The Union Budget 2024, may see three major areas of focus:
Fiscal Consolidation:
At 5.9 per cent in 2023-24, India’s fiscal deficit needs to be reduced by 1.4 percentage points over 2025-26, according to government set targets which may take some doing.
India has seen weak consumption growth, meaning the government may need to maintain current levels.
The inclusion of Indian government securities in global bond indices puts the deficit under scrutiny.
Controlling debt may mean the government will likely announce gross borrowing, in line with last year’s budget, around INR 15 trillion.
Debt/GDP, currently around 56-57 per cent, is unlikely to go back to the pre-Covid levels of around 45 per cent, even by
India’s GDP growth is forecast to continue at the present pace around 7 per cent which means fiscal discipline will be easier to maintain and should be.
The fiscal deficit was at 4.6 per cent in 2019-20, which is what the government wants to get to by 2025-26.
Capex and Welfare Spending
Welfare expenditure will see a rise in an election year, capex in infrastructure projects is also expected to be high.
Targeted welfare expenditure in rural India, youth employment and women’s empowerment schemes is expected as well as capital for MSMEs under startup development schemes.
On the other hand, capital expenditure growth will still be adequately high meaning deficit to GDP ratio may hover around 5.4 per cent
Total expenditure has increased to 15.3 per cent of GDP this year, capex has increased to 3.3 per cent this year, total receipts have increased to 9.4 per cent.
Maintaining capital expenditure at current levels, while reducing the revenue expenditure (as a proportion of GDP) sharply is the tall task to keep the deficit under 5 per cent levels.
So revenue expenditure has to grow at a pace much lower than nominal GDP and capital expenditure growth must be moderately above the nominal GDP growth, to get the perfect balance.
Consumption is averaging at around 3.5 per cent, investments including government spending will drive GDP growth. Defence, housing, railways, and roads might see higher capex spends given the government’s big-ticket infra push.
The rural and agriculture sector could see some welfare spending especially with issues related to farmer yields.
Again, focus on revenue expenditure growth would need to be around 3 per cent, including welfare schemes such as salaries, pensions, startup capital.
Focus on supply side policy through capital expenditure has meant that macro-stability has been maintained even with fiscal deficit growth.