Union Budget 2024: The tight rope walk again!
The backdrop to this Budget is good headline macros. However, there are some economic and social issues that need urgent focus. Education, healthcare, and agriculture reforms probably top the list.
- Jul 17, 2024,
- Updated Jul 17, 2024 3:48 PM IST
While budgets are broadly income-expenditure statements of the government, it is expected to provide a direction to the broad economic objectives. The economic objectives can also largely determine the expenditure mix of the government. Coming after the elections, one would expect the government to use this Budget to provide the broad contours of reforms going forward.
The backdrop to this Budget is good headline macros. However, there are some economic and social issues that need urgent focus. Education, healthcare, and agriculture reforms probably top the list. Agricultural reforms are essential to create the right value chains to bridge the gaps between the farm gate to food plate.
Attempts need to be made to boost cooperative farming, provide a push to the food processing industry, and build storage logistics. Farm productivity needs urgent focus, given that climate changes globally could repeatedly disturb food production. In turn, these measures are expected to boost rural consumption, that is currently lagging.
A big focus needs to be on job creation. India has a predominantly young population and will contribute over 20% of the incremental global workforce over the next decade. In this respect, the focus will have to be on labour-intensive manufacturing, such as textiles, gem, and jewelry, food process, leather manufacturing, etc. While the push has been towards reviving the manufacturing sector, the PLI scheme has not performed to its potential.
Broad-based private capex is still missing despite the healthy balance sheets of corporates as well as banks. India needs to move up the value chain in exports – even as exports have grown, the share of exports in GDP has not moved up. Tariffs have been used to protect domestic industries, but an assessment is needed if this is also negatively impacting FDI flows into India.
The government received a larger-than-expected dividend payout from the RBI for FY24, and tax collections have been robust. Fiscal consolidation of the Centre has been rewarded with an S&P upgrade to the sovereign ratings outlook. S&P has also indicated the possibility of a rating upgrade in the next 24 months if a 4% GFD/GDP by the Centre. The government aspires to hit a 4.5% GFD/GDP by FY26. But the question that must be answered - what is the trade-off between fiscal consolidation and growth, given that monetary policy may remain restrictive for more time.
Personally, I would expect the government to stick to its 5.1% GFD/GDP target for FY25, and judiciously use the additional funds received from the RBI for job creation, investments into agriculture, health, and education etc. A further push for capital expenditures can also be in order, but more at the state level.
A higher pass-through from the Centre’s budget to states for capex under the 50-year interest free loan can be thought of. A portion of such funds can also be linked to States’ efforts at upping urban infrastructure development – given that there is constant pressure on A-grade cities due to migration from the rural areas.
While budgets are broadly income-expenditure statements of the government, it is expected to provide a direction to the broad economic objectives. The economic objectives can also largely determine the expenditure mix of the government. Coming after the elections, one would expect the government to use this Budget to provide the broad contours of reforms going forward.
The backdrop to this Budget is good headline macros. However, there are some economic and social issues that need urgent focus. Education, healthcare, and agriculture reforms probably top the list. Agricultural reforms are essential to create the right value chains to bridge the gaps between the farm gate to food plate.
Attempts need to be made to boost cooperative farming, provide a push to the food processing industry, and build storage logistics. Farm productivity needs urgent focus, given that climate changes globally could repeatedly disturb food production. In turn, these measures are expected to boost rural consumption, that is currently lagging.
A big focus needs to be on job creation. India has a predominantly young population and will contribute over 20% of the incremental global workforce over the next decade. In this respect, the focus will have to be on labour-intensive manufacturing, such as textiles, gem, and jewelry, food process, leather manufacturing, etc. While the push has been towards reviving the manufacturing sector, the PLI scheme has not performed to its potential.
Broad-based private capex is still missing despite the healthy balance sheets of corporates as well as banks. India needs to move up the value chain in exports – even as exports have grown, the share of exports in GDP has not moved up. Tariffs have been used to protect domestic industries, but an assessment is needed if this is also negatively impacting FDI flows into India.
The government received a larger-than-expected dividend payout from the RBI for FY24, and tax collections have been robust. Fiscal consolidation of the Centre has been rewarded with an S&P upgrade to the sovereign ratings outlook. S&P has also indicated the possibility of a rating upgrade in the next 24 months if a 4% GFD/GDP by the Centre. The government aspires to hit a 4.5% GFD/GDP by FY26. But the question that must be answered - what is the trade-off between fiscal consolidation and growth, given that monetary policy may remain restrictive for more time.
Personally, I would expect the government to stick to its 5.1% GFD/GDP target for FY25, and judiciously use the additional funds received from the RBI for job creation, investments into agriculture, health, and education etc. A further push for capital expenditures can also be in order, but more at the state level.
A higher pass-through from the Centre’s budget to states for capex under the 50-year interest free loan can be thought of. A portion of such funds can also be linked to States’ efforts at upping urban infrastructure development – given that there is constant pressure on A-grade cities due to migration from the rural areas.