Some observers say that Sitharaman’s speech was an election-eve, self-congratulatory report card of the economic achievements of Prime Minister Modi and the two governments he has led since 2014. She said that Modi had inherited a situation replete with ‘enormous challenges’ when he assumed office.

The challenges were surmounted through ‘structural reforms, pro-people programmes and the creation of opportunities for employment and entrepreneurship’. A reinvigorated economy had helped ensure that the fruits of development started reaching the people at scale, imbuing them with a sense of purpose and hope, and translated into a bigger mandate five years ago.

Sitharaman, who has overseen a tripling in the capital spending outlays over the past four years, claimed that had had ‘a multiplier impact on growth and employment creation’. She, however, glossed over the fact that the budgeted increase in capital spending next year is set to be sharply lower than the 28 per cent jump in the RE versus last fiscal’s actuals.

At a time when official estimates for private consumption spending show growth at its lowest ebb since the pandemic, the Budget’s stress on fiscal prudence does carry the risk of undermining economic momentum. A bigger challenge is the more worrying possibility of rising inequality.

On the welfare front, the budget continued the emphasis on the wide welfare net of this government, increasing the scope in specific housing and women’s empowerment schemes and launching a new one for renewable energy. The low number of new schemes was also a reflection of the effectiveness, efficiency, and sheer scope of the government’s welfare schemes, many built around the DBT (direct benefits transfer) platform leveraging what is called the ‘JAM trinity’ of Jan Dhan (no-frills bank accounts), Aadhaar (the unique ID), and Mobile (mobile phones).

“Previously, social justice was mostly a political slogan. For our government, social justice is an effective and necessary governance model,” says Sitharaman. “The saturation approach of covering all eligible people is the true and comprehensive achievement of social justice”.

On the business front, the interim budget demonstrated consistency and continuity of policy by not really changing anything. The continued emphasis on capital expenditure, which the interim budget increases by 11 per cent to over Rs11 lakh crore, will boost business, both directly and through the multiplier effect, and comes on the back of a three-fold increase in capex over the past four budgets.

It is this expenditure that has powered the economy in the absence of private investment, although the FM claimed that the strategy of ‘crowding in’ private investment is now beginning to bear fruit. Private investment is now ‘happening at scale’, she said in her speech.

India Inc welcomed the interim budget in spite of its constrained canvas. “In this global environment of high uncertainty, macro-economic stability driven by prudent fiscal management is of essence for growth,” says R. Dinesh, president, Confederation of Indian Industry (CII).

A template for political campaign

As is the nature of most interim budgets, this one did not set the Yamuna on fire. But Modi utilised the occasion to provide the template of the government’s political campaign in his detailed reaction to the interim budget. 

“This budget is a reflection of the aspirations of young India… two significant decisions were taken in the budget – a fund of Rs1 lakh crore for research and innovation and extension of tax exemptions for start-ups,” he said. 

“While keeping the fiscal deficit under control – the finance minister announced that it was at 5.8 per cent and on target to achieve 5.1 per cent of the Gross Domestic Product in 2024-25 – total capital expenditure saw a historic increase to Rs11,11,111 crore in this budget,” the PM said.

“In economists’ parlance, this is a kind of sweet spot… it will create millions of new employment opportunities for the youth along with the creation of modern infrastructure of the 21st century in India,” he said. Implicit in his reaction was an attempt to rebut the charges of joblessness and of the government not doing enough to generate private investment under his regime. The government has sought to gloss over the charges with its own set of arguments.

•  The announcement that the government will manufacture 40,000 modern bogies of Vande Bharat standard and install them in general passenger trains will further raise the comfort and travel experience of millions of passengers on different rail routes.
•  As for the poor and middle-class, the government had built over 40 million houses in villages and cities, and resolved to build 20 million more. 
•  “Our goal was to make 20 million lakhpati didis among women. Now, this goal has been increased to 30 million,” Modi said
•  The Ayushman Bharat Yojana, which aims to provide free access to health insurance coverage to low-income categories, had helped the poor and hailed the decision to expand its benefits to Anganwadis and Accredited Social Health Activists (Asha).
•  The budget had also focussed on empowering the poor and middle class, and enhancing their incomes. The rooftop solar campaign will help 10 million families avail free electricity, while also earn an income of Rs15,000 to Rs18,000 per year by selling excess electricity to the government.
•  The income tax remission scheme that will provide relief to about 10 million middle class people. “Previous governments had kept this sword hanging over the heads of common citizens,” he said.

