Every year on 1st February, the country’s budget was announced by the country’s finance minister. In which we get to know how much money does the government earn, how much is spent in different places for the welfare of the people.
As usual, this year too, on 1st February, Finance Minister Nirmala Sitharaman presented the Union Budget 2024. But the difference was that this year’s budget was an Interim Budget.
Now what is an interim budget?
It is a temporary budget that will only give estimates for the entire year. This is because this year the Lok Sabha elections took place. After the elections, once the new government is formed, the full budget will be presented in July. This is done every time it is an election year, but this does not mean that the interim budget is not crucial. This will tell us how the government will spend money during the next few months. And we will also get to know the overall strategy and direction of the government. So let’s understand what’s in this new budget for us, the common people, and the promises made in the previous budgets, as well as the expenses, how much of it was achieved, and what were their results.
Similar to the last year, the main focus area of the government in the budget was Capital Expenditure. In short, it is also called CAPEX. It refers to the money that the government spends on long-term assets. Large infrastructure projects in the economy, like making roads, railways, ports, large-scale buildings or bridges. Last year, the government had already increased this expenditure a lot, by 33%, and allocated ₹10 trillion. The data shows that although the government had not spent the entire ₹10 trillion last year, the actual spending was still ₹9.5 trillion. But this year, it has been increased further by 11.1% the government plans to spend ₹11.11 trillion this year. The reason behind this is very simple. The government says that if money is spent on these avenues, then it boosts economic growth and lead to employment creation. People get jobs when such big bridges, roads, and ports are built. The Finance Minister said that in the last 4 years, the capital expenditure has increased by 3 times.
For railways, specifically ₹2.55 trillion have been allocated and 3 new corridors have been announced. Energy, Mineral, and Cement Corridor, Port Connectivity Corridor, and High Traffic Density Corridor. The Finance Minister has also said that more than 40,000 normal rail coaches will be converted to Vande Bharat standards. “Forty thousand normal rail bogies will be converted to the Vande Bharat standards” This year’s railway’s allocation is much higher than last year’s ₹2.41 trillion. While last year, we had already seen an increase of ₹1 trillion. This is good news, but hopefully, its impact will be seen on the ground in railway safety as well.
In the agriculture sector, the government has announced Atmanirbhar Oil Seeds Abhiyanand focused on fertilisers like Nano-DAP. Nano-DAP stands for Nano Di-Ammonium Phosphate. A type of eco-friendly fertiliser with 8% nitrogen and 16% phosphorous. This is very useful for Green Farming. That’s why it is being promoted. On the other hand, in the Oil Seeds Initiative the government has said that they want to cut the imports from outside the country. They want to cut down edible oil imports from 60% to 30%. So that India can become self-reliant in seeds like mustard, groundnut, soybean, sunflower. But the subsidies that are given for fertilizers saw a budget cut. In comparison to the ₹1.89 trillion from last year, only ₹1.64 trillion has been allocated this year. Food subsidies have also been cut. Last year’s budget allocation was ₹2.12 trillion. This year it has been reduced to ₹2.05 trillion.
In the education and healthcare sectors, we got some bad news. The government had already cut the education budget last year. But the amount that the government had promised to spend last year, they didn’t even spent that, further more their spending was lower than that. In last year’s budget, the government promised to spend ₹1.16 trillion on education. But according to the revised budget estimates, the government will be able to spend only ₹1.08 trillion. This year, there is a small increase in the education budget. Instead of ₹1.16 trillion, the government has now allocated ₹1.25 trillion. On top of that, in the education sector, big budget cuts have been made in many places. For example, the budget allocated to UGC, the University Grants Commission, has been cut by 60%. Last year’s revised estimate was ₹64.09 billion. This year, they were given only ₹25 billion. The budget allocated to IITs and IIMs has also been decreased this year. Instead of ₹103.84 billion, ₹103.24 billion for IITs. Instead of ₹3 billion for IIMs last year, only ₹2.12 billion have been allocated this year. But where has this budget increased in education? More money is being spent on central universities.
Instead of the ₹115 billion last year, ₹150 billion have been allocated this year. The amount spent on research and innovation has been increased. Instead of ₹2 billion last year, this year, ₹3.55 billion has been allocated. In the healthcare sector, last year, the government had allocated ₹890 billion. But, according to revised estimates, only ₹790 billion will be spent. This year, a small increase has been seen. Instead of ₹890 billion, the government has allocated ₹900 billion. Here, two initiatives have been announced by the government. First, the Ayushman Bharat scheme will be expanded and second, they have focused on the cervical cancer vaccine too.
