A Major Push for Growth

Finance Minister Nirmala Sitharaman has provided a clear hint that the priority of the government is the pursuit of higher economic growth. This is in contrast to the usual pre-election year Budgets that open the taps of populist spending. The focus on growth was abundantly clear from the government’s boost to capital expenditure that has gone up by nearly 34% for 2023-24 over the current fiscal. At a time of elevated prices of most commodities and extreme political pressure to keep prices of a bevy of goods under check by subsidising them, this is not a mean achievement.

Ever since India became Independent, the binding constraint on growth has been the inability of the government to find adequate resources for public investment. When one adds the political pressures from interest groups like farmers and others, this constraint becomes an abiding feature of India’s political economy. Is this government overcoming that constraint? Not really, but it has skilfully managed the Budget arithmetic to give growth enhancing expenditures a big push. The overall major subsidies bill—fertilizers, food and petroleum—has been pruned by almost 28% (for fiscal 2023-24, revised estimates, over the current fiscal) with food subsidy being slashed by 31.28% over the revised estimates for 2022-23. This is due to the restructuring of the food distribution programmes announced by the government in December. Similarly, fertiliser subsidy has been reduced by 22.25% over the 2022-23 revised estimates. The current fiscal was extraordinarily expensive in these terms as global prices zoomed and disrupted the Budget assumptions within weeks as the war in Ukraine had a cascading effect on most items.

The government has also managed to stick to its promise of keeping to the budgeted fiscal deficit target of 6.4% of GDP this year. This figure will be reduced by half-a-percentage-point in 2023-24. This is clearly a prudent step that had been advocated by economists. At the same time, this is never easy in a pre-election year.

What remains a source of worry is the elevated level of interest payments that will stand at an estimated 41% of revenue receipts and nearly 46.33% of tax receipts in 2023-24. These will go up marginally over the current fiscal by one percentage point or so in both cases.

There are two ways to address the problem. Either expenditure is pruned (thus reducing the need for higher borrowings) and a slow downward trend in these payments. Or expenditures can be re-purposed without reducing them. If these lead to higher growth then the pain due to interest burden can be managed better. In the event, the government has gone for a second—bold and confident—option. This is clear from the major push to capital expenditure, both plain and effective capital expenditure. Capital expenditure will rise by 34% in 2023-24 over the current fiscal. In absolute terms, the increase is Rs2.7 lakh crore. Effective capital expenditure—which includes grants-in-aid for capital expenditure—will go up by 30.5% in 2023-24.

The government is clearly betting big on growth and fiscal consolidation.

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