Getting ready for the forthcoming Budget

Udayan Hazarika

(The writer can be reached at udayanhazarika@hotmail.com)

Prime Minister Narendra Modi has finally made his choice of cabinet colleagues. It must have been a difficult task for him, especially when he is trying to satisfy so many coalition partners forming the National Democratic Alliance (NDA). The allocation of portfolios among the ministers has already been done, and many have already assumed office. Till now, everything appears to be going well, as apparently nobody has complained about his or her ministry. PM Modi has kept the size of his ministry intact at 72, as that of the size of his last council of ministers. However, this time his cabinet colleagues exceeded those of the last time by 3 members. Last time, the number of cabinet ministers was 28. The number of ministers of state with independent charges also increased from three last time to five in the current setup. But the strength of the ministers of state has gone down from 42 to 36 this time. The BJP has 61 ministers in all, while the Telugu Desam Party (TDP) has 2, Janata Dal (United) has 2, while Shiv Sena, Rashtriya Lok Dal (RLD), Janata Dal (Secular), Hindustani Awam Morcha (HAM), Apna Dal (Sonelala), and Republican Party of India (Athawale) have one each. The highest numbers of ministers hail from the Hindi belt, and State-wise Uttar Pradesh has 11 ministers, followed by Bihar at 9. Incidentally, in Bihar, the NDA has done well with 30 seats out of total 40 seats; sixministers are from Gujarat, Madhya Pradesh, and Maharashtra; five ministers are from Karnataka andfour from Rajasthan; and three ministers each are from Odisha, Haryana, and Andhra Pradesh. With this allocation, PM Modi must have been a happy man amidst all the demands and counter demands of coalition partners.

With 16 MPs at his disposal, Naidu has so far remained content with only two ministerial berths and, that too, only one cabinet minister. However, it is in the air that Naidu might demand the position of Lok Sabha Speaker for his party. Another notable point here is that PM Modi has successfully kept his old guard posted in the core and crucial ministries, despite the fact that some of his senior coalition partners have also shown interest in these miniseries. The ministries of Defense, Home Affairs, Finance, and External Affairs are still with the old guard. This indeed is a good strategy and would prove effective for the simple reason that the ministry will start functioning right from Day 1 with the works left on the last day of the last government. Crucial ministries like Finance and Commerce need to get ready for the forthcoming budget, whose submission should not be delayed beyond July. In fact, the sooner the budget is placed, the better. The crucial time for implementation of the budget proposals has already slipped out. In any case, the 18th Lok Sabha is supposed to be constituted by the 25th of June. The government will need some time to rearrange, modify, and effect changes in some parts of the interim budget submitted earlier. Moreover, as there are now coalition partners, they may also like to suggest some schemes or projects to be included in the budget. To accommodate all these, the Finance Ministry will need some space and time to rethink about the shape and size of the budget for FY 2024-25. But in all probable cases, the Finance Ministry must make an effort to present the budget by the last week of July so that it is finally passed by mid-August. Thereafter, at least two full quarters will be available for budget implementation.

Earlier in March, the government submitted an interim budget for the year 2024–25 (FY25). Despite being an interim budget, the FM gave the details of all estimated expenditures beyond the minor head of account, just like a regular budget. The interim budget estimated the total expenditure of the government at Rs 47.66 lakh crore, of which 30.01 lakh crore was expected to come from both tax and non-tax sources and Rs 0.79 lakh crore as capital receipt, which together would cover only Rs 30.80 lakh crore of the total requirement, leaving a gap of resources at Rs 16.86 lakh crore, which comprises 35.38 percent of the total budgetary resources. The FM proposes to realise this amount from borrowing, 69 percent of which was proposed to be realised through market borrowing and 27.89 percent through securities and small savings. This will result in an estimated fiscal deficit of 5.1 percent at the end of the year. While this was the position of receipt as shown in the interim budget, the estimated expenditure of Rs 47.66 lakh crore appears to be a compressed figure, which gives an increment of only 6.15 percent over the last year. This amount will undoubtedly fall short of the requirement in the current year (FY25). Even in the last year, which was a normal year, the expenditure increased by 7.08 percent.  Considering the ruling inflation and the rising food prices, it will be difficult to contain the expenditure at the proposed level, which will go up by at least 9.0 percent as against the last year. This will further drag the economy into a broader fiscal gap unless the receipt side is loaded with more funds from sources other than borrowing. At the time of submission of the interim budget, the government kept the rates of direct tax and indirect tax at the same level. Now this will be taken up for review, and in most possible cases, the tax rates will be enhanced in the regular budget. To incorporate all these into the new budget, the government will need more time, which may delay the budget presentation further.

The interim budget gave the details of as many as 185 popular schemes that were supposed to be implemented in the current year. Of these schemes, six were core of the core schemes, 32 were core schemes, and the remaining 147 were major central sector schemes. The government appears to have made some changes to the regular and continuing schemes. Some schemes have been removed; some have been shifted to the core, while others have been transferred to the central sector. For example, Ayushman Bharat was earlier on the list of the core of the core scheme, but this time it has been shifted to the core scheme list as PM’s Ayushman Bharat.

While submitting the interim budget, the government was consciously ignoring the fiscal consolidation measures as enunciated in the Budget 2022–23. As borrowing has been increasing at an unprecedented rate, the government should put in place some specific fiscal consolidation measures. As stated earlier, the level of borrowing in the current year will also increase over and above what was stated in the interim budget because the government is insisting on expanding capital expenditure, especially to achieve a high rate of growth. The result of this borrowing would be the expansion of fiscal deficits further from the estimated 5.1 percent. Every increase in capital expenditure would invite a corresponding increase in revenue expenditure. Considering this, allocation on the revenue account could have been enhanced further. But the government did not do so. The amount allocated for revenue expenditure, i.e. Rs 36.55 lakh crore, is only 03.25 percent more than the current year’s revised allocation of Rs 35.40 lakh crore. This being the year of general elections, an exceptional increase in revenue expenditure is a normal phenomenon.