Editorial 1 : Responsible and inclusive
Introduction: Union budget 2024 is responsible, sustainable and egalitarian. It has struck a welcome balance between pushing growth, welfare and keeping India on the right fiscal path
Fiscal consolidation
- The FY25 budget continues the commitment to being responsible.
- The fiscal deficit is projected at 4.9 per cent of GDP in FY25 (plan to bring down the deficit further to 4.5 per cent in FY26) and seeks a large 0.9 pp correction relative to FY24 (and a 0.2 pp lower deficit even compared to the interim budget) — a decline of 1.8 pp over the last four years.
- This would be the largest annual reduction in deficit since 2013, excluding the post-Covid normalisation.
The debt to GDP and primary deficit of government
- The budget aims for restraint on borrowings of Central Public Sector Enterprises (flat at 1.1 per cent of GDP).
- Even excluding state PSEs, for which we do not have reliable estimates, the consolidated deficit is running at 8.8 per cent of GDP, and debt/GDP at 82 per cent.
- In FY24, the Centre is estimated to have spent close to 40 per cent of its revenues on servicing its debt burden.
- Notably, interest payments are budgeted at three-quarters of the fiscal deficit, while the primary deficit (deficit excluding interest payments) is projected at only 1.4 per cent of GDP in FY25.
- Deleveraging by the sovereign will be essential to convert the outlook upgrade by rating agencies into actual rating increase, which is long overdue.
- The budget clearly signals continued progress towards this goal.
The huge capex push from centre will continue
- The sustained push towards capital spending indicates consistency.
- The encouragement through Rs 1.5 lakh crore for capital spending as a 50-year interest-free loan is effectively a grant to states and should enable them to utilise these resources in critical areas like health and education.
- States, however, had not used such additional resources.
- Ironically, because states are unable to spend on capital outlays, it provides fiscal room to the Centre.
- As the Economic Survey correctly pointed out, the goal of Viksit Bharat can be achieved only through a collective compact, and states have to be an integral part of it.
The farm distress and MSMEs were special focus in the budget
The budget emphasised agriculture and MSMEs, sectors crucial for employment and for the low- and middle-income population.
Provisions for Farm sector
- Apart from increased allocation to agriculture, the budget has focused on sustainability, whether through the promotion of pulses, climate-resilient varieties, or vegetable clusters.
- There was also a push for branding and certification to promote natural farming.
- While we can address the issue of value distribution through cooperatives, there is a need for value creation in agriculture, which has been recognised.
- The emphasis on safety and quality can be a springboard for agri-exports which the budget highlights.
- We know that only productive firms or farms succeed in exports.
- The mix of the push to productivity along with credible systems for quality, safety and health can be a major factor in scaling up success in agriculture.
- Unique identification of rural and urban land records is being introduced via the unique land parcel identification number (ULPIN), in addition to better map digitisation.
- This will allow for the quicker flow of agricultural credit.
Provisions for MSME
- The Economic Survey 2023-24 indicated increases in demand and approval of credit guarantees under the CGTMSE scheme, which features credit pooling for MSMEs.
- The budget indicates further leveraging of the digital footprint of MSMEs in the economy, and enhanced credit assessment to help to cover enterprises without formal accounting systems.
- Doubling Mudra loan limits on the condition of successful repayment of previous loans is also welcome.
Provisions for health and educations
- The government has made education and skilling for employment a huge priority by allocating Rs 1.48 lakh crore.
- There are provisions for educational loans up to Rs 10 lakh for each student pursuing higher education in Indian institutions.
- India with her glorious past can be the university for the world, just as she has been the pharmacy of the world.
- Despite some encouraging steps, the overall budget allocation for both health and education remains minimal, and low by global standards.
Budget tries to fill the regional inequalities gap
- Finally, the budget takes a step towards reducing inter-state disparities by allocating resources for “Viksit Bihar”, the state with the lowest per capita income.
Conclusion: When India gained independence, an explicit government objective was to have a more egalitarian society, coupled with the balanced development of different regions. Active state intervention was envisaged to reduce disparities. The budget, through allocations for the poorer states, moves the needle in the right direction to fulfil this vision. Overall, the budget strikes the right balance between responsible, inclusive, and sustainable growth.
