- Prelims: Indian Economy(GDP, GVA, fiscal policy, budget, economic survey, budget, Employment etc )
- Mains GS Paper III: Fiscal policy, Monetary policy, GDP, Issues related to planning etc.
ARTICLE HIGHLIGHTS
- The Finance minister will present an interim budget, rather than a comprehensive annual budget due to National Elections.
INSIGHTS ON THE ISSUE
Context
Budget:
- The government’s blueprint on:
- expenditure
- taxes it plans to levy
- other transactions which affect the economy and lives of citizens.
- Article 112 of the Indian Constitution: Union Budget of a year is referred to as the Annual Financial Statement (AFS).
- The Budget Division of the Department of Economic Affairs in the Finance Ministry is the nodal body responsible for preparing the Budget.
- Components of the Budget:
- expenditure
- receipts
- deficit indicators.
- Depending on the manner in which they are defined, there can be many classifications and indicators of expenditure, receipts and deficits.
Areas critical from the budget’s perspective for setting the government’s priorities and policy focus:
- Moving towards fiscal consolidation: India’s general government debt to GDP was at 82 percent of GDP in 2022-23, with interest payments at around 17 percent of the total expenditure.
- Government will continue to focus on fiscal consolidation and move towards a sustainable debt trajectory.
- Achieve the fiscal deficit target laid out for 2023-24.
- Robust direct tax collections and higher dividend transfers from the RBI and public sector undertakings to compensate for lower divestment.
- Tax buoyancy: A budgeted fiscal deficit target of 3 percent for 2024-25 as the government moves forward on the glide path of achieving a fiscal deficit of 4.5 percent for 2025-26.
- Continuing focus on capital expenditure:
- The government capex to GDP ratio is budgeted to increase to 4 percent in 2023-24.
- Given the strong multiplier effect of capex on growth, the focus on capex is likely to continue next year as well.
- Capex to grow by 10 percent to around Rs 11 trillion, with a continued focus on infrastructure.
- The need to spur consumption:
- The revival in consumption has been relatively weak and appears to be skewed towards the upper-income category.
- The government has been focussing on capex-led growth, but it is equally important for consumption to pick up.
- A revival in domestic demand becomes even more critical given the poor external demand scenario.
- There is a need to come up with measures to spur consumption demand.
- For instance, a small cut in excise duty on petrol/diesel by Rs 2-3/liter will provide some fillip to consumption
- It will help contain inflation without significantly disturbing the fiscal mathematics.
- Increased spending on human capital:
- For the economy to enjoy the demographic dividend, the government must invest in human capital.
- Higher expenditure on health, education and skilling so that the working-age population is equipped to be meaningfully employed.
- Government spending on social services (primarily health and education) has been budgeted to increase to 3 percent of GDP in 2022-23 from 6.7 percent in 2017-18.
- In European countries: Government spending on social services is more than one-fifth of GDP.
- It is critical to increase spending on these services.
- A focus on agriculture and the rural sector:
- Rural India is home to 65 percent of the country’s population
- It has a large dependence on the agriculture sector.
- Agriculture productivity in terms of GVA (gross value added):
- It is a third of that in China
- 1 percent of that in the US.
- Measures to improve productivity in the sector will help improve rural incomes.
- Adoption of the latest technology and by boosting rural infrastructure.
- Appropriate skilling of the rural workforce and enabling them to move to the manufacturing and services sectors
Way Forward
- There is a need to create an enabling environment for businesses to thrive, the focus on environment-related issues, and the upliftment of the marginalized section of society
- Focus on the quality of growth to ensure that it is equitable, sustainable and green.
QUESTION FOR PRACTICE
Explain intergenerational and intragenerational issues of equity from the perspective of inclusive growth and sustainable growth.(UPSC 2020) (200 WORDS, 10 MARKS)
