Interim Budget: Vacuous Claims and Massive Expenditure Cuts
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USUALLY greater allocation for expenditures that directly impact the poor are termed as ‘populist’ by the mainstream media and ironically sops given to the rich in the form of corporate tax cuts or capital subsidies are considered to be prudent and responsible fiscal measures facilitating ‘efficient’ allocation of resources. In post-reform India this had been the usual narrative offered by the media to central government’s expenditure cuts during budget announcements. The class character of fiscal management had always been heavily biased against the poor and successive expenditure cuts that hurt the poor are defended as the cost they are supposed to pay for growth and development of the nation while the tax reliefs given to the rich and the upper middle class that reduces government’s revenue is the other cost that the people have to pay for the same development and growth of the nation. Therefore, the premise of discussion on the budget particularly in the mainstream media in the last few decades used to be revolving around an ‘abstract’ notion of growth and development, where people are separated from the ‘nation’, it should increase the wealth of the rich but should appear as a common good which is beneficial for all. Therefore, whether rating agencies are certifying policy proposals of the government mattered more than how people rate the budget.
This transition requires a lot of effort in the beginning because a neoliberal state being committed to the interest of global finance and its domestic partners has to reconcile with the fact that in a democracy the government has to be ultimately elected by the people who are voters and they constitute the majority masses. Mainstream media played an important role in this process of reconciliation. Perhaps now we have entered into a new phase where the ruling combine is confident enough that despite people being cheated in successive budgets and massive redistribution in favour of the rich occurs, still they would be able to manoeuvre public opinion, the insulation of which from real life issues is almost complete. And the government need not appear to be ‘populist’ even in the election year rather, bolstering religious fervour is expected to serve the purpose better!
The finance minister while proposing the interim budget tried to give a brief account of the ten-year report card with ‘big’ numbers of cumulative figures for about a decade and they appeared impressive in the evening TV shows. However the First Advance Estimate (FAE) released by the government on January 5, 2024 tells a different story. The growth estimated in nominal prices for the current fiscal year 2023-24 is pegged at 8.9 per cent which is far less than the nominal growth of GDP in the year 2022-23 which was 16.1 per cent. A nominal growth of 8.9 per cent can be translated into a real growth of 7.3 per cent only if inflation rate is assumed to be 1.6 per cent. But the CPI inflation in December 2023 stood at 5.69 per cent which is highest in the past four months and food inflation is even higher at 8.7 per cent. With this rate of inflation continuing till the end of the fiscal year, which is likely the case given the global forecast, realising a 7.3 per cent growth is questionable. The government and even the pro-government commentators couldn’t ignore the fact that the growth of consumption expenditure couldn’t recover its pre-pandemic levels. According to FAE, the growth of Private Final Consumption Expenditure (PFCE) in real terms is only 4.4 per cent which is far less than the growth of GDP indicating a sluggish growth in consumption demand. The answer perhaps lies in the other fact presented by the FAE which is the following. The growth in real terms of per capita income in the year 2023-24 turns out to be 6.4 per cent while the growth of per capita PFCE is 3.5 per cent. The wide gap shows the massive redistribution of income happening in India in favour of the rich. Since incremental incomes are largely amassed by the rich who use to have low propensity to consume instead more keen to invest on assets, the growth of consumption expenditure falls short of the growth of per capita income. Inequality is rising very sharply and that is taking a toll on the growth of demand.
The other component of demand is investment. True that the Gross Fixed Capital Formation (GFCF) grew at a rate of 10.3 per cent in real terms for the year 2023-24, a major contributor to this investment growth was the government, as capital expenditure increased in budgets for three consecutive years. Most of these government investments were directed to building roads and infrastructure which might have enhanced growth of the construction sector recording an impressive growth of 10.7 per cent in real terms. But the fact is ‘crowding in’ of private investment with this public investment push as expected didn’t come true. In the last two quarters of the current financial year the number of new projects announced by the corporates is almost half of the averages of previous years. Private investment not picking up doesn’t mean that corporates are making less profits, rather they made huge profits by investing in financial sectors where the rate of profit is much higher. In fact there has been a secular decline in private investment in plant and machinery and other productive capacities since the financial crisis. Notable is the fact that the capacity utilisation of industry in India is still low at 73.6 per cent, and therefore with huge unutilised capacity, corporates are not keen to invest in creating new physical capacities. Also successive increase in repo rates by the central bank with a view to check inflation has increased interest rates and hence the cost of investment. It also impacted consumption demand by way of increasing EMIs that made credit based consumption dearer. In such a context of deficient demand the government decided to remain committed to reduce expenditure in order to meet the fiscal deficit target with respect to GDP, primarily to satisfy international rating agencies and entice global finance.
MASSIVE EXPENDITURE CUT
Allocations that relate to provisions for common people such as employment, health and education were cut down particularly when the revenue earnings of the government is estimated to increase by Rs 67.4 thousand crores while expenditure is reduced in the revised estimates of the current fiscal year by Rs 52,000 crores. In other words the government’s revenue receipt grew by 13.3 per cent compared to 2022-23 actual figures while expenditure is estimated to grow by 7.09 per cent as a result of which expenditure to GDP ratio declined in the current fiscal year compared to the last year’s figure. The finance minister in her speech underlined that the government prioritises issues related to the poor, women, youth and farmers. However expenditure on agriculture and allied sectors, health and education has been cut down in the revised estimate by Rs 3681, Rs 9735 and Rs 7539 crores respectively from the current year’s budgeted figures. With respect to actual figures of 2022-23 subsidy on fertilizer in this year’s revised estimate has declined by Rs 62,000 crores and food subsidy declined by Rs 60.5 thousand crores. The expenditure on PM Ayushman Bharat has also been cut down to half in the revised estimate of what was budgeted in the current year and for 2024-25 the allocation has been less than what it was last year. Unemployment rate according to PLFS figures has been 6.6 per cent which is much higher than average unemployment rates in India in past decades. According to monthly figures of CMIE, the unemployment rate in January 2024 was 8.86 in urban India and 5.38 in rural India. Most importantly, unemployment rate among youth of age 25-29 has been 11.3 per cent and women unemployment rate in urban India stood at as high as 19.36 per cent. In such a scenario, allocation for MNREGA in 2024-25 budget has been lower than the actual expenditure of 2022-23 by Rs 4806 crores.
In sum, the interim budget continued with the tradition of hurting the poor and the middle class, reduce allocations in crucial sectors such as health, education, and other schemes, has no intention to address the unemployment problem and low consumption demand, while showing commitment to global finance by restricting fiscal deficit to GDP ratio through massive expenditure cuts.
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