THE CONTEXT: The budget reflects the government’s narrative of “transformative growth” during the 2014-24 decade under the Modi administration. However, the focus of welfare schemes and fiscal consolidation may not align with actual spending and resource allocation. The fiscal deficit for 2023-24 is projected to be 5.8% of GDP, marginally below the budgeted level.

THE ISSUES:

• Introduction of an interim budget: The Interim Budget for 2024-25 was presented due to the upcoming elections, as Prime Minister stated. The Interim Budget is seen as a vote-on-account, which could be perceived as an attempt to influence voters before the elections. This indicates that the budget may not fully reflect the government’s long-term vision and plans.
• “Transformative growth” narrative: The Economic Survey presented in the budget portrays 2014-2024 as a decade of “transformative growth.” It suggests that previous periods of growth were inadequate, either due to unaddressed structural challenges or unsustainable credit booms.
• Focus on welfare schemes: The Interim Budget speech primarily focuses on various welfare schemes attributed to the Prime Minister in housing and food. However, apprehensions are raised about these schemes’ implementation and effectiveness, given the discrepancies between the claims and the actual expenditure. For instance, the total food subsidy has fallen from ₹5,41,330 crore in 2020-21 to ₹2,88,060 crore in 2021-22 and a projected ₹2,87,194 crore in 2023-24.
• Fault lines in spending: A significant deviation exists between the actual expenditure and the revised estimates for schemes such as MGNREGA and PM-KISAN. The budgeted expenditure for MGNREGA was ₹1,57,545 crore for 2023-24. The revised estimates are placed at a higher ₹1,71,069 crore. However, the actual expenditure till December 2023 amounted to only ₹1,07,912 crore, or 63% of the total projected in the revised estimates. The budgeted expenditure for the PM-KISAN scheme was ₹1,15,532 crore for 2023-24. The revised estimate is projected at ₹1,16,789 crore. The actual expenditure till December 2023 was ₹70,797 crore or 61% of the revised estimate.
• Pre-election blitz: There are two possible interpretations: either the finance minister is inflating the revised estimates to support farmers and rural workers, or the government plans to initiate pre-election spending to gain political advantage.
• The decline in food subsidies: Despite claims of expanding food support, the data made available by CGA points out that the total food subsidy has declined from 2020-21 to 2021-22 and is projected to decrease further in 2023-24. For instance, the total food subsidy has fallen from ₹5,41,330 crore in 2020-21 to ₹2,88,060 crore in 2021-22 and a projected ₹2,87,194 crore (RE) in 2023-24. This raises concerns about the government’s commitment to food security.
• Revenue projections and fiscal deficit: The government claims to manage its receipts and keep the fiscal deficit below the budgeted level. There is an expected increase in non-tax revenue receipts, mainly driven by income from dividends and profits. The government expects to raise its non-tax revenue receipts by 25% relative to the budget, with income from dividends and profits slated to rise from ₹99,913 crore in 2022-23 to ₹1,54,407 crore in 2023-24 (RE). However, uncertainties remain regarding the realization of disinvestment proceeds.

THE WAY FORWARD:

• Enhanced Transparency and Accountability: Implement more rigorous and transparent accounting and reporting practices to ensure that budget estimates, revised estimates, and actual expenditures are accurately reported and easily understandable. Regular audits and public disclosures of government spending can help maintain transparency and accountability, ensuring funds are utilized as intended.
• Addressing Deviations in Spending: Close monitoring of implementing schemes like MGNREGA and PM-KISAN to ensure that allocated funds are spent within the financial year and reach the intended beneficiaries. Establishing a real-time monitoring system and a dashboard accessible to the public can help track the progress of fund utilization and scheme implementation.
• Focusing on Effective Implementation of Welfare Schemes: Conduct impact assessments of welfare schemes to evaluate their effectiveness in achieving their goals, such as poverty alleviation and employment generation. Based on the assessments, refine and redesign schemes to make them more effective. Engage with stakeholders, including beneficiaries and local governments, for feedback and suggestions for improvement.
• Balancing Welfare Spending and Fiscal Prudence: While welfare spending is crucial, it is equally important to maintain fiscal discipline to ensure economic stability. The government could explore innovative financing mechanisms, such as public-private partnerships (PPPs) for infrastructure projects, to reduce the fiscal burden while continuing to invest in critical areas.
• Strengthening the Food Security System: Address the concerns regarding the decrease in food subsidies and ensure that the National Food Security Act’s objectives are met effectively. Enhance the efficiency of the Public Distribution System (PDS) through technology integration to reduce leakages and ensure the benefits reach the eligible population.
• Rationalizing Non-Tax Revenue Expectations: Set realistic targets for non-tax revenues, including dividends and profits from PSUs and disinvestment proceeds, to avoid overestimation that could lead to fiscal slippages. A strategic approach to disinvestment focuses on enhancing the value of PSUs before disinvestment and ensuring that disinvestment proceeds are used for productive purposes, such as infrastructure development.
• Promoting Sustainable Growth: Focus on addressing structural economic challenges to ensure sustainable and inclusive growth. Invest in education, healthcare, and skill development to improve human capital and research and development (R&D) to foster innovation, laying the foundation for long-term economic growth.
• Fiscal Prudence: The government could focus on maintaining fiscal discipline by avoiding pre-election spending sprees that could undermine the fiscal health of the economy.
• Public Engagement: Engaging the public and stakeholders in the budget process could help set priorities that reflect the needs and aspirations of the population, leading to more effective and accepted fiscal policies.

