A confident interim budget from a government in full command

Finance minister Nirmala Sitharaman presented the interim budget on February 1.

A detailed plan for achieving "Viksit Bharat" will be laid out in the budget to be presented in July, Finance Minister Nirmala Sitharaman said during her budget speech, reflecting the ruling party's soaring confidence—and the overwhelming consensus— that it would return to power.

This magisterial confidence permeates the interim budget. The PM's remarks after the budget spoke of the goal of making India a developed country by 2047. He also spoke of the focus on the government's target constituency, farmers, youth, women, and the poor, groups that transcend the divisions of religion and caste.

The FM felt no need to dole out sops as some had predicted. The theory behind this line of thinking was that the only possible source of electoral vulnerability could be pain at the bottom of the pyramid, as the Reserve Bank of India's consumer surveys seem to indicate. Thus, the government could have opted to boost the consumption of the poorer sections of society by hiking the allocations under the PM-Kisan scheme. There was also talk of a scheme for the MSME sector.

In the event, the finance minister has emphasised that growth would be infrastructure and investment-led and that the government would stick to the fiscal glide path of 4.5% by 25-26 (it's 5.1% in 24-25). The bond market cheered the budget as the government's borrowing target is less than fiscal 23-24.

The emphasis on investment is probably the right direction to go. Consumption is almost 61% of GDP, and investment is just north of 30%. Investment needs to exceed 35% to achieve growth levels in the 8-10% range. That's an ambitious task, and right now, most of the heavy lifting on the investment front is being done by the government.

The interim budget assumes a rise of 11% in capital expenditure (3.4% of GDP) compared to 37% in the previous budget. The hope is that the much-awaited uptick in private sector capital expenditure will take off, helped by schemes such as PLI and, more broadly, on account of increased ease of doing business. India needs to shift to investment-led growth from a consumption-led one.

More broadly, the budget follows the Modi government's template of eschewing populism, something which one got to see during the pandemic when the government did not go in for direct cash handouts, ignoring appeals from many eminent economists, though it did give calibrated support by way of guarantees for the MSME sector and a dramatic expansion of the PM Garib Kalyan Yojna (the free food grain scheme).

Following the same logic, the interim budget emphasises job creation, some of which are intelligently linked to the energy transition. Thus, the FM emphasised the job creation potential of a widespread expansion of public charging infrastructure for electric vehicles. The solar rooftop scheme can also have significant multiplier effects on employment.

Oddly, there's a rather mystifying para on a committee being set up to examine challenges arising from "fast population growth; India's population growth is slowing, and the challenge facing the government is how to utilise the demographic dividend. It ought to amend this committee's remit.