Budget 2024: The fiscal arithmetic

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₹61,000 crore, the realized disinvestment proceeds were only ₹30,000 crore in 2023-24 Revised Estimate (RE). However, the BE for the 2024-2025 is ₹ 50,000 crore, which is seemingly a realistic target. The size of the government can be affected by polycrisis—the debt crisis, war, global supply chain disruptions, energy crisis and the climate crisis.

There can be an inverse relationship between polycrisis and the size of the government. However, there is a conscious attempt by the government to enhance the total spending by 6%, within which the capital spending is increased by 11.11% in FY25. The capex is pegged at 3.4% of GDP in FY25.

In the post pandemic fiscal strategy, high deficits and debts in India have been substantiated by linking it to high capital formation for supporting economic growth, especially when the central bank has been keeping the interest rates in hawkish mode. There is no disturbing narrative that pubic debt-to-GDP has increased to over 80% under the Modi regime just because of the perceived multiplier effects of increased capex investment, which in turn “crowds in" private investment. The continued support of ₹1.3 trillion in long-term capex and interest free loans to States for capex infrastructure is indeed welcome, as States are doing the heavy lifting in terms of capital spending.

What is contentious is the non-transparent off- budget borrowings for the capex spending by the States. A recalibration of fiscal rules with revised thresholds for fiscal deficit and debt had been expected in the budget, against the backdrop of Centre-State financial relations. The 16th Finance Commission might take up the re-articulation of the fiscal rules and “escape clauses".