India Budget 2024: What to watch out for?

As the anticipation builds for India's interim Budget 2024, set to be tabled on Thursday (Feb 1), Radhika Pandey, a seasoned economist who has been a part of various Ministry of Finance-instituted committees, spoke to WION on the potential highlights and priorities that the budget may encompass.

Pandey, currently an Associate Professor at the National Institute of Public Finance and Policy, pointed out thatthe interim Budget traditionally avoids major changes in excise duties and customs.

Speaking on what items can get expensive and what will be cheaper, Pandey said, "Normally that happens in the full budget. It is not very clear based on whatever expectations that are coming up. They do announce big tickets like in 2019 when Piyush Goyal was the finance minister but not too much in the increase or reduction in the prices."

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"Nothing stops them from doing that but conventionally we don't see all these changes happening in the interim Budget because they do not tinker too much with the excise duties and customs. It is just a 'vote-on-account'. Ideally, that should be done. Finance Minister Nirmala Sitharaman also announced that there won't be any spectacular announcements as such."

Fiscal consolidation

When asked what could be the main highlights of the interim Budget, the expert highlighted the government's commitment to fiscal prudence, with a potential announcement of a considerable reduction in the fiscal deficit.

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"What is to be looked out for is the government's fiscal consolidation plans because, in the medium term which is FY2024-FY2026, the government has repeatedly reaffirmed its commitment to getting back on the 4.5 per cent of GDP as the fiscal deficit by FY 2026. This year, the target was 5.9 per cent... so from 5.9 to 4.5 per cent there are just two years... so what will be the roadmap towards achieving the 4.5 per cent fiscal deficit target,That is something to watch out for."

It is worth noting that for FY 2023-24, the government budgeted the fiscal deficit to be 5.9 per cent of the GDP.

"I think the government will announce a considerable reduction in the fiscal deficit so that next to next year there will be another significant reduction if the government comes to power so it will be a 50 to 60 basis points reduction in the coming financial year and then another 50 to 60 basis points reduction in the next financial year."

Capital expenditure

Professor Pandey also anticipated a focus on capital expenditure, stating, "Capital expenditure will increase because that has been the government's plan to boost growth by not putting money in the hands of people but creating productive employment opportunities or creating conditions to boost growth with capital expenditure."

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"Last year we saw from RE of 2022-23 to 2023-24 there was a 37 per cent jump in capital expenditure. Again this time there is an expectation that capital expenditure will be increased to 15-20 per cent."

Rural economy

The rural economy is another area where the government could focus, as per the expert. With urban demand on the rise, the economist expects initiatives to boost rural demand.

"We have seen urban demand picking up quite well but rural demand has been peppered so to boost rural demand there could be some initiatives. Rural and agri sector. Those will be two priorities. Definitely for the agriculture sector because agriculture sector performance has been affected in the last two quarters due to the El-Nino impact and unseasonal rainfall and also due to high food inflation."

"So we could see the PM-KISAN where cash handouts are given to farmers. We could see some enhanced allocation to that scheme."

Pandey said, "Particularly for women farmers, there could be a further enhancement of cash handouts. Also, rural jobguarantee schemes could see an uptick in allocation because last year there was one criticism that the government faced that the rural sector needs support and that last year's allocation was slashed to 60,000 crores ($7.2 billion)."

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When it comes to tax-related expectations, Pandey noted the possibility of changes to boost consumption.

"To boost consumption they will have to change the tax. They will have to make some increase in rebate. But whether they do it in the final budget or now that remains to be seen. Because FM has said that we do not see changes happening in the interim Budget but in the full budget that will come in June-July."

Notably, Pandey has been part of several Ministry of Finance instituted committees, such as the Financial Sector Legislative Reforms Commission (FSLRC), Committee on External Commercial Borrowings, and UK Sinha Report on Foreign Investments,amongothers.