THE CONCLUSION:

The interim Budget for 2024-25 reflects a eulogy of the two governments of the last ten years, focusing on welfare schemes and infrastructure spending. However, a closer look at the actual expenditure figures reveals discrepancies and potential pre-election spending blitz. The government’s claims of pro-poor initiatives and fiscal prudence may not align with reality. The impact of these strategies on voters and the upcoming elections remains to be seen.

UPSC PAST YEAR QUESTIONS:

Q.1) Public expenditure management is a challenge to India’s government in budget-making during the post-liberalization period. Clarify it. (2019)

Q.2) One of the intended objectives of Union Budget 2017-18 is to ‘transform, energize and clean India’. Analyse the measures proposed in the Budget 2017-18 to achieve the objective. (2017)

MAINS PRACTICE QUESTION:

Q.1) Discuss the implications of the Interim Budget 2024 on welfare schemes, infrastructure spending, and fiscal deficit.

SOURCE:

https://www.thehindu.com/opinion/lead/interim-budget-2024-in-campaign-mode/article67801178.ece

THE CONTEXT: Recently, the Finance Minister of India presented an interim budget in the Parliament and experts are highlighting concern regarding budget allocation in farm sector.

ANNOUNCEMENT FOR AGRICULTURE IN INTERIM BUDGET

• Agriculture and food processing: Promotion of private and public investment in post-harvest activities including aggregation, modern storage, efficient supply chains, primary and secondary processing and marketing and branding.
• Nano DAP: Application of Nano DAP on various crops will be expanded in all agro-climatic zones.
• Atmanirbhar Oil Seeds Abhiyan: A strategy to achieve ‘atmanirbharta’ for oil seeds such as mustard, groundnut, sesame, soybean, and sunflower will be formulated.
• PM KISAN: Direct financial assistance to 11.8 crore farmers under PM-KISAN.
• PM Fasal Bima Yojana: Crop Insurance to 4 crore farmers under PM Fasal Bima Yojana.
• e- NAM: Integration 1,361 mandis under e- NAM, supporting trading volume of 23 lakh crore.
• Fishermen: A new department “Matsya Sampada” to be set up to address the needs of fishermen. Implementation of Pradhan Mantri Matsya Sampada Yojana (PMMSY) will be stepped up. Five integrated aquaparks will be setup. The Ministry of Fisheries, Animal Husbandry and Dairying witnessed a 27 per cent increase.
• Dairy Sector: A comprehensive programme for supporting dairy farmers will be formulated. The programme will be built on the success of existing schemes such Rashtriya Gokul Mission, National Livestock Mission, and Infrastructure Development Funds for dairy processing and animal husbandry.

