Budget 2024-25: The ultimate explainer

livemint.com:

Mint explains the budget’s many nuances and its potential long-term impact. The biggest concern was whether the central government’s policy choices could change after the electoral outcome. Over the years, it had worked hard to improve spending efficiency by cutting back on revenue expenditure and focusing on capex which had a greater multiplier effect.

In the 2024-25 interim budget, the revenue expenditure as a share of the gross domestic product (GDP) had declined to 7.5%. In absolute terms, this was 4.5% lower than during the covid-19 period. Welfare and rural spending bore the brunt of the cuts.

The Bharatiya Janata Party (BJP)’s below par performance in rural seats during the general elections was partly blamed on these cuts. This explained the fears—what if the government turned populist and splurged on welfare measures? There were demands for a farm loan waiver, higher allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), higher cash transfer under the PM KISAN scheme or even a new cash handout scheme. Some did.

To generate resources for welfare spending, the government needed to inevitably scale back its capex spending. The last three years have seen a significant increase in capex as the government revved up public spending to drive growth in the hope that private investment will follow suit. It is this public spending that had powered India’s strong GDP growth.

Also, populist spending would hurt the government’s fiscal consolidation record. The government has been steadfast in reducing the fiscal deficit (excess of government spending over its income) over the years and planned to reduce it to 4.5% by 2025-26 from the post-covid level of 9.2%. The fear was that the government