The Interim Budget speech of Finance Minister Nirmala Sitharaman was effectively the election manifesto of the NDA government for it highlighted the government’s claims of transforming the Indian economy during its decade-long tenure and its vision of ‘Viksit Bharat’ by 2047. While it is unmistakably an election year Budget, the Budget refrains from providing largesse to any section, even though the middle class would have expected some relief by way of reduced burden of income tax from the Finance Minister, more than just an acknowledgement of their support for boosting direct tax revenues.

In fact, personal income tax became the largest component of tax revenues in FY24. The revised estimates of income tax for the current fiscal year are nearly 14 per cent over the Budget estimates, and this increase has enabled revised estimates of gross tax revenue to register a nominal increase of 2 per cent over the budgeted figure. With capital receipts failing to meet the target set last year yet again, the Centre’s revised estimates of total receipts for the FY24 have barely kept in touch with the Budget estimates.

This inability to shore up total receipts above the budgeted figure notwithstanding, the Finance Minister has announced that she has been able to slightly reduce the fiscal deficit to 5.8 per cent of the GDP, from 5.9 per cent in the budgeted estimates. This has been possible through a 7 per cent decline in capital expenditure and a reduction in revenue expenditure in real terms. A stronger fiscal consolidation is proposed in FY25, which will happen, yet again, through a reduction of revenue expenditure in real terms, though capital expenditure is slated to increase by over 9 per cent in continuation with the previous years’ trends.

Rise in capex

Steep increase in capital expenditure has been a unique feature of the budget-making exercise of the Modi government during its second term in office. The Finance Minister announced i that there has been a “massive tripling of the capital expenditure outlay in the past 4 years resulting in huge multiplier impact on economic growth and employment creation”. Last year, Sitharaman had argued that besides creating the multiplier effect, increase in public investment would “crowd-in private investments, and provide a cushion against global headwinds”. These claims regarding the positive spin-offs of the significant increases in capital expenditure made by the Finance Minister can be contested, at the very least.

Though the Finance Minister had budgeted significant increase on capital spending, new projects did not take-off: government’s new project announcements, including roads and other public infrastructure, had declined by 81 per cent in December 2023 on year-on-year basis. Further, a recent assessment of central sector investment projects by the Ministry of Statistics and Programme Implementation, has shown that over 57 per cent of these projects face both cost and time overruns, implying inefficiency in resource-use and delayed delivery of the benefits that the Finance Minister expects. Additionally, increase in private sector investment that the government expected from its own step-up of capital spending has not materialised. Fresh investment by the private sector has been falling during FY24, especially during the second and the third quarters.

Spending on infra projects

The Finance Minister’s arguments that the spending on infrastructure projects would generate jobs are textbook Keynesianism, but there are serious doubts whether this works in the 21st century when almost all of these projects are highly capital and skill intensive. A large share of India’s marginalised workers does not possess the required skill sets and are clearly unemployable in these infrastructure projects. However, despite this unacceptable situation no government, including the government of the day, has thought of a strategy that would enable the marginalised workers to get what the International Labour Organization calls “decent jobs”.

With the increase in capex alongside inadequacy of budgetary resources, the government has been cutting down expenditure on welfare measures and the social sector. During FY24, expenditure on the largest welfare scheme, the Mahatma Gandhi National Rural Employment Guarantee Programme, would be 5 per cent lower as compared to the actual spending in FY23. Spending on health was similarly reduced by 6 per cent. Though spending on school education had increased considerably by 25 per cent, in FY24, the budgetary allocation is not likely to be spent.

While in each of her Budget speeches, the Finance Minister has spoken about the importance of the farmer (‘Annadata’), it is confounding as to why agriculture was never a priority of the government. Given that agriculture continues to support, directly or indirectly, the largest share of India’s workforce, adequate investment in this sector could have unleashed a multiplier boosting incomes and jobs more effectively than the government’s current investment strategy. But unfortunately, agriculture continues to suffer from chronic underinvestment, which has worsened in the recent decade. Between FY15 and FY22, the share of this sector in the country’s total investment was, on an average, a mere 5.7 per cent, the lowest during the tenure of any government._

The author is Professor, Jawaharlal Nehru University (Retd) and Distinguished Professor Council for Social Development