Budget sparkles, minus fireworks

For any economy to grow at this rate when so many others are sinking is notable. Pakistan, Sri Lanka and Bangladesh — all India’s neighbours — have been obliged to seek emergency assistance from the IMF. All politicians boast, but Sitharaman actually has something to boast about.

Finance minister Nirmala Sitharaman had warned in advance that, sorry, the interim budget will be a statement of government accounts without any fireworks. She proved true to her word, presenting a budget without even a phuljhari. Let none think this is criticism: It is praise. She has produced an economist’s interim budget, avoiding political freebies and focusing on keeping the fiscal deficit on its promised glide path.

Sitharaman said the fiscal deficit for FY24 would be 5.8% of GDP against the earlier budget projection of 5.9%, thanks to revenue buoyancy. She estimated that the deficit would fall next year to 5.1%, and again the subsequent year to reach the FY26 target of 4.5%. It is a feat to have stuck to this glide path despite the ravages caused by Covid, the Ukraine War, and El Niño.

Purists will point out that the revenue deficit (which was once supposed to go to zero) will still be 2.8% of GDP this year and 2% next year. Some economists say the real proof of fiscal stability is a primary deficit of zero, because this shows that all borrowing is for investment. The primary deficit will be a relatively high 2.3% this year but is estimated to fall along a glide path to 1.5% next year, and maybe to zero later. You might have thought the cheerful news on fiscal deficit would delight stock markets, but that was not the case. Some claimed that no news was good news. But most market operators were hoping for tax breaks and so markets, which had risen stridently in the runup to the budget, declined.

The Nifty 50 fell 28 points, a slight decline of 0.13%.

Many observers had expected Sitharaman to announce at least a few freebies. Interim budgets are technically not supposed to do this, but past finance ministers have often skirted the prohibition. Five years ago, the interim budget presented by Piyush Goyal provided a rebate, raising the effective tax exemption limit to Rs 5 lakh per year, increasing the standard deduction for the salaried, and providing a few other minor reliefs. He claimed this would benefit 30 million taxpayers of the middle class, the electoral backbone of the BJP.

Goyal’s interim budget gave effect to the PM-Kisan announcement made some weeks earlier by Prime Minister Narendra Modi, granting Rs 6,000 per farmer. This was an attempt to compete with Rythu Bandhu (Rs 4,000 per acre per cropping season to farmers) in Telangana, KALIA (Rs 10,000 a year to all rural folk) in Odisha, and Rahul Gandhi’s promise to grant Rs 72,000 per farmer if Congress won. At the time in 2019, the BJP was not confident of winning the upcoming general elections, having just lost three state polls in central India. Prime Minister Modi had often said that freebies did not win elections, performance did. Yet the BJP felt obliged to compete in freebies, even if it dangled smaller carrots than others.

Today the political position could not be more different. The BJP is absolutely confident of winning the coming election. Modi has approval ratings of up to 90%, the highest in any democracy. His recent state victories in central India have shown which way the wind is blowing. The increase in his party’s tally in Madhya Pradesh showed there was no need to fear anti-incumbency at the polls.

So, in contrast to Goyal five years ago, Sitharaman faces no political need to woo voters with freebies. The BJP expects to win on the basis of performance. Sitharaman’s budget speech duly came with a lengthy list of government achievements, sector after sector, and her partymen thumped the treasury benches with every big claim. She, in fact, promised a White Paper on how well India had fared in the last 10 years under the BJP compared with the earlier decade.

India has been hailed as an island of stability in what economist Larry Summers once called “a world on fire” in 2023. It is hailed as the fastest-growing major economy. The first advance estimates show the economy is likely to grow 7.3% this year compared with 7.2% last year. For any economy to grow at this rate when so many others are sinking is notable. Pakistan, Sri Lanka and Bangladesh — all India’s neighbours — have been obliged to seek emergency assistance from the IMF. All politicians boast, but Sitharaman actually has something to boast about.

This article was originally published by The Economic Times  on February 2, 2024.

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