The response to Finance Minister Nirmala Sitharaman’s interim budget has highlighted the absence of populist measures and a commitment to a five-year fiscal consolidation plan. Despite facing challenges such as the pandemic, energy, and food price shocks, the government has maintained fiscal rectitude. The budget signals a shift towards private and corporate spending to support the economy, with a focus on manufacturing, geographical inclusivity, and urban development. The government’s strategy for 2025-30 includes fostering a manufacturing surge, developing the eastern region, and addressing the housing needs of the middle class.
Responses to FM Nirmala Sitharaman‘s interim budget have emphasised absence of populist measures and fidelity to a five-year fiscal consolidation plan. As Sitharaman herself put it, in 2021-22, she had committed to reducing fiscal deficit to 4.5% of GDP by 2025-26: ‘The fiscal deficit in 2024-25 is estimated to be 5.1% of GDP, adhering to that path.’
Fiscal rectitude has been maintained despite multiple challenges – the pandemic and its aftermath; energy and food price shocks following conflicts in Ukraine and, more recently, West Asia – and notwithstanding considerable welfare and infrastructure outlays. Sitharaman and her boss, PM Narendra Modi, deserve credit. Few finance ministers have faced so many extraneous challenges in such quick time, and still emerged surefooted.
It is also a measure of the Modi government’s political confidence that it has not felt the need for promises of tax cuts and giveaways even weeks away from a Lok Sabha election. As such, rather than the usual reading of electoral tea leaves, the interim budget’s text and subtext offer a peek beyond the immediate. Should it come back to power, as is widely expected, what will the Modi government’s full-fledged budget in summer 2024 look like? As a corollary, what is its economic strategy for the 2025-30 period? Sitharaman’s speech identifies four megatrends:
- In 2023, the budget enhanced capex by a massive 33%. In contrast, this year’s proposal is for a more modest 11%. This suggests that after four years of public spending boosting demand, there is the reasonable expectation that, especially after the election results, private and corporate spending will begin to shoulder due responsibility of carrying the economy.
That apart, after a decade of frenetic spending on infrastructure – ‘physical, digital or social’, to quote FM’s speech – and on an impressive welfare architecture, GoI can take a deep breath. This doesn’t mean all infra has been built and all welfare achieved. It only means spending in such areas will gradually plateau, or at least grow less fast. This, too, should help fiscal consolidation.
- There is a clear bet on a manufacturing surge in the tenure of a third Modi government. The FM spoke of repositioning of supply chains – ‘globalisation is being redefined with reshoring and friend shoring’ – and opportunities for India. She has backed this with money. The budgetary estimate for the PLI scheme is 33% greater than what it was in 2023-24. As for the Modified Programme for Development of Semiconductors and Display Manufacturing Ecosystem outlay, estimate for 2024-25 is ₹6,903 crore. A year ago, it was ₹3,000 crore. Priorities have been spelt out.
- Reference to ‘geographical inclusivity through development of all regions of the country’ is complemented by a short, standalone section on ‘Development of the East’. ‘Our government will pay utmost attention to make the eastern region and its people a powerful driver of India’s growth,’ said Sitharaman. Fostering a modern, industrial economy in eastern Uttar Pradesh – with a spill-over effect that could extend to Bihar and West Bengal – is both a BJP political propulsion and, given the region’s population, a national imperative.
This longstanding ‘East of Kanpur’ challenge is not easy. Yet, UP now has infrastructure and connectivity assets not justified by current economic activity. These represent a punt on the future – a future for the next government to persevere to realise.
In a sense, the expanse between Ayodhya international airport in central UP and Kushinagar international airport in eastern UP is where the state’s – and the east’s – destiny lies. Analysts have interpreted these Modi investments in terms of religious tourism alone. But they could well offer the bookends of a serious attempt at an industrial economy.
- India’s future is urban. ‘Our government will launch a scheme to help deserving sections of the middle-class ‘living in rented houses, or slums, or chawls and unauthorised colonies’ to buy or build their own houses,’ the FM said. It is also green: note the mention of clean energy, rooftop solar solutions, electric vehicles and buses, with charging networks, and metro rail projects.
The Modi 3.0 blueprint is apparent.
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