Interim Budget 2024: Balancing ease of doing business with ease of living

The Budget has clearly focused on balancing growth and development (in other words, focus on ease of doing business and ease of living).

Against expectations that the interim Budget would be populist, the finance minister has ensured no major changes either in the taxes or in expenditures. Indeed, when compared with pre-election Budgets in the past, including the 2019 interim Budget, this one sets an example for what a good interim Budget could be — one that ensures fiscal policy continuity.

The Budget has clearly focused on balancing growth and development (in other words, focus on ease of doing business and ease of living). Improved quality of expenditure with higher government capital expenditure and increased impetus on fiscal predictability, governance and outcomes has been a hallmark of last three Budgets and this interim one is a continuation of a similar focus. One interesting indicator to understand the improved quality of expenditure is the revenue deficit as a share of fiscal deficit and this has seen a sharp decline from 61.5% in 2023-24 to 38.7% in 2024-25 BE and this underlines the expansionary fiscal consolidation path that Budget has followed in the last few years.

There are other pleasant surprises as well especially when one looks at the revised numbers for 2023-24. Against almost all predictions that there could be a slippage in fiscal deficit numbers, especially due to low nominal GDP growth than what was budgeted, the revised estimates suggest a better fiscal deficit number of 5.8%. The increase in revenue (especially non-tax) buoyancy appears to have more than compensated for the decline in the output growth. The interim Budget assumes such positive trends to continue in the next year and hence, stuck to 5.1% fiscal deficit, with 3.4% capex, for the next year. In a way, this suggests that by 2025-26 we may better the numbers set under the fiscal glide path in 2021-22.

However, concerns on the higher public debt remain. With 58.1% and 57.2% central government debt for 2023-24 and 2024-25, it appears too difficult to achieve the target of 40% as set in the FRBM act. The concern regarding public debt grows when one looks at the issue of servicing this debt. The last three years’ data (including 2024-25 BE) suggest a jump in interest payments from 22% to 25% of the total revenue receipts. As a ratio to revenue deficit, interest payments is over 180% in 2024-25 BE. This calls for a robust medium-term expenditure framework that is part of compliance obligations under the FRBM Act. But the government continues to skip this framework from the Budget exercise.

The interim Budget also provides the long-term vision for Viksit Bharat. While it suggests that more details would be presented in the full Budget once the new government is in place, the broad policy of focusing on governance-development-performance could be the direction for the next 25 years.  Some initiatives towards that direction are indicated in the interim Budget. Added to this, continued handholding of the states in their capital expenditure (`1.3 trillion) and additional resources allocated (`75,000 crore) to introduce reforms at the state level should help ensure balanced regional growth while enhancing potential growth of the country.

Another aspect mentioned in the finance minister’s speech is the focus on outcomes and not just outlays and this could be a major reason behind Rs 2.7 trillion savings while implementing social sector programmes. This is part of the efforts to improve efficiency in public expenditures and, in our view, this needs to be part of future public policy interventions in all tiers of governments. It is also noticed from the social sector expenditures that for the year 2023-24, the Revised Estimates for most of the schemes are lower than the Budget Estimates. While one could construe this as unspent (or savings), caution is needed if the gap between the estimates is due to exclusion of potential beneficiaries or due to efficiency.

Overall, the interim Budget ensures continuity and predictability with respect to fiscal numbers. Increased focus on capital expenditure with reduced market borrowing should encourage private investments both through reduction in costs and also through the crowding-in affect. However, the medium-term fiscal concerns remain to be addressed and we hope this will be the focus in the full Budget to be presented later by the new government.

NR Bhanumurthy, Vice-chancellor, Dr BR Ambedkar School of Economics University, Bengaluru penned this piece for Financial Express

Views are personal and do not represent the stand of this publication.