As for farmers, several schemes – such as the use of Nano DAP fertiliser, new schemes for animals, expansion of the PM Matsya Sampada Yojana for fisherfolk, and the Atma Nirbhar oil seed campaign – aim to increase the income of farmers and reduce expenses. 

“This is a budget of creating India’s future,” the PM said. The interim budget is a stop-gap exercise through which the FM seeks Parliament’s approval for expenditure in the first six months of the fiscal or till a full-fledged budget is presented. In 2019, however, the government used the budget to provide sops to certain sections.  The 2024 exercise, however, was short and business-like.

As is apt for a numerical exercise, a number says that best: in 2019, the interim budget speech had lasted 102 minutes; in 2024, it lasted a mere 58. But the clear messages coming out of the exercise were here for anyone to see – the government is politically confident of its political prospects in the forthcoming general elections, and therefore it has adhered to its fiscal consolidation path without drawing back on the capital spending momentum. 

Falling sell-offs, rising dividends

 Government pares down divestment target

Like in previous years, the Centre is all set to once again miss the disinvestment target this fiscal too. As against earlier set budget estimate (disinvestment target) of Rs51,000 crore, the revised estimate for this fiscal has been pegged at Rs30,000 crore. Disinvestment receipts as of 31 January 2024 stood at Rs12,504.32 crore, which was 24.5 per cent of the 2023-24 budget estimate of Rs51,000 crore. Year after year, governments have been finding it tough to meet the disinvestment target specified in budget.

However, as most governments view disinvestment as a tool to bridge the fiscal deficit gap, the rich flow of public sector dividends and record surplus transfer from RBI in 2023-24 has helped comfortably cover the expected shortfall. However, receipts from dividends and profits for 2023-24 came in at Rs1,54,407 crore (RE) against budgeted level of Rs91,000 crore.

This strong show on dividends has encouraged the Centre to peg the budget estimate on dividends from PSEs at a robust Rs1,50,000 crore. This Rs1,50,000 crore comprised of Rs1,02,000 crore expected surplus transfer from RBI and Rs48,000 crore as dividends from public sector enterprises. 

The slow progress on disinvestment front in 2023-24 has been covered by RBI’s record dividend transfer of Rs87,400 crore this fiscal, which has resulted in higher than budgeted collection of non-tax revenue this fiscal. Total non- tax revenue of the Centre exceeded the budget estimate by about Rs74,000 crore at Rs3,75,795 crore. For 2024-25, the Centre has budgeted non-tax revenue of Rs3,99,701 crore. 

The government has now given a new spin to “Disinvestment and dividends are opposite sides. Non-tax revenue (dividends and profits) jumps this fiscal by Rs75,000 crore is a bigger story playing out. Next year we have in budget estimate added Rs1 lakh crore of non-tax revenues. Dividend plays a crucial role in non-tax revenues and one has to look at both disinvestment and dividends and profits taken together to assess performance”, said Tuhin Kanta Pandey, Disinvestment Secretary last fortnight. 

According to Pandey, the Centre goes by value unlocking principle in disinvestments. He noted that 61 listed CPSEs and 16 PSBs had three years back (1 January 2021) commanded a combined market capitalisation of Rs15 lakh crore. Today their combined market capitalisation Rs58 lakh crore. 

“We have created Rs43 lakh crore wealth in public sector and this has been shared with minority shareholders. You are not seeing the wealth effect but only looking at how much has been removed out of it. Wealth generation is also equally important”, Pandey explained.

Since 2014, Modi government has disinvested Rs4.2 lakh crore and taken dividend of Rs4.5 lakh crore from CPSEs. “Against this Rs8.5 lakh crore we have in last one year added market capitalisation of Rs25 lakh crore. Value unlocking story involves improving wealth and taking the value of share as well”, Pandey noted.

Subsidy cuts

The incoming government will have to think of follow-up measures

In her interim budget, Nirmala Sitharaman has slashed the Centre’s subsidy bill to a five-year-low of Rs3,81,175 crore. While it is an important development, a lot will depend on how this move is sustained through further measures in the full budget.

The first driver of his move is the discontinuation of the free, additional 5-kg monthly grain allocation to the 800 million-plus public distribution system (PDS) beneficiaries under the Pradhan Mantri Garib Kalyan Anna Yojana. This extra rice or wheat – over and above the regular five kg a person per month PDS quota under the National Food Security Act – was given during the post-Covid period from April 2020 to December 2022. That ended effective from the last calendar year.

