Interpreting Budget Dynamics

In her sixth Union Budget, the last before this year's parliamentary elections, finance minister Nirmala Sitharaman was fiscally prudent and refrained from populist schemes. She also continued to push growth via higher capital expenditure but at a slower pace. The finance minister is banking on pick-up in private spending while ensuring that lower growth in government expenditure brings down FY25 fiscal deficit to 5.1% of gross domestic product (GDP). The neutral nature of the Budget and broad directions towards building a Viksit Bharat by 2047 reflect the government's confidence in coming back to power for a third term.

Fortune India formed a panel of the country's leading economists, CEOs, industrialists and experts to understand what the Interim Budget offers. Gopal Krishna Agarwal, BJP's national spokesperson for Economic Affairs; Suneeta Reddy, managing director, Apollo Hospitals Group; A.M.Naik, chairman emeritus, L&T; Nilesh Shah, managing director, Kotak Mahindra Asset Management Company; Gautam Singhania, chairman and managing director, Raymond India; Gourav Vallabh, national spokesperson, Indian National Congress; Santosh Kumar Mehrotra, professor of economics, Centre For Informal Sector And Labour Studies, Jawaharlal Nehru University; N.R. Bhanumurthy, vice chancellor, BR Ambedkar School of Economics University; and Pravesh Sharma, chairman, National Association Of Farmer Producer Organisations answer questions on government's interim financial statement. Edited excerpts:

Has Interim Budget provided a roadmap for economic growth?

Gopal Krishna Agarwal: The Interim Budget gave a roadmap for economic direction because it focused on fiscal consolidation. As against the revised fiscal deficit estimate of 5.8% of GDP for FY24, the target for the coming year is 5.1%. The 11% increase in capital expenditure will create infrastructure for development—be it ease of doing business or ease of living or creation of demand. There is a provision of ₹1 lakh crore fund for research and development (R&D). This is important as artificial intelligence, blockchain innovations, green hydrogen and areas such as chip technology require huge R&D investments. The four important segments of economy—youth, women, poor and farmers—have been properly provided.

A.M. Naik: India's goal is to become developed by 2047. This requires sustained growth of 7.5%. The Interim Budget has provided a competent roadmap for that by boosting private sector investment, building trade corridors, improving productivity and innovation with ₹1 lakh crore loans for sunrise sectors and growing infrastructure capex to more than ₹11 lakh crore.

Suneeta Reddy: It serves as a strategic blueprint that not only propels growth but also balanced and inclusive development. It has laid out a roadmap for economic direction with multifaceted focus. It also shows commitment to inclusive growth, emphasising the concept of GDP—Growth, Development and Progress. While the full Budget is expected to delve deeper into sector-specific strategies and reforms, the Interim Budget has set the tone for 'Viksit Bharat' by 2047.

Gautam Singhania: The Interim Budget underlined people-centric, inclusive and sustainable development as India's motto, supporting the vision of 'Viksit Bharat' by 2047. The trinity of demography, democracy and diversity, backed by the call for 'Sabka Prayas,' encourages every Indian to pull their weight for development of the nation. This sets the tone for efforts needed to make India the world’s third-largest economy in next three years. Government has sent a clear message by focusing on infrastructure, sustainability and farmer welfare.

Gourav Vallabh: The prime minister and the finance minister said this Budget has four cornerstones. Of them, youth have got nothing. Women are troubled by rising prices; prices of tomatoes, potatoes and onions have risen 40% over past one year. Inflation is hurting. Consumption expenditure at 4.4% is lowest in last 21 years if we exclude pandemic years (2020-21). Household savings of middle class families are now 5% of GDP, the lowest in previous 50 years; they were 19% during the UPA regime. Consumption is getting cut as middle-class families have lesser savings. The prime minister and others talked about lakhpati didi but we've become lakhpati borrowers instead. India's total debt is $169 lakh crore or ₹1,19,000 per person. The third cornerstone is farmers but not a paisa has been increased for them. Finally, the poor are dependent on five-kg free ration. On Hunger Index, out of 125 countries, India is at 111.

