Budget 2024: A shift to better government spending
In its latest budget presentation, the Narendra Modi-led government reaffirmed its commitment to bolstering capital expenditure (capex) and maintaining fiscal discipline, a strategic stance that has characterized its financial governance in recent years. The budget showcases a significant escalation in capex, which has almost tripled in the past four years, thereby becoming a cornerstone for India’s robust economic growth.
A notable shift towards enhancing the quality of government spending is evident, with the budget projecting a sharp decrease in the revenue deficit as a percentage of the fiscal deficit—from 80% in 2021-22 to an expected 39% in 2024-25. This shift indicates a strategic redirection of fiscal deficits towards the creation of productive assets, underscoring the government’s prudent financial management.
In response to the fiscal challenges amplified by the covid pandemic, the government has demonstrated commendable transparency in its financial operations. Finance minister Nirmala Sitharaman announced an 11.1% increase in capex for the forthcoming fiscal year, setting a new record at ₹11.11 trillion. This move underscores the government’s reliance on capital investment as a catalyst for domestic growth, especially in the face of lagging private investment.
The extension of the Pradhan Mantri Garib Kalyan Anna Yojana, the world’s largest social welfare programme, for an additional five years at a cost of ₹11.8 trillion, alongside increased funding for pivotal social sector initiatives, reflects the government’s commitment to social welfare. The introduction of new schemes to promote private sector engagement in research and innovation highlights the budget’s forward-looking agenda.
The budget articulates a clear path towards fiscal consolidation, building on the resilience of tax revenues enhanced by the economy’s digital transformation. With a set target for gross tax collection in 2024-25 of ₹38.31 trillion, marking an 11.5% increase from the previous year, the government’s fiscal strategy is ambitious yet grounded in realistic expectations.
The government’s borrowing strategy for the coming year is cautiously optimistic, buoyed by the anticipated inclusion of government bonds in global indices, which is expected to attract substantial foreign investment. This move, along with a potential reduction in interest rates by the Reserve Bank of India, is poised to invigorate the financial market and increase liquidity for business lending.
As the interim budget has laid the groundwork, the government’s fiscal agenda is clear—capex and key social schemes will be at the forefront. With India already leading as one of the fastest-growing major economies globally, these strategic budgetary measures are pivotal in steering the nation towards its aspiration of becoming a developed country by the centenary of Independence.
Nirmal Jain is chairman, IIFL Group.
