UPSC EDITORIAL ANALYSIS : Big Reforms Push

Source: Indian Express

• Prelims: Indian Economy(GDP, GVA, fiscal policy, MGNREGA, budget, economic survey, budget, Employment etc )
• Mains GS Paper III: Fiscal policy, Monetary policy, GDP, Issues related to planning etc.

ARTICLE HIGHLIGHTS

• The 2024-25 budget is expected to present a long-term vision for the Indian economy.
• The Finance minister before elections presented an interim budget, rather than a comprehensive annual budget.

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.

Interim Budget:

• A vote on account, also known as interim Budget, means that the government seeks the approval of Parliament for meeting expenditure for the first four months of the fiscal year (April-March)
  • paying salaries, ongoing programmes in various sectors etc — with no changes in the taxation structure
  • Until a new government takes over and presents a full Budget that is revised for the full fiscal.

Key elements of the Budget:

• Growth: The Government laid out its vision for a “Viksit Bharat”, to make India a developed economy by 2047.
  • In 2023, India’s per capita income grew at 9.2 percent in nominal dollar terms.
  • To sustain these growth rates, India will become an upper middle-income country by 2030 and higher income by 2042.
• For India to 10 percent real GDP growth to enable a quicker catch up.
  • It needs to boost all those cylinders comprising private consumption, investment, exports, and imports.
  • The budget plays a catalytic role to firepower each of these components.
• Employment, manufacturing with scaling up trade and competitiveness: There is no trade off between services and manufacturing.
  • India needs a boost to labour-intensive manufacturing to enable seizing the demographic dividend.
• Labour economy: The capital to labour ratio has increased at a rapid pace.
  • Factor market reforms are possibly an important driver.
  • An auction process with a large uptake, with alternative forms of compensation and accelerating the digitization of land records would all contribute towards this.

Fiscal policy choices:

• India’s FRBM and its review in 2017 were in the spirit of making the fiscal framework a science.
  • Move to public debt to GDP ratio as a medium-term anchor for fiscal policy, with the fiscal deficit as an operational target.
• Fiscal alchemy:
  • It can create unnecessary uncertainty
  • It can undermine the ability of monetary policy to control inflation
  • Influence real economic activity in the usual ways.
• India’s debt to GDP remains high in comparison with peer groups.
• The Centre spends more than 40 percent of its revenues on servicing its debt burden
  • It is higher than the average of 10 percent across emerging markets.
  • Deleveraging by the sovereign would be essential to convert the outlook upgrade by rating agencies into an actual ratings increase.

Institutional side:

• FRBM review committee recommended setting up an independent Fiscal Council.
• Council to serve an ex-ante role:
  • It will provide independent forecasts on key macro variables like real and nominal GDP growth, tax buoyancy, commodity prices
  • Ex-post monitoring role, and serve as the institution to advise on triggering the escape clause and specify a path of return.
  • The introduction of a Fiscal Council could perhaps be revisited.

Way Forward

• The 2024-25 budget is an opportune moment to signal the direction and vision.
  • 10 percent real growth can happen.
  • Through sustaining our achievements of macroeconomic and political stability, along with a continued push to physical and digital infrastructure.
• 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

1. Explain intergenerational and intragenerational issues of equity from the perspective of inclusive growth and sustainable growth.(UPSC 2020)

(200 WORDS, 10 MARKS)

Editorial Analysis – 29 June 2024 [PDF]