Pravesh Sharma: We needed a more integrated approach for increasing agricultural incomes, addressing issues such as climate change and developing a more remunerative market. There are many challenges in agriculture. It is disappointing that the Interim Budget makes generic remarks such as self-sufficiency in oilseeds. The last Budget had also mentioned oilseeds but they have not come out with a scheme yet. Though it's unrealistic to expect this in an Interim Budget, there should have been a roadmap for oilseeds. There was no signal of either a long-term approach or an integrated thought process for sustained agriculture sector growth.

Santosh Kumar Mehrotra: Why are you assuming that this government has a roadmap on anything other than remaining in power? If you ask them to show one document which shows any roadmap, they don't have one. The roadmap is $5 trillion economy, $7 trillion, $10 trillion. That's the roadmap.

How well has the Interim Budget been able to manage the fiscal front?

Reddy: It demonstrated commendable commitment to fiscal discipline as evidenced by FY25 fiscal deficit target of 5.1% of GDP. This aligns with government's efforts towards fiscal consolidation with the objective of reducing fiscal deficit below 4.5% by FY26. Investors will view this commitment to sound economic management and sustainable fiscal policy positively.

Singhania: Economy is doing well, backed by a robust external sector. Average real income has increased 50% and all-round development is visible across sectors. Direct tax collections have more than trebled over a decade while number of I-T return filers has risen 2.4 times. Fiscal front has been given a lot of importance alongside growth. FDI inflow during 2014-23 was $596 billion, twice the inflow during 2005-14.

Naik: Revised FY24 fiscal deficit estimate is 5.8% of GDP with plans to bring it down to 5.1% by next year and less than 4.8% by FY26. It is important to balance fiscal deficit and increased spending on infrastructure and social welfare. Our government seems to have hit the sweet spot.

Bhanumurthy: The major focus of markets was 2023-24 numbers as nominal GDP growth was lower than assumed. However, the finance minister showed much better fiscal numbers in revised estimates than Budget estimates, largely due to a significant increase in revenue base as well as buoyancy in collections. The Interim Budget assumes such positive trends will continue next year and, hence, stuck to 5.1% fiscal deficit target with 3.4% capital expenditure for next year.

Mehrotra: You have a profligate government that has borrowed huge amounts. It's probably worried about downgrade by S&P and Morgan Stanley to junk status if its fiscal deficit is not under control.

Is Interim Budget growth-oriented? Which engines of growth will it trigger?

Nilesh Shah: It is growth-oriented. It achieved the impossible trinity—giving money for inclusive growth through allocations to rural housing, self-help groups and post-harvest agriculture; pushing infrastructure; and ensuring fiscal prudence. It will support growth as higher allocation to infrastructure will result in a positive fiscal impulse despite fiscal consolidation. It also creates room for private sector investment through inclusive growth, including in rural India. It also leaves enough credit for private sector capital expenditure through fiscal consolidation.

Agarwal: Roadmap for fiscal consolidation is very important. It will create a good economic ecosystem and attract foreign direct investment (FDI). Government has also reduced its borrowing target for current year from ₹15.43 lakh crore to ₹14.13 lakh crore. With increasing GDP, this will bring down the debt to GDP ratio, which is important. This, in turn, will create an ecosystem for growth and improve macroeconomic parameters such as inflation, FDI, GDP and debt to GDP ratio.

Higher capital expenditure will propel private investment in construction, steel and cement sectors. It will also ensure ease of living for middle class and ease of doing business for companies. Logistics costs will come down with freight corridors. R&D push will trigger building of knowledge economy, whether it is artificial intelligence, start-ups or app and chip development. Most of the industry will benefit from this R&D fund of ₹1 lakh crore.

