Nirmala’s Oft-Repeated ‘New Direction’ Not Visible In Budget 2024-25

The budget 2024-25 has come after the results of the Lok Sabha elections, which has sent the message to people  on the whole are not  happy with the ruling BJP. The Narendra Modi government is now a coalition government which is dependent on big alliance partners, Telugu Desam Party and Janata Dal (United). Both had been demanding special status for their states. While this has not been conceded by the Bharatiya Janata Party, the budget speech has announced specific schemes for these states. This has implications for federalism.

Importantly, the lesson for BJP is that it did not get a majority because the issues of inflation, unemployment and dissatisfaction of farmers and the youth were important. So, the vote can be read as being against the policies of the BJP government. The government has responded by announcing many things to take care of these issues. The FM has announced nine priority areas so as to achieve ‘Viksit Bharat’ or ‘a developed India’.

Does this imply a change in strategy of the new government?

To figure out if the strategy has changed, the allocations in the Interim Budget presented in February 2024 can be compared with current allocations. That was the pre-election budget and reflected earlier priorities which led to unhappiness among many sections of citizens. So, if the ruling party had drawn any lessons, the priorities to various critical heads in the present budget would have been redrawn.

This reprioritisation should have reflected itself in the allocations.

The total budget expenditure, out which funds are allotted to various sectors, is 7.1% above last year’s expenditure and 1% above the interim budget expenditure. Thus there is not much scope for any increase in specific allocation unless there is a sharp reprioritisation. In other some allocations had to be curtailed to give more to the priority areas.

The first among the priorities listed is agriculture for which Rs.1.52 lakh crore has been announced. But this is only 8.6% above last year’s expenditure and 4% above the allocation in the interim budget. Adjusting for inflation it is hardly any increase.

The next priorities listed are employment and skilling. For this many schemes have been listed – apprenticeship, internship and so on. That is good direction to traverse but unless jobs are created, the young after getting trained may remain unemployed. For job creation there is need to encourage labour intensive areas as opposed to capital intensive areas. But allocation to MGNREGS has not been increased so in real terms it is going to be less than last year.

Rural development has not been raised compared to the interim budget; it is higher by 11.3% over last year’s expenditure. But this is an increase after two years since last year there was no increase. So, it averages about 5.6% which is also barely above inflation. 

Other areas that could generate much employment are education and health but their allocations have not been substantially raised. In fact, the allocation to health is less than in the Interim budget and for education only very marginally higher. Development of Northeast also has unchanged allocation compared to both last year and the interim budget.

So, if the FM implies that a new direction is being given to the economy, it is not visible in the full budget for 2024-25. One of the key areas is proper data gathering for the economy.

It was mentioned that focus would be on data and statistics. But there was no mention of the Census which was to be conducted in 2021. Without that the other data also gets fouled up.

On the energy front, the government says it will move towards alternative energy sources like solar and nuclear. The rooftop solar plan is only to benefit those who have a pucca rooftop. Most of the marginalised do not have a solid roof. The scheme is going to benefit well-off sections and the solar cell manufacturers who have jacked up prices. The subsidy will be mostly cornered by them. The nuclear energy project is fraught with dangers as experienced globally. Further sustainability requires that we conserve energy by moving to smaller cities and to public transportation. The government is instead moving towards larger cities and private vehicles.

In other words, the contradictions in the government’s programmes are too many. This is due to a lack of coherent thinking. 

There was a need to raise more resources so as to allot more funds to the priority areas. Since GST cannot be tinkered with in the Union Budget and has to be fixed in the GST Council, it is from direct taxes that more funds needed to be raised to reprioritise. Unfortunately, apart from the Rs 2.1 lakh crore obtained from the RBI, there is no effort to raise the direct-tax-to-GDP ratio. Given that wealth and incomes of the wealthy has risen hugely since the pandemic, more effort could have been made to tax them.

The largesse from the RBI is like deficit financing and has other implications which have not been taken into account. The changes in capital gains tax to curb speculation are desirable. The short term capital gains tax needed to be raised more while the definition of long term capital gains should have been for a longer time span. With clear high returns in the secondary share markets why would people invest in banks or in productive assets? This impacts the investment climate in the country. No wonder private investment is not increasing – as required by India – for faster growth.

In brief, the reprioritisation that was so necessary by allotting substantially higher funds, to cater to the needs of the marginalised sections is not visible in the Budget for 2024-25. This is another missed opportunity.

 About the Author: Arun Kumar is retired professor of economics, JNU. The article first appeared in ‘The Wire’ dt 23 July 2024