Budget Announcements: Some sweet, some sour, some things left unsaid sums it up

Any government would of course use its latest allocations as an indicator of where it wants to go in the future, that is natural and expected.

One welcome pattern in the last few election years has been the demise of the ‘election year budget’ in that there is little surge in allocations across a range of government initiatives. Any government would of course use its latest allocations as an indicator of where it wants to go in the future, that is natural and expected.

And Budget 2024 is largely on those lines. The figures will take some time to decipher, but a deficit target of 5.1 percent as a share of GDP in 2024-25, down from 5.8 percent in 2023-24, is a good target to aim for.  To me the growth expectation of 7.0 percent for 2024-25 is a fair one as well, after the last two being 7.2 in 2022-23 and 7.3 in 2023-34. Tax collections have been decent for reasons of growth, moderate inflation, and formalisation of the economy. In a sense India seems to be on a sweet spot and this is the time to move steadily towards a more disciplined fisc.

Housing, Energy Focus

The PM has already socialised his interest in pushing for more housing and the announcement of  2 crore housing units in rural areas through the Pradhan Mantri Awas Yojana – Gramin, is very much in line with that.  It is also a part of a larger more definitive pattern of Modi government’s instincts with Swacch Bharat, Jal Shakti, Jan Dhan, etc.

The question that economists such as I have not been able to answer well enough is, why after high agricultural growth for the last decade or so, do we have to resort to subsidies? Why is trickle down not working?  I have not found a good enough answer yet. And till we do not get a good solution to the slow trickle-down problem, welfare is the only option for the Union or for that matter state governments.

Another, already announced, initiative was related to the rooftop solar mission. Where the government would subsidise households to put up rooftop solar units. This would of course create the incentive to consume less power from DISCOMS and also earn some revenues from power supplied to DISCOMS.

Another advantage of rooftop solar is its potential to create employment for putting up and helping to maintain these units. But there is a cost as well, which the government will need to address in some other way.

Most DISCOMS are already suffering huge losses, and typically the households who would be able to put a rooftop unit would be the better off ones, if they consume less power from DISCOMS, the loss making DISCOMS would likely suffer a further hit. At some point, this will need to be addressed, but then an argument could also be made that the interim budget is no place for such complex policy corrections.

Another class of budgetary announcements have to do with bio-energy.  The announcement on mandatory blending of compressed biogas has both environmental and economic benefits and therefore I don’t understand why it is being made mandatory. Though the environmentalist in me likes this, the ex-entrepreneur in me is wary of the mandatory nature of such policies – we don’t need to force businesses if the prices are right, and policies won’t be sustainable if the prices are not. Having said that, in combination with the financial assistance for biomass aggregation machinery, the government appears to be taking an ecosystemic view of the bioenergy value chain. It is a complex set of policy interventions but worth trying out, watching and tweaking until we get them right.

Becoming A Global Player

Strangely the FM did not mention in her budget speech (or did I miss it?) the reduction of duties on smartphone components. The government has generally been on the side of raising duties to provide some protection to Indian industry. But the experience globally and more so in India has been that protection only leads to high profits, not global competitiveness. High import duties are a defensive mechanism and reflect weakness not competitive strength. A more globalised economy needs globally competitive firms, and the reduction of import duties suggests that that government may have started on a welcome path.

I must confess I would have liked a greater discussion by the FM on what is not going as well as she would have wanted. Take FDI as an example.  Though there are yearly ups and downs, FDI hasn’t really picked up as much as we would have wanted, and we have a fairly business friendly government.

The way I see it, though the measure of FDI is in dollars, it is not the funds that are as important as what comes with it. Increasingly global commerce is about global tacit knowledge, global networks and global business relationships. A global economic player needs to have access to that but these can’t be purchased in a market. As it is, we have not been too keen on entering international economic groupings traditionally, and so the need for global investment into India becomes that much more important. But then perhaps the interim budget is not the place for a public introspection.

Laveesh Bhandari heads CSEP and writes in his personal capacity. Views do not represent the stand of this publication.