Naik: Policy frameworks in the Budget focused on inclusivity and improving people's capabilities by developing important social classes—poor, youth, farmers and women. We have multiple schemes which provide a platform for skill development, especially in technology, ensure easy loans for start-ups and existing businesses and promote defence indigenisation and deep-tech R&D.

Singhania: In past decade, high growth has been catalysed by infrastructure expansion, diversification and upgradation. This Budget is a testament to it. It will boost growth engines such as infrastructure, railways and digital systems, fostering an environment conducive to job creation. Empowering youth through Skill India Mission and women through Mudra Yojana underlines a strategic approach to boosting employment across sectors.

Reddy: It is targeting various engines of growth. Focus on empowerment of women through entrepreneurship, ease of living and preservation of dignity reflects commitment to inclusive economic development.

The proposal to establish more medical colleges, leveraging existing hospital infrastructure, will not only boost healthcare but also generate skills, employment and promote economic growth. Certain factors like rapid development of infrastructure, coupled with digital public infrastructure as a modern production factor, highlight how every region of the country is contributing to economic growth. The emphasis on enhancing connectivity aligns with improved healthcare accessibility, contributing to overall well-being. Empowering youths, referred to as Amrit Peedhi, is a central theme, supported by transformative reforms in education and skilling through initiatives like National Education Policy (NEP) 2020 and Skill India Mission.

A new corpus for private investment in sunrise technologies signifies a forward-looking approach, ensuring a golden era for our tech-savvy youth and facilitating formalisation of economy through digital public infrastructure and GST (goods and services tax) reforms. These growth-oriented measures will drive economic prosperity and innovation.

Will Interim Budget create jobs?

Reddy: We should look at jobs as an opportunity to do more. While we have made progress by creating 5.2 crore formal jobs, 47% of which are first jobs, over last four years, our unemployment rate is rising. We need to align supply and demand. That's why skilling initiatives are critical, be it in manufacturing or services. Healthcare sector has the potential for job creation like what IT did in late 90s. A combination of education and sharply aligned skilling programmes will heighten job creation.

Naik: Capex push in multiple sectors—three new railway corridors, increase in number of airports in Tier II/III cities and development of green energy across solar and offshore wind segments—will have a huge impact on job creations for next five years. Development of tourism infrastructure will also boost employment opportunities.

Shah: Higher growth will create jobs. We don't have good data on informal job sector. Disguised unemployment in agriculture also distorts employment data. EPFO data is useful only for formal jobs. We are optimistic about jobs in both formal and informal sectors, including those self-employed through the Mudra Loan scheme.

Vallabh: In the Budget speech, the finance minister mentioned "Prime Minister" and "Tax" 42 times. Not even once did she mention 'employment' or 'jobs.' This shows the Budget was focused on taxation and the prime minister. It was not focused on youth. CMIE data shows that 44.49% of 20-24-year-olds were unemployed during October-December 2023. It shows that youth unemployment in India is 24% compared to 12% in Bangladesh.

Mehrotra: There is an attempt to tell us that there is something for jobs, for instance a corpus of ₹1 lakh crore for giving 50-year loans at nil or extremely low interest rates to scale up research in sunrise sectors. This means we want to create start-ups. However, we don't have institutional structures to translate research papers and patents into products and processes. Research, when it involves the private sector, usually tends to be done by corporates and not our tech-savvy youth. Countries build national innovation systems over years and that requires manufacturing capacity. That's not there in many sunrise sectors. In India, 70% of R&D—and we do very little, roughly 0.69% of GDP—is done by public sector. China is over 2%, Korea at 4%, and that too at a very high per capita GDP level.

What measures are needed in full Budget to bolster economic growth?

Naik: We need a roadmap to predict challenges from faster population growth. We need to achieve the target of spending 6% of GDP on education set by New Education Policy as opposed to 3% now. There is a need for skill training institutions, especially in the rural sector, impacting the underprivileged. Training of teachers and training of trainers are important for imparting relevant skill sets.

