Budget 2024: Centre’s fiscal policy likely to stay on the beaten track

The key question about the budget that everyone seems to be fretting over:  given the election results, whether the new government will continue with its fiscal strategy of the past decade or will the compulsions of coalition politics force it to make compromises. There are some clues. The allocation of ministers and ministries in the new cabinet seem to indicate two things. The BJP is clearly asserting its rights as the dominant coalition partner and signalling continuity of its policy stance of the past ten years.

What has been the fiscal strategy of the past 10 years of BJP rule? What could continuity imply when it comes to fiscal management? Firstly, BJP rule has seen an unwavering focus on fiscal consolidation to rein in public debt. Fiscal compression remains essential as central government public debt at 57 percent of GDP remains (going by interim budget estimates) above the pre-pandemic five-year average of 51 percent of GDP.

The second element has been a decision to improve the “quality” of spending to spur growth by prioritizing capital over revenue expenditure. Income multipliers for capital expenditure are known to be much stronger than revenue expenditures. While revenue expenditure was over 7 times that of capital expenditure in the 2011-2015 period, it dipped to around 4 in 2023-24. Interestingly, even during the COVID period when reckless fiscal transfers (revenue expenditures) became the norm in many economies, the government stuck to this “quality” discipline. It did use fiscal transfers but complemented them deftly by using food-stocks and targeted lending backed by guarantees.

The third element of the fiscal strategy, that perhaps does not get the attention it deserves, is targeted spending on welfare schemes and social infrastructure. The government’s big ticket infrastructure successes, particularly its aggressive highway programme, are often highlighted in the media and policy forums. However, the fact is that major milestones on the more micro infrastructure projects have also been crossed. Take SAUBHAGYA, the universal electrification scheme where 100 percent of the target has been met. Almost 80 percent of the ambitious drinking water access programme has also been completed and the shortfall is concentrated in a just a couple of states. The governments’ focus on digitalization has helped -- sealing leakages in subsidy and welfare payments. It is likely that the July budget will continue this three-pronged strategy.