 "Madan Sabnavis")
There are five things stand out in the Budget 2025 proposals as it works on the entire process of fiscal consolidation. To begin with, the government has assumed a rather conservative gross domestic product (GDP) growth rate of 10.1 per cent for FY26, which is the basis for all tax conjectures. Given that the world economy is in a state of flux as is the domestic economy, it always makes sense to be cautious on the GDP forecast so that there is no case of overstating revenue.
The first is that the government has shown resolution in lowering the fiscal deficit which is now to be 0.4 per cent lower than last year at 4.4 per cent. This means two things. The first is that the short-term goal of meeting the 4.5 per cent mark would have been achieved and the government can seriously consider lowering the deficit to 3 per cent in the next few years. Intuitively, it can be seen that with 0.5 per cent reduction on an annual basis, we can reach the 3 per cent target by FY29. The second implication is that from a markets perspective there is nothing to worry in terms of liquidity, as the gross borrowing programme would be Rs 14.8 trillion against Rs 14 trillion in FY25. This was a concern for the market as given that liquidity is pressurized presently, a higher programme could have caused some disruption.
The second highlight has been the continued focus on capex, which is targeted to be Rs 11.2 lakh crore - higher than the revised numbers for FY25. This time, the government is better placed in the sense that there is a full-year to implement these projects, which was a handicap last year. The focus remains on roads, railways and defence that also tend to have multiplier effects on the economy relative to other sectors.
The third has been the approach taken to tackling the consumption issue through the income tax rates. There have been some major concessions given for individuals. As Finance Minister Sitharaman has mentioned that the revenue foregone would be Rs 1 trillion, one can assume that it would lead to Rs 70,000 crore of consumption.
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Fourth, the government continues to focus on social welfare and development as seen by the allocations made for programmes like the PM Kisan, NREGA, PM Awas Yojana. This has been instrumental in the past for elevating the living standards of the poorer people. The free food scheme which will be running for another 4 years has indirectly uplifted consumption and the recipients have spent the money saved on buying foodgrains for buying other goods. This gets reflected in the household consumption expenditure surveys carried out by the NSO.
Fifth, the various measures announced to provide support to industry deserves mention. The focus has been on fostering public private partnership (PPP) deals along with states to ensure that new investments are taken on. This will be across all ministries which will work out the projects to be taken on. The Budget 2025 also talks of fostering investment in urban infrastructure where the funding will be supported by issuance of bonds for bankable projects.
Therefore, the budget has tried to deliver on all counts, to the extent possible within the realms of fiscal consolidation. It may be recollected that the fiscal deficits had spiraled to high levels during Covid, and since then, the objective has been to roll back the same gradually. This has been done in a non-obtrusive manner that has hence ensured limited disruption. More importantly, there has not been any significant strain as such on the market for funding.
Madan Sabnavis is the chief Economist at Bank of Baroda. Views are personal