With the annual grain offtake through the PDS and other schemes falling to 64-65 million tonnes (mt) in 2023-24 (as against 92.9 mt in 2020-21; 105.6 mt in 2021-22; and 92.7 mt in 2022-23) and the government’s procurement as well as stocks in godowns also declining (translating into reduced carrying cost of buffer beyond operational requirements), the food subsidy is being projected at Rs2,05,250 crore for 2024-25, against Rs2,12,000 crore in the current year.

Ashok Gulati, agri-economist, feels that there is an urgent need to rationalise the food subsidy, on the lines of what former PM Atal Bihari Vajpayee had done in streamlining the Targeted Public Distribution System (TPDS). Under TPDS, wheat and rice were given free to only the Antodaya category (extremely poor) of consumers but charged 50 per cent of the MSP) to Below Poverty Line (BPL) category and 90 per cent of MSP to Above Poverty Line (APL) category. Rationalisation along such lines can save the Modi sarkar at least Rs50,000 crore, which can be allocated for agri R&D and more irrigation.

The second driver for the Centre’s lower subsidy outgo is fertiliser. This bill soared to a record Rs2,51,339 crore in 2022-23, following Russia’s invasion of Ukraine in February 2022 that led to skyrocketing international prices of fertilisers and raw materials.

Those prices have since eased: Global urea prices averaged $402 per tonne in December 2023 (as against $576 in December 2022 and $990 in December 2021). The corresponding per-tonne landed import prices were $595 ($723 and $898) for di-ammonium phosphate, $319 ($590 and $445) for muriate of potash, $985 ($1,175 and $1,330) for phosphoric acid, $592 ($1,120 and $990) for ammonia, and $98 ($198 and $308) for sulphur. As a result of the ease in prices, the fertiliser subsidy fell to Rs188,894 crore in 2023-24 and is budgeted even lower at Rs1,64,000 crore for the coming fiscal.

Gulati says whether this will finally result in a reduction or not will depend a lot on what happens to gas prices in 2024-25. “What is needed is rationalisation, especially in minimising the diversion of fertilisers to non-agricultural sectors, including beyond Indian boundaries. It is widely acknowledged in expert circles that around 20-25 per cent of urea is diverted.

A potential solution is to shift from subsidising the price of urea to directly empowering farmers through direct cash transfers. This will enable farmers to purchase fertilisers at market prices while reducing leakages. This shift could result in savings of Rs30,-40,000 crore. The funds could then be directed towards enhancing development initiatives like PM-KISAN.”

The third major ‘3F’ subsidy head is fuel, which touched Rs96,880 crore in 2012-13 and Rs85,378 crore in 2013-14. The petroleum subsidy fell subsequently with benign global crude prices and the government limiting it only to sale of LPG cylinders and providing connections to poor/low-income households. Retail prices of diesel and petrol have, however, not been revised since they were last cut on 22 May 2022. That has pushed up petroleum subsidy to Rs12,000 crore levels in the current as well as ensuing fiscal.

Winners and losers

Despite the limitations of an interim budget, there were some gainers and losers in the 2024 exercise. Here goes the list:

Middle class

The budget has a housing scheme for people living in rented homes, slums or unauthorised colonies. This scheme will enable them to buy or build their own houses in line with the government's ‘housing for all’ drive. A 6 per cent increase to Rs79,000 crore has been under the Pradhan Mantri Awas Yojana for the financial year.

Farmers

Although the Union ministry of agriculture and farmers' welfare organisations received the lowest of allocations, the government has set its target to promote private and public investments in post-harvest activities.

The government will expand the use of revolutionary Nano Urea, a sustainable and nanotechnology-based agri input that ensures smart farming and combatting climate change.

Tourism

In a major push for tourism, interest-free loans were announced to states to promote tourism. Amid recent diplomatic tensions between India and the Maldives, the government will give undivided attention to Lakshadweep to boost tourism in the Union Territory.

Disinvestment

After making a fallback in high-ticket sales of some stakes, the government has revised its disinvestment target to Rs30,000 crore in capital receipts by 2023-24, as opposed to an earlier target of Rs51,000 crore. In the next fiscal year, the government hopes to gain Rs50,000 crore.

Jewellers

The jewellery and gems industry was hoping for a progressive fiscal policy primarily focusing on reduced customs duties and boosting consumer-spending through tax incentives. The government left the import tax at a high level of 15 per cent.

Electric vehicles

The government said it will expand and strengthen the adoption of electric vehicles in the form of public transport networks. It will also boost the development of public charging infrastructure. However, the government has taken a regressive approach towards the Faster Adoption and Manufacturing of (Hybrid and) Electric Vehicle (FAME) scheme and cut its budget by 44 per cent for 2024-25.