Credible, Responsible And Judicious Budget 2024: Prabal Basu Roy

Finance Minister Nirmala Sitharaman has said that this interim budget is going to be a ‘Disha Nirdesh’ (Set of Instructions) for the upcoming budget in July 2024. To discuss the important reforms that have been brought into the budget, a wrap-up interaction was done with Prabal Basu Roy, Sloan Fellow-London Business School.

Roy emphasised that the budget is credible, responsible and judicious. He points out that as he has said three years earlier, the Government is following the same trajectory of macroeconomic development. Roy said that for the last three years, India had been pushing for growth, which in itself has its own consequences. But now, the government is focussing more on macroeconomic stability along with the growth, which is a good sign, he added.

The government has been consistently under-targeting and over-performing, similarly this year also the fiscal deficit of 5.8 per cent beats all the expectations since the target fiscal deficit was 5.9 per cent.

“If you push capital expenditure then you have to keep an eye on receipts also. If you do not focus on taxation, then you have to either borrow or you have to cut out private expenditure to fund the capital expenditure. Therefore, I am happy that the government has made a fine balance for capital expenditure which will in positively affect interest rates,” says Roy.

Capital expenditure is always a better multiplier than tax receipts to push growth and private investment along with the government expenditure is going to attract more Foreign Institutional Investors (FIIs), he added.

Roy said that schemes like the Mahatma Gandhi National Rural Employment Generation Scheme (MGNREGS) are funded since the government is focussing on youth, farmers, women and the poor as stated in the budget speech.

“If the economy is doing good then why do we need to give free ration to the poor, free subsidy to the farmers etc? The answer is, we should be having some form of disposable income in rural areas therefore these direct benefits are being given,” said Roy.

With regards to the divestment targets not being met, Roy said, “Now, the bank’s balance sheet is in good shape and the Public Sector Undertakings (PSUs) are also performing well. Still, the divestment targets are not being met, though disinvestment is one of the key focus areas of this government. Therefore, there might be some political reasons behind this.”

Also, the key areas on which the government will be working in the coming years Roy said, “India’s manufacturing is still uncompetitive in the global market, except the IT services. Therefore, the reason behind this is a fundamental reason for factors of production. On the economic side we are struggling in three aspects namely, land, labour and capital. On the capital side, we have done adequately in the last five years. We have Insolvency and Bankruptcy code, our bonds have been listed in global indices, there is an influx of foreign portfolio investment (FPI) etc. But still, we need to work on the land and labour factors of production. The time-tested model is that all the emerging economies which are performing well have adopted this model and focussed on these factors of production. Now, since macroeconomic consolidation is high in India therefore now India should also focus on these aspects. Savings in India are at 50 years low, just at five per cent, therefore it should be given more emphasis.”