Editorial 1 : After budget, the challenges
Introduction: The Union Budget 2024-25 is probably an admission of the various challenges confronting the economy. The finance minister started her budget speech by citing two important macro risks — rising global economic uncertainty and global inflation. The upfront mention of these two risks probably underlines how an emerging economy like India is vulnerable to them.
The challenges to fiscal stability
- Fiscal stability in an uncertain economic environment is always challenging.
- However, the complexity of achieving fiscal balance needs to factor in two competing priorities.
- First, creating the fiscal space for social and development spending.
- Second, reducing the level of debt.
- Some key budget numbers in this context may be useful to understand the issue.
- The total size of the Union Budget 2024-25 is Rs 48.21 lakh crore, up by Rs 3.96 lakh crore from the previous year.
A view on various expenditures and receipts of government
- Interest payments are around Rs 1 lakh crore higher as compared to the previous year, accounting for roughly 25 per cent of the rise.
- The rest is in central sector schemes (Rs 70,000 crore), centrally sponsored schemes and other central grants and transfers to states.
- A part of this additionality in transfers to states is also due to the new expenditure scheme allocations provided to Andhra Pradesh and Bihar in lieu of their demand for special-category status.
- However, as a percentage of GDP, the central expenditure shows a decline from 15.06 per cent of GDP to 14.77 per cent between 2023-24 and 2024-25 (BE).
- The gross tax revenue of the Union government as a percentage of GDP is expected to remain stagnant at 11.7 during this period and the debt-to-GDP ratio is expected to remain at around 56 per cent.
Reduction in debt is necessary for financial stability
- A faster reduction of debt is critical as the interest burden of the Government of India is now Rs 11.62 lakh crore.
- When around 25 per cent of the additional increase in expenditure is only due to the interest liability of the government, it is natural for it to prioritise fiscal consolidation over creating fiscal space for non-interest expenditure.
- However, fiscal consolidation beyond a point can have its own adverse distributional, development and growth consequences.
- There is a need to rethink the existing framework of fiscal consolidation.
The debt-to-GDP ratio of union government
- Though the debt-to-GDP ratio of the Government of India is set to decline from its COVID peak of 61 per cent in 2020-21 to 56 per cent in 2024-25, the interest payment to GDP ratio remained above 3.5 per cent during this period.
- This stickiness of interest liability, despite the debt reduction, is acting as a major constraint to increasing development expenditure.
- A time-bound debt reduction path is critical to reduce the strain of interest burden on the Union Budget.
- That would also be in conformity with the amendments to the FRBM Act undertaken in 2018.
- As per these amendments, the government was required to reduce Union debt to 40 per cent of the GDP and general government debt to 60 per cent by March 31, 2025.
- Though this is not possible given the COVID-19 shock and the consequent rise in the debt ratio, a debt reduction path as a framework of fiscal consolidation is necessary, particularly, in the era of high inflation and large debts.
- This will ensure greater fiscal prudence.
The next generation reforms in budget
- This Budget has also made several announcements that are in the domain of states, such as the next-generation reforms related to land, labour, capital and use of technology.
- However, these are complex areas of reforms.
- For example, encouraging states which charge a lower stamp duty for property registration may not be easy.
- A similar kind of reform was tried as a part of the Jawaharlal Nehru Urban Renewal Mission.
- However, the dispersion in rates across states is still very large.
- This difference in rates is intimately linked to the nature of the property market in individual states, the valuation of land and also their revenue needs.
- Though the rationalisation of the stamp duty rate is important, it also requires critical reforms in the land market.
- The Union government can only act as a facilitator.
- Experience suggests that these reforms cannot be top-down, driven by the Centre.
- Carrying out any major reforms in taxes that are in the domain of states would be more challenging now as they have lost substantial fiscal autonomy post the introduction of the Goods and Services Tax.
Conclusion: A bottom-up consultative process with the states would be critical for the success of implementation of such reforms. Their success would also depend on Union-state coordination and the willingness of the latter to undertake such reforms without compromising their fiscal autonomy.
Editorial 2 : Killing students
Introduction: The deaths of Shreya Yadav, Nevin Dalwin and Tanya Soni on July 27, after they were trapped in the flooded basement of a UPSC coaching centre in Delhi’s Old Rajinder Nagar, tell a grim story of criminal failures.
The stories of systemic failures
1. Failure of coaching centres’ negligence
- The failure of the coaching centre to prioritise the safety of the students over profits.
- It flouted the city’s building by-laws to house a library and reading room in the basement, with just one exit/entry point.
- When water gushed in following the bursting of a nearby drain, there was no way for the students to escape as the door remained shut.
2. The failure of local authorities
- The failure of callous local authorities that allowed the unregulated growth of the coaching industry, with overcrowded centres operating in residential buildings, disregarding safety norms.
3. The failure of Delhi government
- The tragedy also points to a larger failure — of a government being run, allegedly run, by a chief minister in jail.
- The AAP government seems much too convulsed by its internal disorders to attend to the tasks of governance in India’s capital city, including building and maintaining the infrastructure that can support the aspirations of students who flock to it.
The accountability mut be fixed after investigation
- Even as the lapses that led to this incident are investigated, a larger reckoning is called for, accountability must be fixed at multiple levels.
- The business of coaching is a multi-crore, nationwide behemoth built on the anxieties of young people hoping to crack the civil service exams as a ticket to success in a jobs-starved economy.
- The pursuit of profit is legitimate but too often, it comes with administrative negligence and a regulatory system that exists only on paper.
The recent incidences in coaching institutes
- The evidence of past incidents — such as the 2019 fire in a Surat coaching centre that killed 20, after the sole exit from the rooftop class, a wooden staircase, was engulfed in flames.
- Following this incident, an inspection by the Delhi fire department found that several coaching centres around the city had flouted fire safety norms and called for their closure.
- But little has changed on the ground.
- When a fire broke out in a Mukherjee Nagar coaching centre last year, students had to use ropes and wires to rappel down the building.
- That young people around the country are forced to study in unsafe conditions in such institutes, points to the need for a law which can enable regulation of the industry — not mere guidelines, like those issued by the Union government earlier this year.
The political mudslinging after the incidence
- The tragedy of the Rajinder Nagar deaths is compounded by the political bickering in its aftermath.
- The blame-game between the AAP on one side and the BJP and the Delhi Lieutenant-Governor on the other, is predictable and unseemly.
- It also distracts attention from the real governance problems in a state where, in the absence of a firm and clear line of accountability, basic municipal responsibilities, such as desilting and clearing of drains, have become so contested that the High Court is forced to demand a timeline.
Conclusion: The deaths of the three students must be investigated urgently. But justice for them can only come when those who are responsible for their safety and well-being act decisively to set their own house in order. The highest court has to clean up the mess after an exam paper leak, maybe grieving parents now need to knock on its door for justice.