Unemployment and inflation call for revising budget priorities

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₹1.4 trillion in 2023-24 and RBI’s dividend of ₹2.11 trillion, some of the expenditure cuts in the interim budget may have to be re-examined. On a trend basis, revenue expenditure growth in recent years was limited to 3.7%, 7.8% and 1.2% in 2021-22, 2022-23 and 2023-24, respectively, as per the CGA data. The interim budget's growth was 4.6% over 2023-24 actuals.

Such continued low revenue expenditure growth became possible by a steady reduction in major subsidies from ₹6.9 trillion in 2020-21 to ₹3.8 trillion in 2024-25 interim BE. MGNREGA allocations also fell to ₹60,000 crore in the 2024-25 interim BE from ₹1.1 trillion in 2020-21. Further, the government may be inclined to accelerate filling vacant positions, which might also lead to increased revenue expenditures.

In light of these likely changes, the government may have to decide whether to maintain a capital expenditure growth, which had averaged 29.7% from 2020-21 to 2023-24 or accelerate the reduction in fiscal deficit relative to GDP to show its commitment to fiscal consolidation. While reasonable growth in government capital expenditure is critical for maintaining a 7% plus real GDP growth, reduction in fiscal deficit would have a positive impact on India’s credit ratings. The government is likely to continue its emphasis on maintaining a high growth in capital expenditure, which was close to 17% of the interim budget.

The CGA actuals reflect an improvement in the Centre’s fiscal deficit to 5.6% of GDP in 2023-24 from the earlier revised estimate of 5.8%. In the final budget of 2024-25, it might be reduced to close to 5% of GDP. Since September 2023, the RBI has successfully kept CPI inflation within the target range of 2-6% as per the monetary policy