Finance Minister Nirmala Sitharaman on July 23 presented a carefully crafted plan, raising expenses by Rs 3.7 lakh crore from last year’s estimates, but walked the talk on fiscal discipline despite additional welfare spending—likely a nod to post-election political dynamics.
In the new government’s first budget, the fiscal deficit target—shorthand for what the government plans to borrow to fund its expenses—has been set at 4.9 percent of GDP, lowered from the 5.1 percent projected in the Interim Budget.
The finance minister has reiterated the commitment made in the Budget speech for 2021-22, which set a broad path of fiscal consolidation to attain a fiscal deficit lower than 4.5 percent of GDP by 2025-26.
Importantly, the primary deficit for 2024-25 has been pegged at 1.4 percent, lower than the 2 percent of the updated revised estimates for 2023-24, and also lower than 1.5 percent projected in the Interim Budget.
The primary deficit shows how much the borrowings are being used to make interest payments. If the targets were to hold true by March 2025, a lower primary deficit should indicate better fiscal health for the Indian economy from a public finance puritanical standpoint.
The total expenditure has been set at Rs 48.2 lakh crore, up 8.5 per cent from the updated revised estimates of Rs 44.43 lakh crore in 2023-24 and 1.1 percent from the interim budget projections of Rs 47.66 lakh crore.
The capital expenditure projections have been maintained at Rs 11.11 lakh crore earmarked in the interim Budget in February.
What has changed, however, is the revenue expenditure plans. It is set to grow to Rs 37.09 lakh crore in 2024-25, up 0.8 percent from the interim budget’s estimates of Rs 36.54 lakh crore and higher by 6.2 percent from updated revised estimates of Rs 34.94 lakh crore for 2023-24.
Revenue expenditure as a percentage of total expenditure is also set to rise marginally from 76.7 percent in the interim budget to 77 percent in the full budget.
This marks a reversal of trends. Revenue expenditure as a percentage of total expenditure has been falling consistently—from about 88 percent in 2017-18 to 77 percent in the interim budget. It is now again set to rise, albeit creeping only marginally.
This broadly reflects the government’s subtle change in stance towards addressing pain points among farmers, small industries, the rural economy and job creation challenges through greater budgetary spending on the revenue head.
RBI’s bonanza
One of the key characteristics of Sitharaman’s seventh budget (including February’s interim budget) has been the way she intends to balance the books, despite a relatively generous attention to Andhra Pradesh and Bihar to address demands governed by two key allies—N. Chandrababu Naidu-led Telugu Desam Party (TDP) and the Nitish Kumar-led Janata Dal (United).
The finance minister, however, enjoyed greater manoeuvrability, with the Reserve Bank of India’s (RBI’s) record Rs 2.11 lakh crore dividend payout to the government announced in May.
The dividend for 2023-24 is 141 percent higher than the Rs 87,416 crore of dividend payout in the fiscal year 2022-23 and more than double the Rs 1.02 lakh crore that the finance minister estimated in the interim budget to earn as dividend from the RBI state-run banks and other financial institutions. The current dividend, paid in May 2024, will be accounted for in 2024-25.
Tax revenues need to fire
While the RBI’s mega dividend payout has offered considerable fiscal elbow room, the finance minister has also set out some ambitious revenue targets.
The finance minister has pencilled in a total tax revenue (net to Centre) of Rs Rs 25.83 lakh crore, up 11 per cent from the updated revised estimates of Rs 23.26 lakh crore for 2023-24 but one per cent lower than the interim budget projections of Rs 26.01 lakh crore.
Corporate income tax collections (including cesses and surcharges) for 2024-25 are projected at Rs 10.42 lakh crore, up 13 per cent from the updated revised estimates of Rs 9.22 lakh crore for 2023-24.
Income tax collections (including cesses and surcharges), too, are set to rise to Rs 11.56 lakh crore in 2024-25, up 13 percent from the updated revised estimates of Rs 10.22 lakh crore for 2023-24
A higher individual income tax collection than what was estimated in the interim budget appears to be predicated on relatively better household income this year compared to the previous year, boosting people’s spending ability. This, in turn, would spur aggregate demand and push up companies’ profitability, yielding greater corporation tax revenues for the government.
The finance minister also expects goods and services tax (GST) tax collections to clock robust growth. GST revenues for 2024-25 have been projected at Rs 10.67 lakh crore, up 11.6 percent from the updated revised estimates of Rs 9.56 lakh crore for 2023-24.
Higher GST collections can be seen as a proxy for rising household spending. Since GST is a destination-based tax, greater consumer demand for goods and services should also result in greater GST revenue for the government. That said, some of the higher GST collections could also be driven by elevated inflation, as GST is levied on the final price.
Not only about taxes
Sitharaman has also placed her bets on a few non-tax revenues. Revenues from `Other Communication Services’, which primarily constitutes licence fees and spectrum sale to telecom companies, are expected to fetch Rs 1.20 lakh crore in 2024-25, despite a tepid response to the recent spectrum sale, up 28 per cent from Rs 95,000 crore in 2023-24.
A significant portion will come from past auction dues, spectrum usage charges, and licence fees.
Last month, the spectrum auction ended after seven rounds, with the government collecting Rs 11,340.78 crore—the third lowest since competitive bidding began in 2010—from selling 141.4 units of airwaves.
The government had put 10,523.2 MHz of spectrum worth Rs 96,320 crore on sale but found buyers for just about 1.3 percent of the total radio frequencies on offer, the lowest since 2010.
Disinvestment revenues remained unchanged from the interim budget at Rs 50,000 crore, higher by 40 percent than Rs 30,000 crore of 2023-24.
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