Finance Minister Nirmala Sitharaman's presentation of the Interim Budget 2024 on February 1 highlights three key signals, outlining the government's priorities for the country. The three key priorities involve a sustained emphasis on capital expenditure (capex) spending, a dedication to fiscal discipline to boost private investment, and a focus on ensuring macro-economic stability.
1. Continuing focus on Capex spending
The government reiterated its dedication to capital expenditure (capex) spending as a strategic growth multiplier for the future. Sitharaman proposed a substantial increase in capital expenditure to Rs 11.11 lakh crore for FY25, vs Rs 9.5 lakh crore in FY24, marking an 11.1 percent YoY growth. Capital expenditure is at 3.4 percent of GDP for FY25. This is the fourth consecutive year of upward revision.
2. Fiscal discipline and private investment
A highlight of the budget was the government's commitment to reining in the fiscal deficit. The fiscal deficit target for FY25 was set at 5.1 percent of GDP, a reduction from 5.8 percent in FY24. The government aims to reduce fiscal deficit to below 4.5% by FY26. This commitment to fiscal consolidation is seen as a positive move, potentially leading to an upgrade in sovereign ratings by global rating agencies. This aims to create a conducive environment for increased private investment. The lower fiscal deficit target signifies a disciplined approach to government spending, potentially boosting investor confidence. The government's gross borrowing for FY25 was capped at Rs 14.13 lakh crore, a decrease from Rs 15.43 lakh crore in FY24. While the net market borrowing was pegged at Rs 11.75 lakh crore vs 11.80 lakh crore in FY24, showcasing a disciplined approach to financial management. This reduction in borrowing is anticipated to have positive implications for interest rates in the financial system, and ensuring sufficient liquidity for the private sector. In her speech, Sitharaman highlighted that the lower borrowings by the Central Government will facilitate a larger availability of credit for the private sector, especially as private investments gain momentum.
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3. Emphasis on Macroeconomic stability
The budget, recognizing the importance of macroeconomic stability, focused on attracting foreign capital at a time when interest rates in the United States are expected to remain elevated. The government aims to position India as a stable and attractive investment destination for investments amid global uncertainties.
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The Interim Budget makes a bold statement on the fiscal consolidation front. Emphasising growth but not at the cost of fiscal stability seems to be the government's approach as it lays down the roadmap towards India reaching the developed economy status.
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