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A Budget that drives growth with stability
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Context
The upcoming 2024-25 Budget presents an opportunity for the new government to outline its medium-term growth and employment perspective, aiming for a minimum 7% growth in the short term and 7-7.5% in the medium term, while reducing the fiscal deficit.
Investment and Savings Prospects:
- Real Investment Rate: Sustaining a 7% growth rate requires a real investment rate of 35%. Current rates are 33.3% for 2022-23 and 33.5% for 2023-24. An increase to 35% in Gross Fixed Capital Formation (GFCF) is needed.
- Household Financial Savings: Household financial savings fell to 5.2% of Gross National Disposable Income in 2022-23. Boosting this rate is essential for increasing investible surplus for the private sector.
- Demand-Side Contributions: Net exports have been a weak contributor to GDP growth, with negative or low contributions in recent years. Government investment demand must support growth until export demand and private investment gain momentum.
Budgetary Options:
- Revenue Position: The Centre's revenue position is expected to improve due to higher tax and non-tax revenues. Gross tax revenues (GTR) for 2023-24 were higher than revised estimates, with expectations of continued growth.
- Expenditure Allocation: Assuming adherence to a 5.1% fiscal deficit to GDP ratio, total expenditure can be ?49 lakh crore. This needs allocation between revenue and capital expenditures, with potential increases in subsidies, health expenditures, and MGNREGA allocations.
- Tax and Policy Measures: Tax rationalization and expansion of the Production Linked Incentive (PLI) scheme, especially for employment generation, may be considered.
Commitment to FRBM Targets:
- Fiscal Stability: Achieving fiscal stability includes reducing the fiscal deficit to GDP ratio to 5.1% in 2024-25, with a goal of reaching 3% in the next three to four years.
- Nominal GDP Growth: Ensuring nominal GDP growth of 11%-11.5% will help reduce the debt GDP ratio and interest payment to revenue receipts ratio.
- Virtuous Cycle: Reducing fiscal deficit and maintaining GDP growth will create a virtuous cycle of fiscal consolidation, enhancing economic stability.
UPSC Mains Questions:
Q. Discuss the implications of falling household financial savings on India's economic growth. Suggest measures that the government can take to boost household savings.
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