Shah: The Budget should act as a catalyst for rural consumption. It should push private sector capital expenditure so that it grows at the same pace as government sector capital expenditure.

Agarwal: Government has taken a direction which will bolster growth with capital expenditure. When government follows fiscal prudence, it gets ample space to announce measures to increase expenditure. They have enough fiscal space for borrowing during crisis. At the same time, tax collections are increasing, so are number of taxpayers. Government has also come out with a scheme to waive tax demands up to ₹25,000 pending from 1961 to 2009-10 and up to ₹10,000 from 2011 to 2015. This indicates tax payers are being positively considered. Economic reforms will be part of the vision document for Viksit Bharat. Ultimately, the Budget is not a policy statement, but an accounting statement.

Singhania: We need a detailed roadmap outlining focused Budget allocations for various sectors and policies to strengthen the rupee to accelerate growth. The full Budget could introduce targeted tax incentives for high-potential sectors such as technology and green energy, provide specific allocations for upgrading digital infrastructure to support e-commerce and fintech and launch new funding mechanisms for start-ups focusing on innovation. We need to implement measures to streamline the process for FDI in manufacturing and services and reinforce skill development programmes.

Reddy: India is on a high growth path. Next five years are crucial for sustaining this growth and strengthening the economic position. We need to unlock our potential and focus on a few things: How to find meaningful jobs for our young population, how to increase per capita income from $2,400 per year to an internationally comparable level, how to build financial and social equity and ensure that results of economic progress trickle down to our most vulnerable citizens.

Sharma: An integrated view is missing in agriculture. How did we achieve self-sufficiency in food? We did that by taking an integrated view of India. We decided to go for intensive agriculture in some areas, and in others, like North East, focused more on horticulture. That composite view was based on intensive dialogue with states. Policies from New Delhi cannot impact agriculture unless states have contributed to the thought process of policy making.

The Planning Commission gave a mechanism for dialogue between Centre and states. Its working groups had state and central ministries. Plan documents were equally owned by states and not just by Centre. In agriculture, you cannot impose centralised thinking, as we saw in case of the three farm laws. This is one area where only federalism can work. Central intervention cannot work on its own. The finance minister said she will work with states. We hope that happens.

Mehrotra: There is a misunderstanding that budgets are about growth or non-growth. Budgets are estimates of how much they have collected and spent. In most countries, the Budget is a non-event. The less we make of the Budget and rely upon it, the more serious our economy and more mature our economic policymaking can become.

This is a pre-election Budget. Do you think it has achieved a balance between populism and prudence?

Bhanumurthy: It is an example of what a best Interim Budget can be. The finance minister has resisted making the pre-election Budget a populist one. It focuses on medium-term macro-fiscal path. Continued capital expenditure with an increased focus on governance has been a hallmark of finance minister Nirmala Sitharaman's budgets. Interim Budget is a continuation of that.

Naik: No populist announcements were made. This shows government has confidence in long-term strategies, which are well-analysed by them. With inauguration of Ram Mandir in Ayodhya, there is a wave of euphoria in the country which is giving confidence about growth.

Shah: No new populist schemes and fiscal consolidation make it a prudent Budget.

Agarwal: This is a prudent Budget. With elections so near, most governments would have been forced to take populist measures, but the prime minister kept his vision for economic growth. It has abstained from announcing any populist measure. Government is extremely confident that it will be able to present the full Budget on July 24 when the new government is formed. The finance minister also announced that it will come out with a vision document for Viksit Bharat. It will also come out with a white paper on last 10 years, on how the economy, which was included in Fragile Five in 2014, is now the fastest-growing in the world.

Sharma: They have been prudent. There is this challenge of meeting fiscal deficit. They obviously don't want to breach that. This has to be welcomed. In the wake of signals given by IMF on public debt, government is conscious that its expenditure pattern has to be responsible.