A Growth-Oriented Budget Anchored in Stability (GS Paper 3, Economy)
Introduction
- The 2024-25 Budget, set for presentation on July 23, outlines the new government's fiscal strategy and growth ambitions.
- This budget is pivotal as it addresses the government's medium-term objectives for GDP growth, employment, and policy directions amidst a slowing global economy, highlighting India’s reliance on domestic growth drivers.
Focused Growth Targets
Short-term and Medium-term Goals
- The budget aims for a minimum GDP growth rate of 7% in the short term, with a medium-term target of maintaining a real GDP growth rate between 7% and 7.5%.
- Achieving this necessitates reducing the fiscal deficit to 3% of GDP over the next three to four years, in line with Fiscal Responsibility and Budget Management (FRBM) norms.
Investment and Savings Strategy
Necessity of High Investment Rates
- To sustain a growth rate above 7%, a real investment rate of 35% of GDP is essential.
- In 2023-24, Gross Fixed Capital Formation (GFCF) was 33.5% of GDP, indicating the need for further growth.
- Additionally, the savings-to-GDP ratio was 32.8% in 2022-23, necessitating slight increases to support continuous investment.
Addressing Export and Investment Challenges
Negative Net Exports
- Recent trends show that net exports have contributed negatively or minimally to GDP growth due to weak export prospects.
- This challenge is compounded by differing performances between service and goods exports.
- Consequently, the government’s investment demand remains crucial until private investments increase.
Revenue and Budgetary Projections
Enhanced Revenue Streams
- The Centre’s revenue position is expected to improve through increased tax and non-tax revenues, surpassing previous estimates.
- Gross Tax Revenues (GTR) for 2024-25 are projected at ₹38.8 lakh crore, buoyed by an 11% nominal GDP growth forecast (7% real growth and 3.8% inflation).
- Non-tax revenues, especially ₹2.11 lakh crore from the Reserve Bank of India (RBI), further strengthen the revenue framework.
Fiscal Prudence and Expenditure
Adherence to Fiscal Deficit Targets
- Fiscal prudence necessitates maintaining the fiscal deficit at 5.1% of GDP, with total expenditure projected at ₹49 lakh crore, including non-debt capital receipts.
- Allocating funds between revenue and capital expenditures is crucial, with revenue expenditure expected to grow by 8% over 2023-24 to cover increased subsidies, healthcare, and rural employment programs.
Infrastructure Development and Employment Generation
Expanding Capital Expenditure
- Projected capital expenditure growth of 19.2% in 2024-25 highlights the government's focus on infrastructure expansion to support medium-term growth objectives.
- Proposed policy measures may include tax rationalisation and expanding existing Production Linked Incentive (PLI) schemes to boost employment.
Commitment to Fiscal Responsibility
Gradual Deficit Reduction
- The budget emphasizes a gradual reduction in the fiscal deficit-to-GDP ratio towards 3% over the coming years to ensure economic stability.
- This approach aims to create a virtuous cycle of decreasing debt-to-GDP ratios and lowering interest payments relative to revenue receipts.
Conclusion
- The 2024-25 Budget presents a strategic blend of growth ambitions and fiscal prudence, essential for navigating global economic challenges while advancing domestic development goals.
- The government's commitment to stability, both in terms of prices and fiscal policies, underscores its strategic use of fiscal policy to achieve sustainable economic growth.
