Industry representatives on June 20 suggested a slew of reforms to the finance minister focusing on the rural economy and creating a framework to unleash factor market reforms to be incorporated in the Budget. A Moneycontrol analysis of the demands made by the industry representatives shows that implementing some of the suggestions, like raising capex, increasing the outgo under PM-KISAN and increasing MGNREGA wages could cost upwards of Rs 1 lakh crore compared with the interim budget.
A large proportion, nearly 60%, is expected to go towards capex.
Take the case of capital spending, the industry representatives are demanding that the government increase capex by 25% over FY24 revised estimates. This could entail a cost of Rs 76,697 crore to the government over FY24 revised estimate of Rs 9.5 lakh crore.
In the interim budget, the government had increased capex allocation to Rs 11.11 lakh crore from Rs 9.5 lakh crore spent in the previous year. A 25% increase would entail government allocating Rs 11.88 lakh crore in FY25.
The representatives have also suggested increasing the amount offered under Pradhan Mantri Kisan Samman Nidhi.
The government, at present, disburses Rs 6,000 per annum under the scheme to eligible farmers across the country. It had allocated Rs 60,000 crore in the interim Budget for the scheme.
Consider two scenarios. If the government were to double the direct benefit transfer under PM-KISAN to Rs 12,000, it could inflate its bill by Rs 60,000 crore, assuming new beneficiaries are not added.
On the other hand, a 50% increase in the DBT to Rs 9,000 crore could cost Rs 30,000 crore additionally.
The government had spent Rs 58,254 crore om PM-KISAN in FY23.
One of the first decisions of the prime minister after assuming office was to release the 17th installment of PM-KISAN worth Rs 20,000 crore.
The Cabinet, Wednesday, approved an increase in in Minimum Support Price of 14 kharif crops for 2024-25 season.
Another suggestion by industry bodies is to increase the wages under MGNREGA to provide fillip to rural demand.
If one assumes a 20% increase in MGNREGA wages, it could add another Rs 17,200 crore to government’s bill, given that demand for MGNREGA does not change.
The government had budgeted Rs 86,000 crore under MGNREGA in the interim budget, similar to its spend in the previous year.
These suggestions are expected to provide succour to rural economy and lift India’s potential growth rate. But the government will have to balance the cost with fiscal considerations.
While the Rs 1.2 lakh crore bonanza from the Reserve Bank of India is expected to provide some cushion, improving tax collections could also provide a breather to keep fiscal deficit contained at 5.1% of the GDP target set in the interim budget.
The government plans to further reduce the fiscal deficit to 4.5% by FY26.
Rating agencies will be closely watching the Budget for cues on future ratings upgrade. S&P recently raised India’s outlook to positive from stable, signaling that further fiscal consolidation could help provide support to improve India’s rating from current 'BBB-'
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