Editorial 2 : A setback for the farm
Introduction: In 2023-24, the Indian economy registered an overall GDP growth rate of 8.2 per cent, and it is likely to remain above 7 per cent in FY25 according to most projections. However, growth in the agriculture sector declined from 4.7 per cent in FY23 to 1.4 per cent in FY24. Against this backdrop, one would have expected that agriculture would get a booster dose in the budget.
The R&D in agriculture remains ignored despite huge RoI
- It’s well known that the marginal returns of investing in agri-R&D are over 10 times – in other words, an extra investment of 1,000 crore will mean Rs 10,000 crore in terms of agri-GDP.
- Such an investment could have pushed agriculture towards a higher growth trajectory.
- But the budget expenditure numbers don’t give such an assurance.
- The Department of Agricultural Research and Education (DARE) has received Rs 99.4 billion, a marginal increase of just 0.7 per cent from Rs 98.8 billion (RE) in FY24.
- Agriculture R&D Expenditure touched Rs 160 billion in 2020-21, with 89 per cent coming from the public sector and 11 per cent from the private sector.
- While these numbers give an idea of the scale, it is important to consider the percentage relative to agriculture’s Gross Domestic Product (Agri-GDP), estimated as Agriculture Research Intensity (ARI).
- The ARI peaked at 0.75 per cent in 2008-09 and stands at 0.43 per cent in 2022-23.
- This will fall further in FY25, as the allocation to this segment has gone down in real terms.
- This is not good news for the country’s food security as well as for arresting food inflation.
The increase in the allocation to agriculture and allied sector barely compensate for inflation
- The budget has allocated Rs 1.52 trillion for the agriculture and allied sectors.
- The Ministry of Agriculture and Farmers’ Welfare received a budget of Rs 1.22 trillion (BE), an increase of just 5 per cent from Rs 1.16 trillion (RE) in FY24 – this barely compensates for inflation.
- The allocation to the Ministry of Fisheries, Animal Husbandry and Dairying has increased 27 per cent – Rs 56 billion (RE) in FY24 to Rs 71 billion (BE).
- This is a good sign for this fast-growing sector.
The support to farm sector is concentrated in welfare schemes and subsidies
- Much of the support for the agriculture-food-rural sector has focused on welfare measures and subsidies.
- Food and fertiliser subsidies and the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) are the key components of this support.
- Although these measures are not directed at the agriculture ministry, they benefit the agri-food-rural sector, aiding either farmers or consumers.
- Significant income support from the Agriculture Ministry itself comes through programmes like PM-KISAN, credit subsidies, and PM-Fasal Bima Yojana.
- In all, these welfare and subsidy measures are projected at Rs 5.52 trillion for FY25 – slightly less than the revised estimate of Rs 5.8 trillion for FY24.
- This support represents 11.5 per cent of the overall budget (Rs 48 trillion) and a notable 21.4 per cent of the central government’s net tax revenue for FY25.
- The food subsidy is budgeted at Rs 2.05 trillion, down from INR 2.12 trillion in FY24. Despite this decrease, the subsidy still predominantly benefits consumers rather than farmers.
- Providing free rations to more than 800 million people through the PM-Garib Kalyan Yojana is perhaps correct from a political perspective.
Government should pay heed to the concerns raised in Economic Survey 2023-24
- The Government of India has reflected Farming’s concerns in the Economic Survey 2023-24 by recognising the need to reorient agricultural policies that have been working at cross-purposes, overlooking farmers’ interests and inadvertently harming natural resources.
- Although these policies have increased agriculture productivity, they have diminished soil fertility, depleted groundwater, increased nitrous oxide and methane emissions and starved crops of nutrients.
- They have also undermined public health by becoming a catalyst for a diet rich in sugar and carbohydrates, instead of fibre and protein.
Conclusion: There is an urgent need to transform agriculture into an engine of growth through farming practices that benefit both farmers and the planet. Effective policymaking through re-orienting subsidies, can generate higher value addition in agriculture, boost farmers’ incomes and create opportunities for food processing and exports. Perhaps that has been left for the next budget.