The finance minister presented the Vote on Account or the interim budget for FY25. The Vote on Account highlights the government’s achievements in the last ten years and at the same time, walks the tightrope between inclusive development and fiscal prudence. Looking back, barring the Covid-19 shock, the government has achieved the impossible trinity of inclusive growth, fiscal prudence, and investment every year. The Vote on Account moves forward along the same path, laying the foundation for the full Budget, which is to be presented post-election.
Strategies for Amrit Kal were outlined keeping in mind the acronym “GDP: Governance/ Development/ Performance”, thereby underscoring transparency, accountability, and people-centric administration. In a nutshell, the interim budget ensures strong fiscal discipline and the continuity of policies.
The priorities outlined in the budget are inclusive development and growth, infrastructure, investment, and fiscal prudence. Reiterating the belief “Sabka Saath Sabka Vikas”, the government seeks to empower the poor, women, youth and farmers. The government has emphasised a shift from entitlement-based poverty alleviation to empowering the poor. Programs like PM Awas Yojana (Grameen), rooftop solarisation, Lakhpati Didi, and various initiatives in healthcare, agriculture, and fisheries have been outlined. Schemes like PM-Jan Dhan accounts and Direct Benefit Transfer have helped 25 crore people escape multi-dimensional poverty. We must remember that over the last decade, inclusive growth was created not only by the launch of various schemes, including free food for over 80 crore Indians, but also by plugging the leakages through the Jan Dhan, Aadhaar and Mobile (JAM) trinity. The resulting savings from plugging leakages helped in expanding coverage and yet left enough resources for building infrastructure.
The government envisions a ‘Viksit Bharat’ by 2047 with a focus on prosperity, modern infrastructure, and opportunities for all citizens. The trinity of demography, democracy, and diversity, backed by ‘Sabka Prayas’ is seen as the key to fulfilling aspirations.
Infrastructure remains one of the key development objectives. The government has invested in infrastructure at an unprecedented scale. India, between 2014 and 2024, built infrastructure in sectors like power, roads, ports, airports, housing, and telecom equal to what was present in 2013. It has raised the resources for infrastructure investment through better tax compliance. As outlined in the Vote on Account, the government will spend ~17% more on capital expenditure in FY25BE over FY24RE, to the tune of `11.1 trillion or 3.4% of GDP.
To support the infrastructure sector further, the government intends to prepare the financial sector for meeting the investment needs of the country. Under PM Gati Shakti, the finance minister has announced three major economic railway corridors. The construction of economic corridors is in line with the government’s vision to reduce transportation costs, improve lead time, and ultimately increase volume/cargo. Besides, policies were outlined to boost state government capex with Rs 1.3 trillion of support continued in FY25 as well. Prime Minister Narendra Modi has given the slogan “Jai Jawan, Jai Kisan, Jai Vigyan, and Jai Anusandhan”, as innovation is the foundation of development. To encourage the private sector to scale up research and innovation in sunrise domains, a corpus of `1 trillion will be established with a 50-year interest-free loan.
Fiscal prudence remained the North Star of the interim budget. In this aspect, India is clearly shining bright in the global context. The government stuck to the glide path to bring the fiscal deficit below 4.5% of GDP by FY26 while targeting the fiscal deficit at 5.1% of GDP in FY25BE. The net market borrowing target for FY25BE was left largely unchanged at `11.75 trillion as compared to FY24RE, bringing some cheer to the debt markets. The fiscal math (tax receipts, subsidies, and the like) is highly credible, resulting in the belief that the fiscal deficit targets are indeed achievable. In fact, net tax growth is budgeted at 11.9% for FY25. The estimate looks conservative, given the strong tax buoyancy. The interim budget proposes continued efforts to reduce subsidies and focus on productive expenditure. Revenue expenditure as a percentage of GDP continues to decline. Overall, continued fiscal consolidation reinforces India’s macroeconomic stability. Beyond the fiscal math, what was notable is that there were no material changes in the tax rates, given that this was a Vote on Account.
In the last decade, fiscal prudence suffered a setback during Covid-19. However, we are one of the few countries in the world where net debt raised is a little below the investments made. Simply put, we are not burdening our future generation with debt, and we will leave almost as many assets for them. Very few countries can make such a statement to the next generation. Going forward, the resources for funding growth and investments should continue to come from better tax compliance and non-tax receipts like asset monetisation and divestment.
While laying out the roadmap for development, the interim budget does not lose sight of the environment and climate change. Keeping in mind the target of achieving net zero by 2070, it announced initiatives for promoting green energy, electric vehicles, and bio-manufacturing.
India remains one of the fastest-growing major economies. Geopolitical challenges remain, and India plays a key role in navigating such risks collectively, as was emphasised during its G20 presidency. The Vote on Account sets the stage for the full budget, which will be presented after the elections. It must act as a catalyst to both push capex and inclusive growth. The focus should be on ensuring that private capex grows as fast as government capex and consumption at the bottom of the pyramid grows as fast as that at the top—mass market consumption should grow as fast as premium categories. A targeted subsidy framework concentrating on healthcare and education is necessary for inclusive growth. A scheme for supporting the middle class in acquiring homes has been proposed, and the government commits to strengthening the healthcare system, focusing on maternal and child healthcare and the Ayushman Bharat scheme. These catalysts, along with fiscal prudence, will make Indians proud of their growth model and the envy of others.
Nilesh Shah, Managing Director of Kotak Mahindra AMC. Views are personal.