ISSUES

• Allocation for agriculture: Allocation for agriculture has not gone up and subsidies have not been rationalised. While schemes like the Pradhan Mantri Fasal Bima Yojana saw an increase in allocation, the allocation under the PM Kisan Samman Nidhi remained the same at ₹60,000 crore. The PM Kisan Man Dhan Yojana, however, saw a decrease in allocation.
• Inadequate for research: For agricultural research, the allocation is ₹9,941.09 crore. The Department of Agricultural Research and Education (DARE) received Rs 99.4 billion (BE) for FY25, a marginal 0.7 per cent increase over Rs 98.8 billion (RE) in FY24. Farmers’ organisations, however, termed the allocations as inadequate.
• Food and Fertiliser subsidies: Budgetary support in the agriculture-food sector has primarily revolved around welfare measures and subsidies. It is compelling to note that the budget allocations for food and fertiliser subsidies, individually, account for a much higher budget than that compared to the Ministries of Agriculture and Farmers Welfare and Fisheries, Animal Husbandry and Dairying.
• Preferring consumer over farmer: In FY25, the budgeted food subsidy fell to Rs 2.05 trillion (BE), compared to Rs 2.12 trillion (RE) in FY24 which is a 3.3 per cent drop. However, this still underscores a significant bias towards consumers, as the subsidy caters to them rather than the farmers. Free ration to 800 million people through the PM-Garib Kalyan Yojana is, of course, an accomplishment. But the necessity of extending this support to such a vast number of people is a matter of concern.
• Did not address MSP: The Budget, however, was silent on issues such as a guaranteed minimum support price based on the S. Swaminathan Committee’s formula, which is a long-standing demand of farmers.

THE WAY FORWARD:

• Investment: There is a need for more public investment in agriculture and subsidies to form producing and marketing cooperatives and collectives.
• Rationalise food subsidies: There is an urgent need to rationalise the food subsidy, on the lines of former PM Atal Bihari Vajpayee where he had streamlined the Targeted Public Distribution System (TPDS). Rationalisation along such lines can save at least Rs 50,000 crore.
• R&D Expenditure: The finance needs to be allocated for agri R&D and more irrigation, especially micro-irrigation. This could help the country to produce “more with less” and ensure food security in the face of climate change.
• Rationalisation in fertiliser: There is a need for rationalisation, especially in minimising the diversion of fertilisers to non-agricultural sectors. It is widely acknowledged in expert circles that around 20-25 per cent of urea is diverted. A potential solution is to shift from subsidising the price of urea to directly empowering farmers through direct cash transfers.

THE CONCLUSION:

India’s agricultural sector is facing several challenges, which are limiting its growth and development and the recent interim budget with lesser allocation raising more concerns.

There is a need to provide adequate budgetary support for agriculture sector to manage food inflation. Adapting to climate change and maintaining macroeconomic fundamentals  are vital for sustained growth of agriculture.

UPSC PREVIOUS YEAR QUESTIONS

Q.1 Comment on the important changes introduced in respect of the Long term Capital Gains Tax (LCGT) and Dividend Distribution Tax (DDT) in the Union Budget for 2018-2019. (2018)

Q.2 One of the intended objectives of Union Budget 2017-18 is to ‘transform, energize and clean India’. Analyse the measures proposed in the Budget 2017-18 to achieve the objective. (2017)

MAINS PRACTICE QUESTION

Q.1 Discuss the role of budgetary allocations in enhancing economic resilience of the farm sector considering the challenges posed by high inflation, increasing food subsidies and climate change.

SOURCE: https://indianexpress.com/article/opinion/columns/after-interim-budget-2024-hand-the-baton-over-to-the-private-sector-9139717/

THE CONTEXT: The upcoming budget session is an appropriate time to assess how the current government has managed the economy in the decade since 2014. There is a worrying trend of Indian economy however in the last ten years.

ISSUES:

