Nirmala Sitharaman’s inaugural Interim Budget: Inflated and Election-Ready
FM Upholds Fiscal Prudence, Shuns Pre-Election Incentives; Commits to Fiscal Deficit Targets, Unveils New Urban Housing Initiative, Rural Home Expansion, and Rooftop Solar Solutions; Pledges to Transform Eastern India into Economic Powerhouse.
During her sixth Union Budget presentation and maiden Interim Budget, Finance Minister Nirmala Sitharaman avoided succumbing to the allure of extravagant pre-election incentives reminiscent of those unveiled prior to the 2019 Lok Sabha polls. Instead, she relied on the government’s established track record and the commitment to “unprecedented development” over the next five years.
Remaining faithful to her pledge that the 2024-25 Budget would primarily serve as a ‘vote on account’, devoid of any “dramatic announcements,” Ms. Sitharaman delineated a detailed narrative of India’s flawed pre-2014 era, emphasizing the imperative need for economic and governance reforms. Subsequently, she delineated how the NDA government, prioritizing national interests, facilitated the transformation to an ostensibly flawless current state.
Painting a rosy picture
Ms. Sitharaman asserted the necessity of assessing the period until 2014 and the current scenario solely to extract insights from the alleged mismanagement during those years. She pledged to present a white paper in the House outlining the purported challenges inherited by the Narendra Modi-led government and the subsequent revival of the economy towards sustainable, robust growth.
“Individuals are experiencing improved living standards and higher earnings, coupled with heightened aspirations for the future. The average real income of citizens has surged by 50%, while inflation remains at a moderate level,” she emphasized.
New housing scheme
While no tax breaks were announced, several immediate commitments were made, including a scheme aimed at assisting the “deserving” urban middle class in acquiring or constructing their own homes, the construction of an additional two crore rural houses over the next five years, and the provision of 300 units of free power per month for one crore households through rooftop solar solutions, as proposed by Prime Minister Narendra Modi following the consecration of the Ram Mandir last month.
Finance Secretary T.V. Somanathan stated that the framework for the new housing scheme, which indirectly targets urban households by focusing on beneficiaries from chawls, slums, or unauthorized colonies, will be finalized before the plan’s funding.
Beyond these uplifting commitments, the Finance Minister pledged to collaborate with states and stakeholders to implement “next-generation reforms” during the government’s upcoming term. She also announced plans to unveil a comprehensive roadmap for achieving the vision of a developed India by 2047 during the full Budget presentation in July, outlining key guiding principles that will steer the government’s approach.
Poll signals
Ms. Sitharaman reiterated the government’s commitment to transforming the eastern regions of India, including Bihar, Jharkhand, West Bengal, Odisha, and Chhattisgarh, into the driving forces of the economy during the forthcoming Amrit Kaal period leading up to 2047. Additionally, she announced the establishment of a high-powered panel to address challenges stemming from rapid population growth and demographic shifts, although she declined to elaborate on the purpose of this initiative during her post-Budget press conference.
Describing ‘social justice’ as an effective and imperative governance principle, the Minister contended that the government had effectively translated what was once primarily a political slogan into tangible achievements through a comprehensive approach that covers all eligible individuals to tackle systemic inequalities in society. She emphasized that this approach, characterized by inclusivity, reduces corruption and prevents nepotism, asserting that the government’s policies would prioritize the four major segments identified by the PM: the poor, women, youth, and farmers.
Unlike the President’s Wednesday address, which embellished the government’s achievements and included quotes from philosophers and poets, Ms. Sitharaman’s speech was notably concise, approximately 25% shorter. Instead of invoking philosophers or poets, she referenced the PM’s speeches and beliefs on numerous occasions before concluding her address.
Stringent fiscal discipline
Despite dashed hopes for measures to stimulate consumption and rural demand amid a challenging monsoon season and to encourage private investments, Ms. Sitharaman’s adherence to fiscal discipline came as a surprise to most economists. Initial expectations of breaching this year’s fiscal deficit target (5.9% of GDP) were overturned as the FM revised the deficit estimate downwards to 5.8% of GDP. Additionally, she committed to achieving a deficit of 5.1% in 2024-25, with a determined focus on reducing the fiscal gap to or below 4.5% of GDP by 2025-26.
Capital expenditure plans for the upcoming year received a modest yet assured 11.1% increase, reaching an auspicious figure of ₹11,11,111 crore, while interest-free capex loans to States were raised to ₹1.3 lakh crore. However, planned gross and net borrowings for 2024-25 have been reduced from the current year’s levels to ₹14.13 lakh crore and ₹11.75 lakh crore, respectively.
Ms. Sitharaman expressed hope that with private investments gaining momentum, the reduced borrowings by the Central government would lead to greater availability of credit for the private sector. This move signifies a prudent shift back to the tradition of maintaining Interim Budgets conservative in spending and focused on purposeful allocation of resources.