National Rural Employment Guarantee Scheme. Further, a new initiative to assist middle-class individuals in securing housing focusses on the government's effort to balance fiscal responsibility with social welfare.

CA (Adv) Shashank Shekhar Gupta notes that besides fiscal considerations, initiatives like tourism enhancement, broader housing schemes, and Dedicated Freight Corridor development will strengthen businesses.

PRUDENCE OVER POPULISM

This interim budget reveals Sitharaman's strategic approach to fiscal management in an election year, characterised by cautious funding and a steadfast commitment to fiscal consolidation. By eschewing grandiose spending announcements in favour of targeted investments and economic stewardship, the government sets a precedent for prudent budgetary policy amidst electoral considerations. The forthcoming report to Parliament will further elucidate the economic trajectory since 2014, offering insights into the effectiveness of these strategies in shaping India's economic landscape.