In a concise yet impactful interim India budget speech, Finance Minister Nirmala Sitharaman outlined key financial aspects for the upcoming fiscal year (2024-25). Analyzing the revised estimates for the current year and the budget estimates for the following year, here are the six significant takeaways that shape the economic landscape of India.
Growth Outlook in Interim Budget
Nominal GDP stands as a pivotal factor in shaping the foundation. For the fiscal year 2024-25, the government anticipates a nominal GDP growth of 10.5%. This projection places India’s nominal GDP at Rs 3,27,71,808 crore, showcasing a 10.5% surge from the estimated figure of Rs 2,96,57,745 crore in the current financial year (2023-24). Understanding the implications of nominal GDP growth is crucial for gauging the real GDP growth after factoring in inflation.
Fiscal Deficit Reduction
A noteworthy achievement in the interim budget is the substantial reduction in fiscal deficit. Acting as a barometer for the government’s borrowing from the market, fiscal deficit management plays a pivotal role in economic stability. The Finance Minister, surpassing expectations, declared a fiscal deficit reduced to 5.8% of the GDP, aiming for even more ambitious targets in the upcoming fiscal years (5.1% for FY25 and 4.5% for FY26). This reduction raises questions about the strategies employed for fiscal consolidation and its potential impact on overall economic growth.
Unmet Capital Expenditure Target
Last year’s budget emphasized a surge in government capital expenditure, setting a target of Rs 10 lakh crore. However, the revised estimates reveal that the actual capital expenditure falls short, standing at Rs 9.5 lakh crore. This discrepancy contributes to the reduction in fiscal deficit and prompts an exploration of the implications on economic growth.
Budgetary Cuts in some sectors
While capital expenditure faced challenges, allocations for health and education also witnessed reductions. The government aimed to spend Rs 1,16,417 crore on education but fell short, spending Rs 1,08,878 crore. Similarly, the health sector faced a budget cut, with the actual expenditure being Rs 79,221 crore against the budgeted Rs 88,956 crore. These cuts raise concerns about meeting crucial needs in vital sectors.
The interim budget highlights cuts in allocations for core schemes targeting marginalized sections, including SCs, STs, and minorities. Revised Estimates indicate reductions in funding for the development of these groups, posing challenges to their welfare. For example, the Umbrella Scheme for Development of Schedule Castes sees a decrease from the Budget Estimates of Rs 9,409 crore to Rs 6,780 crore in Revised Estimates.
Income Tax Dominance in Government Revenue
A notable shift in revenue dynamics is the increasing significance of income tax. The budget documents suggest that income tax revenues will contribute 19% of all government resources in FY25, surpassing corporate tax (17%), GST (18%), and borrowings (28%). This underscores the evolving role of income tax as a major income generator for the government.
In conclusion, the interim budget sets the stage for the upcoming fiscal year, navigating through challenges and opportunities. Understanding these key takeaways provides valuable insights into the economic trajectory of India in the coming year.