After this, we come to housing where the Prime Minister Awas scheme is underway. To give affordable housing to the poor. Its allocation has been increased. Instead of the ₹795.90 billion last year, ₹806.71 billion have been allocated this year. Under this scheme, the government has also said that they will launch a new scheme for the deserving sections of the middle class. Those who live in rented houses, slums or unauthorized colonies, will be given the opportunity to build and buy their own houses.
If we talk about the overall economy, India’s real GDP growth rate, which is projected for 2023-2024, will be at 7.3%. There are two types of GDPs. One is the Nominal GDP and the other is the Real GDP. Nominal GDP shows the size of the economy according to today’s prices. But in real GDP, we take inflation into account. For example, if the nominal GDP growth rate of a country is 15%, but the inflation rate in the country is 10%, .then the real GDP growth rate will be 15% – 10% = 5%.
But in 2022-23, India’s actual Nominal GDP growth rate is 10.5%. And our inflation is approximately 4% per cent.
So the real GDP growth rate is 6.5%. This is a bit low because in December 2023, RBI had raised its projections and said that India’s GDP growth rate would be around 7%. But today, this is near 6.5%.
If we look at the estimates of international agencies for India’s GDP growth rate, they are in the similar range. In October 2023, the IMF projected India’s growth rate to be 6.3%. And for 2024-25, World Bank has projected 6.4%, OECD has projected 6.1%, and ADB has projected 6.7%. IMF has also projected that India will become the third-largest economy by 2027.
Next, we come to the second biggest focus area of this budget, that is, reducing the fiscal deficit. The Fiscal Deficit is the difference between the government’s revenue and expenditure. The amount spent by the government and the revenue it earns, the difference between the two. And since the word Deficit is being used here, it means that compared to the revenue of the government, they are spending more than that. For this year, India’s Fiscal Deficit is estimated to be ₹17.86 trillion.
But we usually look at the Fiscal Deficit as a percentage of GDP. Last year, the government had set a target that it should be 5.9% of GDP this year. And revised estimates show that not only has the government achieved its target but they have brought it down to 5.8%. In this year’s budget, the Fiscal Deficit target for 2024-2025 is set at 5.1% of GDP. This is lower than before which is a good thing. In fact, in 2003, the government had passed an Act, the Fiscal Responsibility and Budget Management Act, 2003. According to this Act, the government’s target should be to keep the fiscal deficit at only 3% of nominal GDP. But since then, there has been only one year, around 2007-08, where the government was able to meet this target. Since the last few years, the government is slowly reducing it so that it can be brought down to that range.
And for the Financial Year 2026, the target is set at 4.5%. Whatever money the government earns, one-third of it is spent on interest servicing. Interest Servicing refers to the interest payments of the loan taken by the government. Both domestic and international borrowings are included in this. Whether the government has borrowed money from within the country or from outside the country. In total, this year, the government will spend ₹11.9 trillion on Interest Servicing. This number has increased by ₹1.35 trillion in comparison to last year.
If we talk about taxes, there is nothing for the common people in this budget because nothing has changed in comparison to last year. The income tax slabs are still there. But another interesting thing to see here is that which taxes generate the most revenue for the government?
Budget documents show that in FY 2025, the government will earn 19% of its revenue from taxes collected under the Income Tax. On the second number is GST with 18%. The government will earn 18% of its revenue from the taxes collected under GST. And then comes the Corporate Tax at 17%. This shows that the biggest contribution to the government’s revenue is that of the Income Tax payers.
And the GST payers. And the contribution of the Corporate Tax paid by the companies is lower than these. However, the bigger source of income for the government is still borrowing. Borrowing money is at 28%. The Finance Minister has put a tagline for this budget, Viksit Bharat by 2047. [Developed India by 2047]
And she has also promised that India will become a developed nation by 2047. And also that by 2030, India will become a $7 trillion dollar economy. “As per the latest report by the Finance Ministry, the Indian economy, can, of course, hit the, and can aspire to hit the, $7 trillion mark by 2030.” The Finance Minister focused on 4 main sections of society in the budget. Poor people, women, youth, and the ones who feed us, the farmers. She said that their welfare is the government’s highest priority. Only when they progress, will the country progress. It’s absolutely correct.
In conclusion, the Interim Budget 2024-25 reflects the government’s continued focus on inclusive growth, economic stability, strategic global positioning, sector-specific developments, environmental sustainability, and tax reforms, with an overarching vision towards a developed India by 2047.
This was the story of this year’s Interim Budget. We will get to know the rest of the details when the full budget is presented in July.
The above article is referred and compiled from various resources.
Article written by SNEHAL SUBUDHI (CA INTERMEDIATE student)
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