The Union Budget for FY24 was a special one coming as it did before the General Elections in 2024. The budget has been drafted keeping in mind the primary goal of attainment of the fiscal deficit ratio of 4.5 per cent by FY26. To this end, the starting point has been reduction in fiscal deficit ratio by 0.5 per cent to 5.9 per cent for the forthcoming year. This will mean a deficit of Rs 17.86 lakh crore, which is almost the same as that of last year (Rs 17.55 lakh crore). The net borrowing of the government at Rs 11.8 lakh crore will ensure that there is no undue pressure on liquidity in the system. This is important today as there is a tendency for liquidity in the system being compressed presently and the markets were closely watching this number with interest. The fact that the bond yields came down post budget announcement vindicates the fact that the fiscal arithmetic has gone down well with the market.
How has this been achieved? On the revenue side the budget assumes GDP growth of 10.5 per cent which also gets reflected in growth of both direct and indirect taxes. Therefore, in a way, the budget has been conservative with revenue projections. This makes sense in these uncertain times. There can hence be a positive surprise if things work out better. While doing this, relief has been provided to the income tax payers with the new scheme being made more attractive. There has not been any change in the corporate tax structure though for new companies some incentives have been provided. Therefore, the numbers look realistic.
On the indirect taxes front, the customs duties have been changed – either increased or decreased depending on the products. The interpretation: giving a push to the user industries (where duty is reduced) and offering some kind of protection (when raised). This need not be looked as a revenue garnering measure. The GST rates are anyway outside the purview of the budget. The government has not changed the excise duties on fuel which is significant as it means we continue paying the same price on petrol and diesel.
On the non-tax revenue side, the interesting thing is that lower returns through dividend are expected from the banking sector and this is because the RBI will not be transferring large surpluses. There are expectations that the non-bank PSUs would also provide a healthy flow of dividend. This needs to be seen in the backdrop of corporate profitability remaining under pressure in FY23. With the economy slowing down from 7 per cent to say 6.5 per cent in FY24 (as per the Economic Survey) there would be moderation in profits growth too.
The budget has been sanguine on the disinvestment front once again with a target of Rs 61,000 crore being placed which includes Rs 10,000 crore of asset monetisation proceeds. Here it needs to be seen if this amount can be garnered as it has been observed that progressively as the low hanging fruits are plucked the ability to push through disinvestment becomes tougher. The budget however once again places high hopes here.
Rationalising Numbers
The budget has worked dexterously on the expenditure side. As a growth stimulus the capex part of the budget has been enhanced to Rs 10 lakh crore (Rs 8.7 lakh crore if transfers to states are excluded). How has this been made possible? The answer: budget has reviewed all outlays and seeks to rationalise some of them. The subsidy bill, for example, has been lowered. The food subsidy bill has been lowered from Rs 2.25 lakh crore to Rs 1.75 lakh crore which releases around Rs 50,000 crore. For fertiliser subsidy the reduction is around Rs 90,000 crore. Therefore, this combined savings of Rs 1.40 lakh crore helps to finance the incremental Capex.
The logic for these reductions is straightforward. Global commodity prices have eased of late. The higher fertiliser subsidy was necessitated by higher price of imports. In fact, in FY23, the government raised the outlay from a budgeted amount of Rs 1.05 lakh crore to Rs 2.25 lakh crore. With prices coming down, it is possible to rationalise this amount to Rs 1.75 lakh crore. In case of food subsidy, the bill rose from Rs 2.07 lakh crore to Rs 2.87 lakh crore last year due to the extension of the free food scheme. Now by rationalising the same and merging the free food scheme with the Public Distribution System (PDS), the outlay has been lowered. These two increases last year were of contingent nature which will hopefully not be repeated in FY24. Along with these two cuts, the NREGA outlay has been lowered based on similar rationale from Rs 89,400 crore to Rs 60,000 crore in FY24. Hence there have been savings invoked in another critical area.
Hence it can be seen that considerable effort has gone in drawing up a feasible budget while keeping a keen eye on the fiscal deficit ratio. A further roll back in subsidy elements (granted due to the pandemic, Ukraine war) is also possible as we move ahead. Keeping the
PM-Kisan allocation unchanged means the budget has steered clear of any kind of populism.
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