Concerns in the Interim Budget (2024-25)

General Studies Paper -3

Context: There are concerns over GDP, expenditure cuts, and Fiscal deficit etc. in the recently presented Interim Union Budget for the 2024-25.

On GDP Growth:

• The nominal Gross Domestic Product (GDP)is the size of the Indian economy in terms of current prices.
• It is the actual observed value.
• The real GDP growth and its rate are derived from the nominal GDP data by removing the effect of inflation.
• For instance, if nominal GDP growth in a particular year is 12% and inflation is 4%, then the real GDP growth will be 8%.
• However, for all budget-related work, it is the nominal GDP that is used.
• It means a decent growth rate in nominal GDP is not good for India’s real growth rate.
• For the coming year, the nominal GDP is likely to grow by just 10.5%.
• If an inflation rate of 4-4.5%it would suggest a GDP growth rate of 6% to 6.5% in 2024-25.

On the reduction in Fiscal Deficit:

• Fiscal deficit essentially shows the amount of money that the government borrows from the market. It does so to bridge the gap between its expenses and income.
• If a government borrows more, it leaves a smaller pool of money for the private sector to borrow from.
• It, in turn, leads to higher interest rates, thus disincentivizing borrowings by the private sector and further dragging down economic activity in the form of lower consumption and production.
• If the government tries to print more money instead of borrowing from the market, that too leads to negative effects such as inflation.
• If fiscal deficits continue to grow unrestrained— repaying the debt and associated annual interest payments tends to become a critical concern.
• It eventually requires governments to tax its citizens, which, again, slows down economic activity.

Capital Expenditure (Capex) Target:

• All government expenditure can be divided into two broad categories:
• Revenue expenditure to meet daily needs such as fuel bills, salaries, etc. and;
• Capital expenditure to make productive assets such as roads, schools, bridges, ports, etc.
• There is a clear advantage for the broader economy when the government ramps up Capital expenditure.
• Every Rs 100 spent on capex leads to a Rs 250 increase in GDP. On the other hand, the revenue expenditure returns less than Rs 100.
• The Capex was Rs 10 lakh crore in the Budget 2023-24— more than double the Rs 4.39 lakh crore of 2020-21.
• However, Revised Estimates (RE)show that this Capex target was not met in the current year — it stands at Rs 9.5 lakh crore.

Expenditure on Health and Education:

• Historically, in India, budget allocations towards health and education have been lower than required.
• These allocations were in the range between 2.5% to 1.5%of the total government expenditure.
• However, the Revised Estimates show that even those targets have not been met in the current financial year.
• The Budget 2024-25 estimated to be 1.9% of the total expenditure for the Union Ministry of Health, continuing the trend of staying below the 2% mark from 2022-23.

Reduction in Core Schemes:

• The Revised Estimates for the outlays on ‘core of core schemes’ show the reduction in funds that was meant for the most disadvantaged sections of society, such as SCs, STs and minorities.
• For example, the Umbrella Scheme for Development of Scheduled Castes is Rs 6,780 (Revised Estimates) crore against the Budget Estimates of Rs 9,409 crore.
• For Scheduled Tribes, the Revised Estimates is Rs 3,286 crore against a Budget Estimates of Rs 4,295 crore.
• For minorities, the fall has been the sharpest.

Recently, the Union Finance Minister informed that nearly 25 crore people have been raised from multi-dimensional poverty in the last 10 years.