Madame Finance Minister, here's our Rs 45.7 lakh crore shadow budget with three champions

There are budget wish lists. There are sectoral spending estimates. Then there are income and expenditure projections with achingly specific detail on fiscal deficit. But few venture on a complex, national accounting exercise, which looks and talks exactly like a union budget. In a first, this newspaper gave it a shot.

The Shadow Budget 2024 explored if there are any different and efficient ways of maximising income and expenditure. Turns out, there aren’t many.

Anil K Sood, Founder, Institute for Advanced Studies in Complex Choices, an economic research firm, painstakingly punched in the numbers and proposed, what he calls, a business-as-usual budget for FY24.

Sood’s sums include an exhaustive account of revenue and spending, broken down all the way to department-wise revenue and capital expenditure allocations, alongside the receipts budget comprising tax, non-tax revenue and debt and capital receipts. Given the uncertain global conditions, he pegged real GDP growth at a conservative 6% in FY24.

In all, expenditure budget was set at Rs 45.67 lakh crore, an increase of 11.1% over FY23’s revised estimates of Rs 41 lakh crore, up from the budget estimate of Rs 39 lakh crore. As a percentage of GDP, FY24 expenditure stood at 15.2%. Gross tax revenue will likely increase by 13.1% at Rs 34.40 lakh crore. He proposed no changes to personal income taxes but expects FY24 budget to tinker with the long-term capital gains tax.

Within indirect taxes, GST will likely retain its star performance with a 14.3% growth, while customs and excise duties together will likely fetch a handsome Rs 5.7 lakh crore revenue. Still, borrowings are estimated to jump 4.8% to Rs 17.85 lakh crore, while fiscal deficit is pegged at 5.9% in FY24. A similar 50-60 bps deficit correction next two years should help meet the 4.5% target by FY26. Subsidy outgo will likely moderate at Rs 4.25 lakh crore, or 1.4% of GDP, while capital spend could increase by a neat 13.3%. At Rs 8.15 lakh crore, it accounts for 2.67% of GDP.

Budget at a glance: Check out the numbers - Part 1 & Part 2

FM likely to live within means

Elections often produce populist budgets. But Anil K Sood, founder, IASCC, sees pragmatism written all over Union Budget 2024.The reasons aren’t hard to find. According to Sood, though the prevailing economic conditions warrant higher spending, the government is likely to live within its means, like it has been doing over the past few years.

His proposed Rs 45.7 lakh crore-expenditure budget has three champions -- food and primary healthcare, rural and urban infrastructure development, and higher capex for a growth-oriented economy. All three need cash, so he urged the government to borrow without hesitation. An average Indian household is yet to recover from the post-pandemic shocks.

An accountant’s view of life, focusing on artificial fiscal deficit target makes a bad situation worse, he reasons.   Much like Finance Minister Nirmala Sitharaman, the Shadow Budget makes capex as its cornerstone, allocating a neat sum of Rs 8.09 lakh crore, a 13.3% increase over FY23. But the similarities end there. When it came to department-wise allocations, Sood’s sums vary from that of the government’s.

Unlike the Union Budget that cut a big cheque for roads and highways, Sood lowered the sum and redirected the savings elsewhere. Still, it saw a 13% jump over FY23. Defence got a 14.4% boost at Rs 1.8 lakh crore, which is huge as capex allocations remained in single digits until now.

Interestingly, law and justice got the highest capex increase at 85.3%. Though the absolute allocation is tiny at Rs 1,516 crore, it can increase capacities of digital and physical courts -- much-needed to clear the backlog. Food and public distribution too saw a 45% rise, which should help build warehousing facilities, besides others. Other departments like space, home affairs, housing and urban affairs all saw decent increase, but if you look closely the increase isn’t much. As per the FY23 revised shadow Budget estimates (that draws heavily on government spending between April and November, 2022), several departments may under spend this fiscal.

In all, for three years, capex has been seeing a double-digit rise making up for the slack in private investment. But will private capex hook step its way to the front line next fiscal at least? Unlikely, says Sood.

That’s because, the two key components of private investment are yet to show a proof of life. One, the residential real estate sector’s two good years of growth was largely driven by reduction of stamp duties. Next fiscal may not have that advantage. Two, business expansion is driven by capacity utilization, which in turn is driven by consumption. The latest RBI’s consumer confidence and industrial outlook surveys aren’t really future-optimistic.

Meanwhile, of the total revenue expenditure, the biggest allocation went to food and public distribution at Rs 4.5 lakh crore, or 1.5% of GDP. Much of this is due to free good grains distribution, which critics and the opposition dub as populist. However, Sood believes it’s acceptable to continue the measure as long as the government’s intent is to make food affordable for poorer households and not with an eye on the vote bank. Defence budget saw a 14% jump at Rs 4.4 lakh crore, including Rs 2.72 lakh crore for defence services and the remaining Rs 1.42 lakh crore for pensions. Agriculture saw a modest rise of 10% at Rs 1.51 lakh crore, though as a percentage of GDP it’s dismal at 0.50%. Likewise, education budget shot up 11.1%, but remains at 0.41% of GDP, a galaxy light years away from the acceptable 6% norm.

Though Sood favours doubling of healthcare spending every four years, he went with a conservative 10.6% increase for FY24. That the country severely lacks primary healthcare centres is a well-travelled fact, but even private healthcare infrastructure seems inadequate and hence the government should make efforts and make it conducive for private sector capacity expansion. Housing and urban affairs and rural development got their due with budget allocations rising by 9.4% and 10%, respectively.

For FY24, subsidy outgo is expected at Rs 4.25 lakh crore or 1.4% of GDP. On the income-side, revenue receipts are expected to shoot up 13% at Rs 26.91 lakh crore, while debt receipts jumped 4.8% to bridge the required revenue gap of Rs 17.85 lakh crore. Accordingly, fiscal deficit is moored at 5.9% of GDP for FY24.

Direct taxes are unlikely to repeat FY23’s stellar performance. Corporate income taxes are likely to grow at 12.9%, with personal income taxes trailing behind with just two decimal points different at 12.7%. Corporate profitability is also a function of inflation and considering the economic slowdown, Sood believes corporate sector growth and revenue haul to remain subdued in FY24. As for personal taxes, he foresees a few modifications in the tax structure. While expectations are high that exemptions will be included in the new concession tax regime, according to Sood, it goes against the grain of simplification and must be avoided. He, however, expects long-term capital gains taxes to undergo rationalisation.

Given the renewed focus on compliance, GST collections will sprint next fiscal clocking 14.3% growth at Rs 9.85 lakh crore. The other components of indirect taxes including customs duties and excise duties are likely to maintain their trendline growth of about 12% each. Together, they are likely to raise Rs 5.12 lakh crore, or 17% of gross tax revenue.

Non-tax revenue may to register 13.3% growth at Rs 3.21 lakh crore, of which dividends and profits are likely to yield Rs 1.21 lakh crore or a 18.4% growth over FY23.Sood doesn’t fancy a significant sum from disinvestments this fiscal or next and its proceeds are pegged at a modest Rs 60,000 crore.