As the government prepares for the interim Budget set to be announced on February 1, different predictions have emerged about the direction it could take. Government insiders have told the media that fiscal discipline will take precedence over populist spending. This is backed by the statement Finance Minister Nirmala Sitharaman made to the Confederation of Indian Industry in December. For the interim Budget, Sitharaman ruled out any “spectacular announcements” before the Lok Sabha elections to be held later this year. On the other hand, foreign brokerage Jefferies has said the government will boost welfare spending in the interim Budget. These developments raise two crucial questions. First, will the interim Budget stick to the fiscal glidepath? And, second, will it honour the conventions associated with an interim Budget? To find out the answer, read the transcript of the Business Standard Morning Show’s first interim Budget special.
The announcement of interim Budget 2024-25 on February 1 will see the Centre maintain fiscal discipline as it adheres to the post-Covid-19 fiscal consolidation plan of reducing the fiscal deficit to 4.5 per cent of gross domestic product (GDP) by FY26. The government has budgeted a fiscal deficit of 5.9 per cent of GDP in the current financial year, FY24. The fiscal deficit was 6.4 per cent of GDP in FY23.
On whether the interim Budget will stick to the fiscal glidepath, Business Standard’s AK Bhattacharya said:
- Interim Budget normally does not indicate fresh fiscal consolidation plan
- Interim Budget will signal that fiscal consolidation continues to be an article of faith
- This is because of India’s inclusion in JP Morgan bond index
- Fiscal deficit at 5.9 per cent of GDP will be achieved in FY24
- Govt will want to indicate whether this can come down by half a percentage point in FY25
- This is necessary to meet govt commitment of bringing fiscal deficit down to 4.5 per cent by FY26
While Business Standard’s Asit Ranjan Mishra agreed that fiscal discipline would be a key theme in the interim Budget, he also highlighted the major challenge the Centre would face:
- Govt has committed itself to glidepath of fiscal deficit at 4.5 per cent of GDP by FY26
- Govt’s FY25 target should be 5.2 per cent fiscal deficit to stay on this path
- Impact of global uncertainty on growth and revenue collections will be the key factor
Ahead of the interim Budget, the Centre’s fiscal deficit for the first eight months of the current financial year accounted for 50.7 per cent of the full-year target of 17.87 trillion rupees. This was much lower than 58.9 per cent during the year before.
Capital expenditure growth slowed in October and November. Controller General of Accounts data showed that the government had incurred 58.5 per cent of the budgeted capital expenditure by the April-November FY24 period, against 59.6 per cent during the April-November FY23 period. Meanwhile, tax revenue was 61.6 per cent of the Budget Estimates for April-November, compared to 63.3 per cent in the year-ago period. After a slight decline in major tax collections in October, November recorded a 21 per cent increase in gross tax revenue, compared to the previous year.
The current year’s Budget has already taken a hit on account of a few additional relief measures announced during the year, leading to an additional cash outgo of Rs 58,000 crore during 2023-24. Thus, more cash outgo may have to be budgeted for and that may become evident when the interim Budget is presented. However, the continuing revenue buoyancy and a slowdown in expenditure may dilute the impact.
Business Standard’s AK Bhattacharya said:
- Meeting FY24 fiscal deficit target of 5.9 per cent of GDP will not be difficult
- Tax revenue growth has been higher at above 15-16 per cent compared to budgeted 11 per cent
- So meeting the target won’t be difficult
- Even though govt’s disinvestment proceeds have done very poorly till the end-Nov 2023
Finance Minister Nirmala Sitharaman’s recent statement that the February 1 Budget would just be a vote on account and that industry should not expect any major announcement could mean that she will uphold the convention surrounding an interim Budget. Of the four interim Budgets presented since 2000, those of 2004, 2014 and 2019 ignored the convention of refraining from making big announcements of schemes or taxation measures.
On whether the February 1 Budget would honour the conventions associated with an interim Budget, AK Bhattacharya said:
- FM’s statement means govt won’t announce any spectacular scheme in the interim Budget
- But nothing stops govt from augmenting resources for existing welfare schemes
- Pradhan Mantri Kisan Samman Nidhi’s (PM-Kisan’s) allocation could be increased to Rs 10,000 per farmer family as an example
- FM’s statement of no new spectacular announcements should be welcomed
Ultimately, the sanctity of the interim Budget could be preserved if FM Sitharaman follows through on her statement.
The article originally appeared on Business Standard.