• Data deficient: There is a constant issue regarding the government avoiding data on various occasions suppressing statistics. This started with the refusal to publish the GDP back series and instead, a new series was commissioned. For the first time since 1872, the census has been indefinitely delayed.
• Fiscal deficit: A key concern before the government is managing the fiscal deficit. Between 2004 and 2014, the fiscal deficit averaged 4.63% whereas it has averaged 5.13% after 2014. The rise in fiscal deficit was necessitated by crises like the global financial crisis of 2008 and COVID-19
• Rise in Debt to GDP ratio: There has been a sharp rise in the gross debt to GDP ratio, crossing the 80% mark and inviting concern from the International Monetary Fund that the ratio could cross 100% by 2027. The Union government is expected to respond to the debt concerns and bring down the fiscal deficit to 4.5% by 2026 (it was 5.9% in 2023-24).
• Reliance on capital expenditure: There is over reliance on capital expenditure which even the ardent supporters of trickle-down economics admit that this reliance on capital expenditure is not bearing fruits.
• Manufacturing sector: Despite multiple revisions and handsome incentives and initiatives like Production Linked Incentive (PLI) scheme the manufacturing sector has not taken off. The manufacturing growth rate has averaged 5.9% since 2013-14, the share of manufacturing has remained stagnant and was at 16.4% in 2022-23, and manufacturing jobs halved between 2016 and 2021. The decade of Make in India saw the share of manufacturing in the workforce decline from 12.6% in 2011-12 to 11.6% in 2021-22. Make in India and now PLI have failed to enthuse MSMEs.
• Disinvestment: Another failure on the part of the government is disinvestment. To make matters worse, public assets have been handed over to select groups inviting concerns from competitors and public sector employees. The proposed national monetisation pipeline has also failed to yield results.
• Employment: The job market remains depressing, especially for the youth. The Centre for Monitoring Indian Economy notes that the unemployment rate in the age group 20-24 years was 44.5% in the October-December 2023 quarter. For the age-group 25-29 years, it was at a 14 month high of 14.33%.
• Rural India: The adversity of the job market is matched by the distress in rural India where the demand for MGNREGA has reached record highs. Stagnant farmer income and falling rural wages at a time when stock markets are soaring comes as a major concern.
• Crude oil prices: Despite lower prices of crude oil in the international market, the government could not pass the benefit to consumers which could have boosted consumption, and thereby the  Instead, the government has consistently kept petrol and diesel prices at a steady higher price and could not use windfall profits which it has used to keep the fiscal deficit manageable.
• Rise in tax to GDP ratio: Tax to GDP ratio has increased by 1% but it is largely because of an increase in indirect taxes.
• Reduction in subsidies: A consistent feature of the ruling government has been sharp reduction in subsidies. In 2013-14, Union government subsidies accounted for 2.27% of the These now stand at 1.34% in 2023-24.
• Rise in capital expenditure: Between 2014 to 2024, capital expenditure has doubled from 1.67% to 3.32%. Post the COVID-19 pandemic, the government allocated increasing sums towards capital expenditure. The stated logic being that this investment will create jobs and in turn raise demand.
• Facing Hunger: On the health front, the pandemic forced the government to raise healthcare expenditure, yet there has been a rise in hunger and malnutrition. India is ranked 111th of 125 countries on the Global Hunger Index. Instead of addressing the issue, the government’s response has been to reject any such adverse findings.

THE WAY FORWARD:

• Public investment: The government should also invest in public infrastructure, health, education, and social protection, which can create jobs, improve productivity, and enhance human capital. India needs large scale public investments in education and healthcare. Such investments in our human capital have great potential to create significant jobs and will also have a direct impact on the standard of living of our citizens. A key landmark of this government was the adoption of a new National Education Policy (NEP). NEP 2020 recommends that investment in education should be 6% of the
• New economic policy: India needs to adopt a new economic policy urgently. It needs to be a policy that is based on clear objectives, priorities, have a strategy to achieve targets, and spell out an intelligent and transparent resource mobilisation plan to finance policies. As far as the Finance Ministry is concerned, we have only incoherent public announcements a hotchpotch with no accountability.
• Boosting Consumption and Investment Demand: The government should provide direct fiscal stimulus to the sectors and segments of the economythat have been hit hard by the pandemic, such as MSMEs, informal workers, rural households, and low-income groups. The stimulus should aim at increasing their income, purchasing power, and access to credit.

THE CONCLUSION:

The Indian economy is currently facing a number of challenges including high fiscal deficit, high debt to GDP ratio, reliance on capital expenditure and many more. In addition, the country faces significant infrastructure and employment needs and a growing population that is increasingly young and educated. These factors present both opportunities and challenges for the country’s economic growth in the years ahead.

UPSC PREVIOUS YEAR QUESTION

Q: How globalization has led to the reduction of employment in the formal sector of the Indian economy? Is increased informalization detrimental to the development of the country? (2016)

MAINS PRACTICE QUESTION

Q: India’s economic growth is witnessing significant downfalls in recent years. In this context, examine the existing economic challenges responsible for the decline in GDP growth and the measures that the government should undertake to rejuvenate the economy.

SOURCE: https://thewire.in/economy/india-economy-modi-government-rule