All union budgets focus on only four broad areas -- farmers, youth, women and taxpayers. But few manage to crack the mysterious alchemy of rightly balancing spending and taxation. And regardless of the efforts, budgets are often questioned over the lack of a zinger.
In particular, the NDA government's fiscal policy choices have come under sharp focus, even as expectations are mounting that Finance Minister Nirmala Sitharaman may do things differently when she presents the FY25 budget on July 23.
Following the BJP falling short of a simple majority in the recent general elections, and also considering the upcoming assembly elections in key states like Maharashtra, this budget will perhaps determine not only the NDA's political future, but also its legacy.
But what will set the FY25 budget apart? Some needy sectors like agriculture, infrastructure, and MSMEs got budgetary policy interventions, although it can be debated whether the measures were adequate enough. Besides, the expenditure profile, based on the previous years' budget documents, indicates that job creation has been the top most priority for the government. For instance, in the FY25 interim budget alone, the highest percentage increase in allocations was towards infrastructure including railways and roads. In fact, that has been the case in the past few budgets, where capital expenditure saw the highest-ever annual increases year after year.
The capex push was expected to keep the economy on the jump and reduce unemployment rate, which the opposition claims is hovering at a 45-year-high. Official data, however, suggests that in the past four years, India created 8 crore jobs through FY18 and FY22, or an average of 2 crore jobs every year, while the Periodic Labour Force Surveys further show that the labour force participation rate increased from 49.8% to 57.9% between FY18 and FY23. The RBI, which released fresh data this week, estimated that 4.67 crore new jobs were added in FY24 alone, while the growth rate doubled to 6% from 3.2% a year ago.
But private forecasts are flashing red. While CMIE data pegs FY24 unemployment rate at about 8% - higher than last year - a Citigroup report stressed that even with a 7% GDP growth rate, India may add just about 8-9 million jobs a year as against the needed 11-12 million. The government has strongly dismissed the data, but what's undeniable is the slack in the informal sector.
According to the government's Annual Survey of Unincorporated Sector Enterprises data, the informal sector employment rose from 97.9 million in FY22 to 109.6 million in FY23, but remains well below the pre-Covid levels of 111.3 million in FY16. MSMEs and the unorganised sector suffered massively post-2016 and the informal sector in general took a one-two punch due to demonetisation, GST rollout and Covid-19 pandemic and is yet to recover fully. The estimated number of establishments saw a remarkable rise during 2010-2015, with the 2015-16 round showing 63.4 million establishments. But that number fell to 59.7 million in FY22, due to Covid-19 and though it later increased to 65.4 million FY23, the number of workers remains below the pre-Covid levels.
Unincorporated enterprises are those that are not legally incorporated as a separate legal entity and typically include small businesses, sole proprietorships, partnerships and informal sector businesses. The sector is one of the key job generators and hence policy wonks want the government to keep a weather-eye on it, besides undertaking measures such as credit support for MSMEs.
Another area that needs urgent attention is the rural economy, where the twin-evils of unemployment and inflation seem to have caused untold voter resentment. It remains to be seen if the forthcoming budget will pivot towards generous welfare spending, or remains a real tightwad. But in their own unshowy way, the past few budgets did make some attempts towards welfare spending.
Thanks to the food grains distribution programme, allocations to the Ministry of Consumer Affairs, Food and Public Distribution have been the highest among others, while programmes for the welfare of women and children, MGNREGA and PM-Kisan received significant sums. In fact, the revised budget estimates for FY24 show a massive increase of Rs 1.24 lakh crore expenditure for various schemes covering employment, agriculture, defence and education.
And the interim budget FY25 tried to maintain the momentum. If programmes for the welfare of women and children saw a relatively steep increase of 18.6% at Rs 4.2 lakh crore, the rural employment guarantee scheme, MGNREGA, too received the highest allocation in FY25 at Rs 86,000 crore, though the sum is the same as the revised estimate for FY24, which itself saw a 43% increase over the initial budget estimate. Likewise, PM Kisan too saw a decent allocation of Rs 60,000 crore in FY25, which is the same as the revised estimate of FY24.
Next, the Pradhan Mantri Awas Yojana got the second highest allocation in FY25 at Rs 80,671 crore, or a staggering 49.1% increase over the revised estimate of FY24, while some other schemes with a comparatively higher increase in allocation include Guarantee Emergency Credit Line to MSME borrowers at 34.4% and Reform Linked Distribution Scheme at 101.2%.
Among the top 13 ministries with the highest allocations accounting for about 60-70% of the total expenditure, the highest percentage increase in allocation was observed in the Ministry of Railways, followed by the Ministry of Jal Shakti and the Ministry of Road Transport and Highways. In the past three years or so, capital expenditure saw the biggest budgetary jumps, while revenue expenditure saw the lowest growth rates. If the FY25 interim budget estimates show capex growing at 16.9%, revenue expenditure's growth rate stood at a dismal 3.2%. The revenue expenditure growth has been kept in check due to pension, defence expenditure, subsidies and major schemes like MGNREGS, Jal Jeevan Mission and PM-KISAN, together being allotted roughly the same as the revised estimate for FY24.
That has been the case in FY24 too. Of the total expenditure, revenue expenditure (expenses such as salaries and interest payments) is estimated at Rs 35 lakh crore, a 1.2% increase over FY23's revised estimates, while capital expenditure at Rs 10 lakh crore, saw a 37.4% jump.
