By Tarun Bajaj
Budget FY24 gives growth new impetus while keeping fiscal prudence at the forefront. And it has something for all—from the poor artisan to the super rich. Though the budget has many aspects, I will confine myself to the core of the budget, i.e., ‘growth with fiscal prudence’ and the subtleties in these announcements.
During the Covid year (2020-21), when the government faced tremendous pressure on increasing revenue expenditure to fight Covid and provide succour to the poor, apart from raising the revenue expenditure by almost 31%, the government also simultaneously raised capital expenditure by 27%, taking it to Rs 4.25 trillion (2.1% of GDP from 1.6%).
In such an uncertain scenario, when most governments would have curtailed expenditure on capital to conserve funds, the FM went out of her way to increase outlays on capital. This has, importantly, ensured that the country continues to be a positive outlier in achieving a high growth rate at a time most countries are struggling. Since then, the government has continued to increase capital outlays in subsequent budgets.
This year too, the increase of 33.33%, to Rs 10 trillion, is a reiteration of the resolve of the government on continuing to fill the gap on capex till the private sector comes in. If one includes the grants-in-aid to states for capital, this amounts to a Rs 13.7 trillion capex push, which, in turn, translates to 4.5% of GDP.
It is just not the outlay, but the way the outlay is to be spent that is noteworthy—100 critical transport infrastructure projects, for last- and first-mile connectivity for ports, coal, steel, fertiliser, and food grains sectors; 50 additional airports, heliports, water aerodromes, and advance landing grounds for improving regional air connectivity, and Rs 1.3 trillion to the states in certain identified sectors. If funds are used in such last- and first-mile connectivity, the multiplier effect will be high and will add to the incomes of people and help push the GDP further.
The budget is leveraging funds to bring reforms and improve the quality of expenditure of not just the Centre but also of the states. Also, there are early signs of private investment kicking in, and that would definitely add to the efforts of the government in further giveing a boost to growth.
It wasn’t very long ago that the fiscal deficit of the Union government alone was 9.2% (in the Covid year of 2020-21). However, in the budget for FY22—when the country had still not come out of the uncertainties of Covid—the government came up with a roadmap to bring down the fiscal deficit to less than 4.5% by the fiscal year 2025-26. Every budget since then has been religiously following this glide path, and the commitment of a 5.9%-fiscal-deficit in FY24, when there are strong headwinds especially from the external sector, is a strong reflection of the government’s commitment to fiscal prudence.
Given the past record of the government on overachieving its fiscal deficit targets, there appears no doubt that this time too, it will achieve the fiscal deficit target of 5.9%. This was further corroborated in the press conference after the Budget, where the finance secretary mentioned that there is enough cushion, both on the revenue and expenditure sides that gives the government the confidence that it would achieve this target. A capex of 4.5% and a fiscal deficit of 5.9% sums up the story of the prudence in spending and the quality of spending of this budget.
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There was a time when capex was just 1.7% of the GDP and fiscal deficit exceeded 4.9%, meaning thereby that borrowings went towards funding mostly revenue expenditure. Now, most of it is towards capital expenditure.
Coming to the credibility of estimates in this budget, it can reasonably be said that the budget estimates of the GDP and revenues are not very ambitious. A nominal GDP growth rate of 10.5% is quite achievable and is in line with various estimates by different agencies. All figures have been estimated with this number in mind.
The gross tax revenue for FY23 (revised estimates) has been pegged at Rs 30.43 trillion, up from the Rs 27.58 trillion estimated in Budget FY23. Given the buoyancy in direct and indirect taxes, this number is expected to get exceeded. For FY24, the gross tax revenues have been estimated with a buoyancy of 1. Given the high buoyancy achieved in FY22 and FY23, and the emphasis of the tax authorities in ensuring greater compliance and use of AI and technology, this buoyancy of 1 should definitely be overshot. This should give confidence that even if there is some further unforeseen expenditure, the government will be able to achieve its fiscal target as it is sure to exceed the revenue figures.
Some of the other noteworthy announcements, which should receive greater attention in the days to come, are the emphasis on urban infrastructure and creation of the Urban Infra Fund on the lines of Rural Infra Development Fund, centres for excellence in AI, a National Financial Information Registry to facilitate efficient flow of credit, promote financial inclusion, serve the MSME sector, and give a boost to the fintech sector.
One other announcement that needs a special mention is the reform in the process of regulation-making by the regulators. The stakeholders, who are very important participants, will now get a say, and this is a big step for furthering the ‘ease of doing business’. In an election year, this budget has achieved the impossible trinity of growth, fiscal prudence, and providing something for all sections without being populist.
The writer is former revenue secretary and former DEA secretary, GoI
