Why Budget 2024 prioritises Debt Reduction over Increased Spending

The Union Budget for 2024-25 has sparked discussions due to its acknowledgment of global economic uncertainties and inflationary pressures, setting the stage for economic resilience amidst challenges.

Fiscal Challenges and Priorities

• Macro Risks Highlighted: The budget addresses rising global economic uncertainty and inflation as primary risks affecting India's economic stability.
• Resilience in Growth: Despite these challenges, India aims to maintain resilient economic growth, necessitating a stable macroeconomic environment.
• Debt and Expenditure Dynamics: A significant portion of the budget increase is allocated to interest payments, highlighting the challenge of balancing debt reduction with social and developmental spending.

Debt Management and Fiscal Consolidation

• Debt-to-GDP Ratio: India targets a debt-to-GDP ratio of 56%, down from its peak during the COVID-19 pandemic, while emphasizing the need for fiscal consolidation.
• Interest Burden: High interest payments remain a concern, constraining non-interest expenditure and development investments.
• Framework for Fiscal Consolidation: Amendments to the FRBM Act advocate for a structured debt reduction path despite current economic uncertainties and inflationary pressures.

State Reforms and Fiscal Autonomy

• State-Centric Reforms: The budget introduces state-level reforms in areas like land, labour, and capital, aiming for next-generation reforms.
• Challenges in Implementation: Reforms such as stamp duty rationalization face complexities due to diverse state property market dynamics and revenue needs.
• Union-State Coordination: Effective implementation hinges on collaborative efforts and maintaining state fiscal autonomy post-GST era.

Mains Question:

Q. Discuss the fiscal challenges highlighted in the Union Budget 2024-25, particularly in managing debt amidst global economic uncertainties and inflation. How can India achieve fiscal consolidation while balancing the imperative of social spending? Evaluate the role of state-level reforms in enhancing economic governance and fiscal autonomy in post-GST India.