Budget Focuses On Fiscal Consolidation, Increased Capital Expenditure: Report

The Union Budget for 2024-25 underscores the government's commitment to fiscal consolidation while maintaining a robust focus on capital expenditure to stimulate economic growth. According to Bank of Baroda's (BoB) economic analysis, the budget aims to balance growth needs with the imperative of managing fiscal deficits and debt levels.

The government projects a nominal GDP growth of 10.5 per cent for FY25, with real GDP growth anticipated to average between 7.3 per cent and 7.4 per cent, and inflation expected to hover between 4 per cent and 4.5 per cent. These assumptions underpin the budget's fiscal framework, which sees the fiscal deficit narrowing to 4.9 per cent of GDP from the revised estimate of 5.8 per cent for FY24.

The analysis notes a continued emphasis on capital expenditure, with the Centre's capex retained at Rs 11.1 lakh crore, equivalent to 3.4 per cent of GDP. This allocation, significantly higher than the Rs 9.5 lakh crore in provisional actuals for FY24, underscores the government's strategy to drive private investment by bolstering public infrastructure projects. Notable increases in capital spending are seen in sectors such as road transport, railways, telecom, and housing.

The budget also aims to enhance tax revenue through improved compliance and robust economic activity. Gross tax collections are projected to rise to Rs 38.4 lakh crore, up from Rs 34.4 lakh crore in FY24. This growth is driven by both direct and indirect taxes, with direct tax collections expected to reach Rs 22.1 lakh crore, supported by corporate and income tax reforms.

The report highlights that the government's net revenue collections are set to grow in line with nominal GDP, with an increase of Rs 2.6 lakh crore anticipated. Indirect tax collections, particularly GST, are also expected to see a significant boost, reflecting increased compliance and steady consumption demand.

In terms of expenditure, the government's overall spending is projected to rise from Rs 44.9 lakh crore in FY24 to Rs 48.2 lakh crore in FY25. This includes a balanced increase between revenue and capital expenditures, with notable allocations towards interest repayment, home affairs, and the ministries of agriculture and labour, aimed at stimulating consumption demand and employment.

The report also underscores the government's intent to rationalise subsidies, with a focus on targeted spending to ensure efficient use of resources. Subsidies are projected to decrease from Rs 5.31 lakh crore in FY23 to Rs 3.81 lakh crore in FY25.

Additionally, the government's strategy includes reducing the debt-to-GDP ratio to 56.8 per cent in FY25 from 58.1 per cent in FY24, further demonstrating its commitment to fiscal prudence. The budget also outlines plans to lower the revenue deficit to less than 2 per cent of GDP, reinforcing the focus on fiscal discipline.

Key areas of focus over the next five years, as identified in the budget, include employment generation, education and skilling, manufacturing, agriculture, MSMEs, infrastructure development, innovation and R&D, energy, and social justice. These priorities are aimed at creating a sustainable and inclusive growth trajectory for the Indian economy.