The Fiscal Landscape
As India prepares for Budget 2024, the pressing challenge is to balance fiscal prudence with the imperative to stimulate economic growth. This dual objective requires a nuanced approach, particularly in light of the substantial dividend of ₹2.1 trillion received from the Reserve Bank of India (RBI) in May 2024. This unexpected windfall has provided some fiscal relief, but strategic planning remains essential to ensure sustainable development.
Fiscal Prudence and Economic Modernization
The current administration has consistently prioritized fiscal prudence, implementing rigorous reforms to modernize the economy. As it enters its third term, the government is poised to focus on critical areas such as workforce productivity and the global competitiveness of Indian products and services. Achieving these goals necessitates creating fiscal space within the budget while continuing to pursue fiscal consolidation.
Creating Fiscal Space: Key Recommendations
The Confederation of Indian Industry (CII) has outlined several recommendations to support these priorities. One crucial suggestion is the revival of medium-term deficit indicators in the Union Budget, providing long-term visibility into the government’s fiscal strategy. Additionally, updating the Fiscal Responsibility and Budget Management Act, as advised by the 15th Finance Commission, could further strengthen fiscal discipline and positively influence India’s credit rating.
Enhancing Public Spending on Healthcare and Education
For fiscal consolidation to coexist with economic growth, it is imperative to boost public expenditure in areas that enhance productivity, particularly healthcare and education. The CII recommends increasing combined (central and state) expenditure on healthcare to 3% of GDP by 2030-31 and on education to 6% of GDP. Such investments would not only improve the quality of life but also elevate overall economic productivity.
Strategic Use of the RBI Dividend
The substantial RBI dividend provides an opportunity to address fiscal constraints creatively. The CII proposes using part of this windfall to increase capital spending by 25% over the revised figure for 2023-24. This approach would sustain the upward trajectory of public capital expenditure, potentially attracting further private investment.
Disinvestment and Asset Monetization
Raising additional funds through disinvestment and asset monetization is another viable strategy. While the outcomes of such initiatives depend on unpredictable market forces, a demand-based approach for selecting public sector enterprises (PSEs) for disinvestment could prove effective. Developing a medium-term schedule for PSE disinvestment, driven by investor interest, would enhance transparency and efficiency.
Supporting the Asset Monetization Program
The government’s asset monetization program can gain momentum with targeted support for ministries and state governments in identifying assets, designing regulatory frameworks, and executing plans. Establishing a dedicated cell within Niti Aayog or the Ministry of Finance could streamline these efforts. Proceeds from disinvestment and asset monetization should be allocated towards debt reduction or the creation of new assets, reinforcing fiscal sustainability.
Enhancing Tax Collections
To create additional fiscal space, it is crucial to enhance tax collections. Despite the introduction of the Goods and Services Tax (GST) in 2017, which simplified the tax structure, there remains considerable scope for improvement. The CII suggests moving towards a three-rate GST structure and incorporating currently excluded items like petroleum products and electricity. These reforms would lower business costs by allowing input credits.
GST Reforms and Directional Guidance
Although the Union Budget cannot directly implement GST reforms, it can provide directional guidance to the GST Council. Simplifying the GST structure and reducing the number of rates would prevent revenue leakage and improve tax buoyancy, contributing to a more robust fiscal framework.
Customs Tariff Rationalization
India’s customs tariffs also require rationalization to enhance global competitiveness. The CII recommends a graded roadmap to adjust duty rates over time, allowing domestic manufacturers to adapt. Simplifying compliance procedures and improving dispute resolution mechanisms would further enhance the ease of doing business and increase tax revenue.
Progress in Fiscal Deficit Reduction
The government has made significant progress in reducing the fiscal deficit from 9.2% of GDP in 2020-21 to 5.6% in 2023-24. This achievement underscores the administration’s commitment to fiscal discipline. However, it is essential to strike a balance between further deficit reduction and the need to support economic growth.
Conclusion: Balancing Fiscal Prudence and Growth
As India navigates the complexities of Budget 2024, the dual objectives of fiscal prudence and economic growth must be harmonized. By enhancing tax collections, strategically investing in critical sectors, and leveraging disinvestment and asset monetization, the government can create a sustainable path for development. The emphasis on transparency, efficiency, and long-term planning will be crucial in ensuring that fiscal consolidation does not come at the expense of economic vitality.
Sunil Garnayak is an expert in Indian news with extensive knowledge of the nation’s political, social, and economic landscape and international relations. With years of experience in journalism, Sunil delivers in-depth analysis and accurate reporting that keeps readers informed about the latest developments in India. His commitment to factual accuracy and nuanced storytelling ensures that his articles provide valuable insights into the country’s most pressing issues.
