 "Nirmala Sitharaman, Droupadi Murmu")
When Union Finance Minister Nirmala Sitharaman rose to present the Interim Budget on Thursday, it was an open question as to whether it would focus on consolidating the gains made in recent years on fiscal consolidation, or move towards full-throated populism in anticipation of general elections in the next few months. The answer from the FM was clear: Nothing would change. Expenditure will be compressed in 2023-24, and no major giveaways for 2024-25 were announced. Expectations that the finance ministry would make use of higher-than-expected revenue receipts to pad expenditure did not materialise, and borrowing is projected to shrink in the coming year.
The FM repeated her commitment to the fiscal consolidation glide path that had previously been announced, which is supposed to take the fiscal deficit down to “below 4.5 per cent” of gross domestic product or GDP by 2025-26. The fiscal deficit for 2024-25 is projected to be 5.1 per cent of GDP; that will do more than half the work of getting to 4.5 per cent from the 5.8 per cent of GDP that the deficit is expected to be in the ongoing fiscal year.
That 5.8 per cent of GDP could be managed in 2023-24 is itself no mean achievement. Not only is this lower than the target in last year’s Budget of 5.9 per cent of GDP, but also — as the minister was at pains to point out — the nominal GDP target came in below estimates, making her task more difficult. Nominal GDP is projected to grow, in the coming fiscal year, at 10.5 per cent year-on-year.
Deficit compression was aided by non-tax revenue coming in at Rs 74,000 crore higher than budgeted. This increase of 25 per cent was mainly due to hefty dividends from the Reserve Bank of India and public sector banks. On the other hand, contrary to some expectations, net tax revenue receipts to the Union government were marginally lower than those projected in Budget 2022. Partly this was, according to the Budget documents, because the Union transferred in excess of Rs 7,000 crore to the state governments. Total expenditure in 2023-24 was compressed, when compared to the Budget Estimates, by almost exactly as much as net tax revenues.
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This expenditure compression came largely on the capital account. Capex in 2023-24 will be just over 5 per cent lower than budgeted last February. One large contributor to this lower-than-expected capex is the absence of a Rs 30,000 crore payout to oil marketing companies for infrastructure renewal. This has been shifted to the next fiscal year, and halved to Rs 15,000 crore.
Nonetheless, infrastructure will continue to be financed at high levels, with an increase of 17 per cent over last year’s Budget planned for 2024-25. This will be spent, among others, on railway upgradation — Vande Bharat-level coaches and new dedicated corridors for freight. The railways get almost 60 per cent more than they did two years ago.
The finance minister kept revenue projections for the next year conservative, expecting a mere 12 per cent increase. Market borrowings have come down, which has been a relief for the bond market. On the other hand, no major tax changes were announced other than an extension of some tax benefit schemes. The Sensex closed 0.1 per cent down after volatile trading, led by declines in infra stocks. But the bond markets celebrated, with the benchmark 10-year yield falling by 11 basis points, the most in over a year, in response to the lower borrowing and deficit targets.
In her Budget speech, Union Finance Minister Nirmala Sitharaman stressed not only the government’s commitment to fiscal responsibility but also its past achievements on welfare and infrastructure spending. She promised a “white paper” to Parliament that would contrast this performance to that prior to the government’s assumption of power in 2014.
Welfare spending, however, does not see a marked boost in this Interim Budget although an election is on the horizon. In fact, subsidies on food, fuel and petroleum are projected to see a 7.7 per cent decline in 2024-25. This may not reflect a realistic perspective on the path of oil and gas prices in the coming year, given the global geopolitical and geo-economic situation.
There is some downside risk to the Budget mathematics from this potential under-provision for subsidy expenditure. There were minimal new directions for policy set out in this Interim Budget, as is the convention. Some, however, are worth noting — including the enhanced focus on green initiatives. The Budget speech noted that 10 million households will be able to receive 300 free units of electricity through rooftop solar, viability gap funding will be provided for offshore wind, coal gasification will be sped up, and blending of compressed biogas will be made mandatory.
While there were few tax give-aways to be made, the finance minister kept one eye on the need to ensure positive sentiment among taxpayers heading into the general elections. This was achieved relatively cheaply on the tax side through the announcement that about 10 million taxpayers would benefit from the closure of outstanding tax disputes dating from the years before 2015. Only about Rs 3,500 crore would be waived through this mechanism, but the relief for taxpayers would far outweigh the monetary value. Through this provision, a feel-good result was achieved through minimal expenditure.
