Union Budget 2024-25 — no signs of learning
Context
As Nirmala Sitharaman presented her seventh consecutive Budget as Union Finance Minister for a coalition led by the Bharatiya Janata Party (BJP), which has retained power for the third time despite a lukewarm mandate, anticipation ran high.
- Signals from the government, particularly the Economic Survey 2023-24, suggested a strong inclination towards easing regulatory burdens on businesses and encouraging the private sector to generate jobs out of “enlightened self-interest.”
- The government seemed to prioritize facilitating a business-led journey towards a developed India (Viksit Bharat 2047), while neglecting more direct interventions to address core economic issues.
Relevance:
GS-02 (Polity)
Dimensions of the Article:
- About the Budget
- What Is the Issue?
- Need to Address the Issue
About the Budget
- The 2024-25 Budget presented by Finance Minister Nirmala Sitharaman has a distinct focus on deregulation and incentivizing the private sector to take a lead in economic development.
- The Economic Survey highlighted that while India’s business elite enjoyed substantial profits, the government’s strategy was to encourage these profits to drive job creation rather than directly taxing them for developmental purposes.
Key Highlights from the Budget
- Employment Initiatives: The Budget speech emphasized job creation, particularly for the educated unemployed. Initiatives included:
- A subsidy scheme providing ₹15,000 in three installments to new employees earning up to ₹1 lakh a month, targeted at the formal sector.
- Government contributions of ₹3,000 per month for two years towards provident fund subscriptions for employers.
- Schemes for subsidized internships and interest subvention for educational loans aimed at skilling workers.
- Tax Adjustments: The Budget included direct tax concessions for foreign firms and indirect tax adjustments to favor domestic manufacturing, reflecting an attempt to persuade private capital to hire unemployed individuals.
- Agricultural Focus: While addressing the agricultural sector, the Budget proposed a long-term program to raise productivity and production. However, it fell short of addressing the immediate demands of farmers for procurement at a legally guaranteed minimum support price.
- Support to Allies: The Budget offered modest support to key allies like the JD(U) in Bihar and the TDP in Andhra Pradesh, promising infrastructure development projects but without substantial financial backing from the Centre.
- Welfare Schemes: Surprisingly, the Budget allocated the same or reduced amounts to key welfare schemes:
- The National Social Assistance Programme and the National Rural Employment Guarantee Programme saw no increase in allocation.
- The food subsidy under the National Food Security Act was reduced despite the extension of free foodgrain allocation.
- The Pradhan Mantri Awas Yojana (PMAY) received a slight increase in allocation.
- Fiscal Consolidation and Capital Expenditure: The government reiterated its commitment to fiscal consolidation, aiming to reduce the fiscal deficit from 4.9% of GDP in 2023-24 to 4.5% in 2024-25. Capital expenditure was projected to rise significantly, primarily funded by dividends and surpluses from the Reserve Bank of India and public financial institutions.
What Is the Issue?
- Mismatched Priorities: The focus on deregulation and incentivizing the private sector overlooks the immediate economic issues such as rural distress, widespread unemployment, and inflation.
- Inadequate Support for Allies: The promises made to key political allies like the JD(U) and the TDP are not backed by significant financial support, relying instead on borrowings facilitated by the Centre.
- Neglect of Welfare Schemes: The lack of increased allocation to crucial welfare schemes like the National Social Assistance Programme and the National Rural Employment Guarantee Programme undermines the social safety net.
- Overreliance on Transfers: The ambitious capital expenditure plans hinge on substantial transfers from the RBI and public financial institutions, raising questions about sustainability and long-term fiscal health.
Need to Address the Issue
- Economic Stability: A balanced approach is necessary to ensure economic stability, addressing both immediate economic challenges and long-term growth prospects.
- Political Stability: Adequate support for political allies is essential to maintain a stable coalition government.
- Social Equity: Strengthening welfare schemes is vital to protect vulnerable sections of society and ensure inclusive growth.
- Sustainable Growth: Reducing overreliance on transfers and ensuring sustainable fiscal policies are important for long-term economic health.
Way Forward
- Balanced Economic Policies: The government should balance deregulation with direct interventions to address immediate economic challenges such as unemployment and rural distress.
- Enhanced Support for Allies: Providing substantial financial support to key political allies can ensure political stability and effective implementation of developmental projects.
- Strengthening Welfare Schemes: Increasing allocations to crucial welfare schemes can protect vulnerable sections of society and promote social equity.
- Sustainable Fiscal Policies: Ensuring sustainable fiscal policies by reducing overreliance on transfers and focusing on revenue generation through taxation and other means is essential for long-term economic health.
Conclusion
The 2024-25 Budget reflects the government’s focus on deregulation and incentivizing the private sector to lead economic growth. However, this approach raises concerns about mismatched priorities, inadequate support for political allies, neglect of welfare schemes, and overreliance on transfers.