Syllabus
GS Paper 3 – Government Budgeting.
Context
The FY25 Union Budget highlights fiscal stability and sustainable growth, targeting economic imbalances through a focus on agriculture, employment, and MSMEs.
Source
The Hindu| Editorial dated 24th July 2024
A message of fiscal stability, growth continuity
The FY25 Union Budget of India underscores the government’s commitment to maintaining fiscal stability and fostering inclusive growth. Amidst an environment of uneven economic recovery, the budget aims to address structural weaknesses, particularly focusing on employment quality, agricultural resilience, and the integration of MSMEs into the manufacturing sector. The measures proposed in the budget are designed to bolster the economy while maintaining fiscal discipline, paving the way for a more equitable and sustainable growth trajectory.
Focus on ‘Weaker Building Blocks’
- GDP Growth 8.2% in FY24: India achieved a commendable GDP growth rate of 8.2% in FY24.
- K-shaped Segmentation: This growth was uneven, benefiting different economic segments disparately.
- High Demand for Luxury Items: There was a robust demand for luxury cars, houses, and goods, reflecting prosperity in the higher-income segments.
- Stagnant Wages and Low FMCG Sales: Wages remained stagnant, and sales of fast-moving consumer goods (FMCG) were low, indicating economic strain among lower-income groups.
- High Food Inflation: Food inflation continued to impact those at the bottom end of the income pyramid, exacerbating economic disparity.
- Fiscal Deficit 5.6% of GDP in FY24: The fiscal deficit was at 5.6% of GDP, higher than pre-COVID-19 levels.
- Capital Spending: The deficit provided growth impetus through capital spending, crucial at a time when private capital expenditure (capex) was sidelined.
Addressing Weaker Building Blocks
Agriculture
- Support for Farmers (Annadata): Farmers remain a central focus of the budget.
- Self-Reliance in Pulses and Oilseeds: Promotion of Atmanirbharta (self-reliance) in these essential crops.
- Agricultural Research and Climate Change: Emphasis on research to adapt agriculture to climate change realities.
- Vegetable Production Clusters: Establishment of large-scale clusters to boost vegetable production.
- Digital Public Infrastructure (DPI) : Implementation of DPI in agriculture to cover farmers and their lands, improving efficiency and productivity.
Food Security
- PMGKAY Extension: The Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) has been extended for five years to ensure food security.
Employment Quality
- Improvement Measures: The budget proposed measures to enhance job quality, aiming for better employment opportunities.
- Incentives for Workforce Entry: New scheme with a ₹10,000 crore outlay to incentivize employers and employees.
- Internships: ₹2,000 crore allocated for internships.
- Skilling Programs: Collaboration with State governments and industry for youth skilling.
- Alignment with Economic Survey: These measures align with the tripartite compact recommended by the Economic Survey.
MSMEs
- Role in Manufacturing Renaissance: Integration of Micro, Small, and Medium Enterprises (MSMEs) into the manufacturing sector.
- Term Loans: Facilitation of term loans for MSMEs to purchase machinery and equipment without collateral.
- In-House Credit Assessment: Banks allowed to develop in-house credit assessment.
- Government-Backed Credit Facilitation: Continued credit support for MSMEs during stress times.
Support for Domestic Manufacturing
- Production Linked Incentive (PLI) Scheme : Budget Increase 75% Raise, especially for the auto sector.
- Custom Duty Tweaks: Adjustments made to custom duties to support local manufacturing and value addition.
Housing Initiatives
- Housing for All: Continues to be a key hallmark of the government, embarking on version 2.0 of the initiative.
- 37% Increase in Allocation: Significant increase in funds for the urban Pradhan Mantri Awas Yojana (PMAY) .
- 70% Increase in Allocation: Even larger increase in funds for the rural counterpart.
These measures are designed to transform India into a developed nation Viksit Bharath by 2047.
Fiscal Discipline and Future Outlook
Fiscal Deficit
- 4.9% of GDP Target
- Pruned Target for FY25: The fiscal deficit target for FY25 has been adjusted down to 4.9% of GDP. This revision is part of a broader effort to enhance fiscal discipline.
- 70 Basis Points Consolidation: The target maintains a consolidation of 70 basis points over FY24, reflecting a commitment to gradually improving fiscal health.
- Transition to 4.6% in FY26
- Smooth Transition: The government plans a phased approach to reduce the fiscal deficit to 4.6% of GDP by FY26. This gradual reduction aims to manage the deficit while supporting economic growth.
- Continued Fiscal Consolidation
- Commitment Beyond FY26: The government has expressed a strong commitment to fiscal discipline well beyond FY26, ensuring ongoing efforts to stabilize and strengthen fiscal health.
- Maintaining Trust
- Preservation of Credibility: By adhering to these fiscal targets, the government aims to maintain the trust and confidence of economic observers and investors, which is crucial for economic stability.
Capex Target
- Unchanged at ₹11.1 Trillion
- Consistent Capital Expenditure: The capital expenditure (capex) target remains at ₹11.1 trillion, indicating a steady focus on infrastructure and development projects.
- RBI Dividend Gains
- Allocation of Gains: The record-high dividend received from the Reserve Bank of India (RBI) is being allocated between increased welfare spending and reducing the fiscal deficit, balancing immediate social needs with long-term fiscal goals.
Impact and International Perspective
- Inclusion of Domestic Bonds in Global Bond Indices: Indian bonds have been included in global bond indices, marking a significant step in integrating India’s financial markets with the global economy.
- Scrutiny by International Agencies: There is increased scrutiny of India’s fiscal metrics by international agencies. This reflects a broader global interest in India’s fiscal management.
- Potential Sovereign Rating Upgrade: Adherence to fiscal discipline and successful management of the deficit could potentially lead to an upgrade in India’s sovereign credit rating, enhancing its attractiveness to global investors.
Conclusion
The FY25 Union Budget is a balanced effort to sustain economic growth while addressing critical structural weaknesses. By focusing on sectors like agriculture, employment, housing, and MSMEs, the budget aims to promote inclusive growth and long-term sustainability. The government’s adherence to fiscal discipline, coupled with strategic investments, sets the stage for a resilient economic future, potentially leading to a sovereign rating upgrade and enhanced global economic standing.
Related PYQ
One of the intended objectives of Union Budget 2017-18 is to ‘transform, energise and clean India’. Analyse the measures proposed in the Budget 2017-18 to achieve the objective. [ UPSC Civil Services Exam – Mains 2017]
Practice Question
Discuss the key initiatives proposed in the FY25 Union Budget of India to promote inclusive growth and fiscal stability [250 words]