The Art of Juggling Demands

The 2024-25 Union Budget is a juggling act in which Union Finance Minister Nirmala Sitharaman has managed to juggle four different balls—all moving at variable speeds—and hold them deftly. And from the first look, she has managed the act well.

The first ball is that of managing the employment situation without shelling out unemployment benefits that would have become a permanent budgetary feature. Here the finance minister has rolled out a series of incentives for the private sector to employ more people, especially those who are just entering the labour market. The three employment-linked incentives that form a part of the prime minister’s package all involve the government footing the bill of incentives based on salaries and provident fund contributions (regulated by EPFO). These incentives also tally with the government’s emphasis on formalising the Indian economy, a goal that is progressing even if its pace leaves much to be desired.

The second ball is that of managing expectations of alliance partners from Bihar and Andhra Pradesh who are key pillars of the government. In the run-up to the Budget and more so after the election results were announced on June 4, there was wild speculation about demands from these allies. In the event, the Budget conceded sensible demands. In Bihar, the ‘package’ consists of financial outlays for infrastructure projects, flood management and power-sector projects. These add up to ₹61,900 crore. None of these projects and demands is unwarranted and the financial outlays are tied to specific projects. The danger of a ‘special package’ with a lump sum amount handed to a state government has been avoided. Had that been done, a moral hazard would have unfolded—the Centre would be forced to meet an ever-growing number of such demands from other states.

In the case of Andhra, a modest sum of ₹15,000 crore for the Amaravati capital project has been provided in this year’s Budget. This is much less than the vastly larger—and imaginary—figures bandied about in news items. Funds are also likely to be provided for industrial corridors in the state. In all, the Andhra ‘package’ has a distinctly forward-looking appeal to it. In the case of the Amaravati project, future payments are also likely in the Budgets in the years ahead.

The third ball—and this is the signature theme of Modi raj—is its variant of welfare and capital expenditure. This has not only been kept up with but has also been significantly expanded in the 2024-25 Budget. A sum of ₹1,11,11,11 crore—a somewhat appealing number for mathematicians—has been allocated for capital expenditure in 2024-25. This represents an 11 per cent increase over the budgeted amount for 2023-24 and stands at 3.4 per cent of India’s GDP. This comes with a host of welfare measures, such as increased level for MUDRA loans (now ₹20 lakh for those borrowers who have earlier availed and repaid their loans), allocations for three crore homes under PM Awas Yojana and more. This combination of constantly increasing capital expenditure and welfare are now considered the way forward to ensure that even as India grows, it does not leave a large section of people behind.

The fourth ball, perhaps the most important one, is that of managing the government’s finances even as demands continue to proliferate. A rising number of demands and limited resources is nothing new to Indian finance ministers but this time the situation was unique. Sitharaman has promised to bring down the fiscal deficit to 4.9 per cent of GDP in 2024-25 from the current 5.9 per cent. This is perhaps the most difficult part of the juggling game. Why? For one, the global situation, with wars in two different regions and an uncertain global economy, makes economic management tough. This is especially so when India does not control prices of key commodities such as oil and fertilisers. Then there is the issue of interest payments. This is an inexorable drain on India’s resources. In 2024-25, interest payments alone will eat up 45 per cent of net tax revenues in the hands of the Centre. This is just a tad short of these payments last year when they were budgeted at 46.33 per cent of net tax revenues. It does not require great imagination to see how painful an outgo this is. To give a comparative example, if one adds up the financial resources for major demands made by Bihar and Andhra Pradesh, ones the Centre has agreed to fund, they tally up to ₹76,900 crore for 2024-25. Interest payments are fifteen times greater than these much-maligned demands. The sad fact is that India remains a fiscally constrained country.

Every Budget is likely to have its set of winners and losers and ultimately the direction of the Budget is dictated by political realities and not wishful thinking. This Budget is no different. Initial voices suggest that increases in Long-Term Capital Gains tax (up from 10 to 12.5 per cent) and Short Term Capital Gains tax (up from 15 to 20 per cent) have not gone down well with the middle class and the markets. The government has done its bit by tinkering with standard deduction in the new tax regime for income tax (up from Rs 50,000 to ₹75,000) as well as tinkering with the direct tax brackets at the lower level. These are designed to ensure that people spend money as the consumption part of economic growth is now sclerotic. People with a higher marginal propensity to consume—basically those at lower income levels—are better likely to respond to these incentives. But these come at the cost of those who want to save and have little or no social security. This is perhaps one ball that the finance minister found hard to juggle.

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Siddharth Singh

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