This budget is fiscally prudent. It continues the trend of shrinking government expenditure as a proportion of GDP to lower the fiscal deficit, rather than increasing the tax-GDP ratio, or mobilising revenues from disinvestment. The gross tax revenue/GDP is 11.77% in FY 25, about the same as the 11.68% achieved in FY 24. This small increase and a 0.25% reduction in the total expenditure GDP ratio plus some rises in non-tax revenue are being used to reduce the fiscal deficit from 5.6% to 4.9% of GDP.
Such fiscal prudence would be admirable if economic conditions were satisfactory, for then public spending could be allowed to shrink with private consumption and private investment doing well.
However, this is not the case in India. Private investment is sputtering and the government has admitted this both in the Economic Survey and in the budget speech by exhorting the private sector to invest more, given the booming profits. Consumption growth is slow, much slower than GDP growth. It is also perverse, with demand for luxury goods, from cars to automobiles to business class travel, booming while demand for things ordinary people consume is languishing. Profits are high, but real wages are stagnating and credit uptake is sluggish except for borrowing to consume stuff that people should normally be able to buy with their own incomes and savings. The employment situation is dire, particularly youth employment.
So securing smooth macroeconomic fundamentals, including fiscal prudence, is a good thing in the sense that it is what keeps India from becoming Pakistan, at least in the economic sphere. But if we are to dream and boast pompously of Amrit Kaal and Viksit Bharat, this alone will not do. Much more needs to be done, and fast.
The government seems to recognise this in the rhetoric of the budget speech. For at least the third time in the history of this administration, it has set out a medium-term road map in the budget speech. But regrettably, for this government and for future Indian generations, the road map manifests confused thinking, an outdated, almost communist, approach to economic policymaking, and an inability to think clearly and analytically about how a medium-term policy framework relates to the very serious challenges to India’s economic transformation.
The speech says that the government will “focus” on women, youth, farmers, and the poor.
For women, the key challenge is to increase female labour force participation. But the government has no plan to do this except to “[set] up... working women[’s] hostels”, a task more for panchayats and municipalities, not the mighty Delhi Sultanate. Else, it will “step up” schemes using a “saturation approach”. That’s it.
For farmers, there is an all-major crop MSP announced which is great and politically inevitable given the abysmal failure to double or even increase farmers’ income. But the key constraints farmers face are logistics, the imposition of export bans and the flooding of the market with cheap imports when prices rise — a time when they have a rare chance to make money — a devastated ecology, and distorted credit and input prices. These have not been addressed apart from a number of unquantified, disjointed, dilettantish ‘schemes’ and ‘missions’. There is no plan or serious money behind any of these.
For the youth, the government has done what it does best — borrow ideas from the Opposition, as it did with the MGNREGS. An apprenticeship programme of sorts has been set up, but there is very little money to back it, the outcomes with respect to skilling and jobs are unspecified, and the math is flawed. Each of the top 500 Indian companies is expected to absorb 4,000 employees a year as interns: this is not going to happen.
For the poor, the government is committed to limiting destitution by continuing to subsidise food for 800 million people without trying to address the need for such subsidies when, by its own data, multidimensional poverty is now at a historical low of 11.28%. At least, this is what I infer from the expenditure data. The poor, other than being “in focus”, receive no mention at all in the budget speech. They are probably used to the invisibility.
For the rest, the budget has delivered on what seems to be its primary political mission — to ensure the survival of the National Democratic Alliance coalition. There are honeyed promises to Andhra Pradesh of substantial sums of money for the Polavaram project, industrial corridors, specific backward regions, and Rs 15,000 crore for the capital (likely as a loan from the World Bank). Around 59,000 crore of Central government investment spending has been announced in Bihar. The NDA coalition partners have played their cards deftly, securing concrete resources without insisting on a defined ‘special package’. They will not kill the goose that lays the golden egg. But they expect to see golden eggs being laid in their backyards year after year. For now, this can be ignored but it will weaken the Bharatiya Janata Party’s double-engine sarkar proposition in the forthcoming elections in Maharashtra, Jharkhand and Haryana; there is already buyers’ remorse in Odisha, though many feel that it is well-deserved.
So this is not a budget for Viksit Bharat. There is nothing remotely Viksit about a collection of ragtag and bobtail schemes without an analytical framework or a coherent spending plan. There is no plan to mobilise resources for public investment — the public investment (Central government plus the pubic sector) GDP ratio is 3.6%, the same as last year and lower than that in FY 2019. There are concrete spending proposals to deal with political issues — coalition allies and troublesome farmers. The actions to tackle unemployment and broad-base growth are clumsy and the financing math is poorly done.
There is fiscal prudence and for that we give thanks. But there is no plan to match the boasts and the rhetoric of Amrit Kaal and Viksit Bharat. As an indication of intent, this budget sells India a future that is high on rhetoric and empty on action.
Rathin Roy is a distinguished professor at the Kautilya School of Public Policy and a former member of the Economic Advisory Council to the Prime Minister
