All Newspaper editorials in one place – February 02, 2024





February 2, 2024

Poll posture

Slowing growth and rising inequality must both be tackled head-on


Finance Minister Nirmala Sitharaman’s sixth consecutive Budget speech was an election-eve, self-congratulatory report card on the economic achievements engendered by Prime Minister Narendra Modi and the two governments he has led since 2014. Echoing the Finance Ministry’s review of the economy’s performance, and stating that Mr. Modi had inherited a situation replete with ‘enormous challenges’ when he assumed office, Ms. Sitharaman asserted that those were surmounted through ‘structural reforms, pro-people programmes and the creation of opportunities for employment and entrepreneurship’. A reinvigorated economy had helped ensure that the fruits of development started reaching the people at scale, imbuing them with a sense of purpose and hope, and translated into a bigger mandate five years ago, she averred. In a clear sign that the Bharatiya Janata Party-led regime is far more confident of returning to power this time around, Ms. Sitharaman eschewed any announcements that could be seen as targeting a particular constituency of voters. Instead, the focus was on talking up the commitment to ‘an inclusive and sustainable policy approach that had led to the attainment of a more comprehensive GDP of governance, development and performance’. A nonchalant observation that the government would detail a road map for attaining a ‘Viksit Bharat’ by 2047 in its full Budget in July, was premised on the certainty of winning a ‘resounding’ electoral mandate.


The Budget numbers posit a continuing journey on the path of fiscal consolidation, with the Revised Estimates (RE) pegging the current year’s fiscal deficit at 5.8% of the GDP, a 10 basis points improvement from last February’s Budget Estimate (BE) of 5.9%. This, the Minister has achieved by pruning effective capital expenditure by ₹1 lakh crore in the RE, a moderation in nominal growth estimates notwithstanding. For 2024-25, she has projected a sharper consolidation and pegged the deficit at 5.1% by factoring in a 14% jump in revenue receipts on a BE basis, that is expected to help offset an 11% increase in estimated capital expenditure to ₹11.11 lakh crore. Ms. Sitharaman, who emphasised a tripling in the capital spending outlays over the past four years that had had ‘a multiplier impact on growth and employment creation’, however, glossed over the fact that the budgeted increase in capital spending next year is set to be sharply lower than the 28% jump in the RE versus last fiscal’s actuals. At a time when official estimates for private consumption spending show growth at its lowest ebb since the pandemic, the Budget’s stress on fiscal prudence does carry the risk of undermining economic momentum. The bigger challenge is the more worrying possibility of rising inequality.






February 2, 2024

Change in Jharkhand

Central agencies must be allowed to function freely


Jharkhand Mukti Morcha (JMM) leader Hemant Soren stepped down as the Chief Minister of Jharkhand on Wednesday moments before the Enforcement Directorate (ED) arrested him on allegations of money laundering. Mr. Soren faces charges of benefiting from tribal land transactions based on forged documents. The judiciary will examine these allegations, but what necessitates the arrest of an accused is a serious question that the judiciary needs to settle in clearer and enforceable terms. The ED, under the Prevention of Money Laundering Act (PMLA), commands sweeping powers of arrest. Barriers for bail are very high in PMLA cases. Petitions challenging the July 2022 judgment of the Supreme Court upholding these powers are pending before it. Meanwhile, the ED has raised the stakes by arresting a Chief Minister of an Opposition party, which cannot be viewed as a routine law enforcement event. Mr. Soren’s lawyers mentioned in the Court on February 1 that this has implications for the polity of the country, seeking an urgent hearing of his plea against the arrest. Meanwhile, the ED has asked Delhi Chief Minister and Aam Aadmi Party leader Arvind Kejriwal to appear before it on February 2, after his failure to turn up for questioning four times. Mr. Soren has called for ‘a war against a feudal system that oppresses poor, dalit and tribals’, terming the case against him an assault on the tribal communities that he represents.


Faced with allegations, politicians often seek cover behind their community identities, but it is undeniable that the long arm of the Indian law reaches the weaker sections of society more easily. The JMM’s troubles did not end with Mr. Soren’s arrest. The selection of a new Chief Minister became entangled in a family feud. Instead, as a compromise, it will be a veteran fighter for tribal rights, Champai Soren, but the Governor has not yet invited him to form the government. The Jharkhand police has filed a first information report based on a complaint by Mr. Soren under the SC/ST (Prevention of Atrocities) Act, but it is unlikely to stand. That said, ED investigations have now established a pattern that fits perfectly with the political designs of the ruling Bharatiya Janata Party. Mr. Soren’s arrest follows the reengineering of the alliance in Bihar that brought the BJP back to power, where the Governor acted swiftly to facilitate it. As on multiple occasions, leaders under the ED’s scanner magically turned clean once they joined hands with the BJP. The distinction that central agencies make sometimes appears to be not between the corrupt and the clean, but whether one is with the BJP or not.





February 2, 2024


A positive offshoot of apparent political confidence is Modi government’s renewed emphasis on fiscal consolidation. Going ahead, challenge is to spur private investment


THE NARENDRA MODI government’s interim budget for 2024-25 is a vision statement for the next 25 years — the so-called Amrit Kaal — that will lead to Viksit Bharat, or to India becoming a developed country, by 2047. What it also seems to underline, arguably, is the ruling party’s confidence in its own prospects of coming back to power in the April-May national elections. One indication of this is — no new welfare schemes or income tax giveaways.


This is in contrast to the last interim budget for 2019-20 which saw the launch of the Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) programme, delivering direct income support of Rs 6,000 per year to all farm households in the country. In fact, the scheme was implemented with retrospective effect from December 2018, thereby translating into a huge pre-election sop. Also, the tax liability on individuals with annual income of up to Rs 5 lakh was completely waived off, along with an increase in the standard deduction for salaried persons. This interim budget, by contrast, has not witnessed any increase in the PM-Kisan transfer — there was wide expectation of its going up to Rs 9,000 per year — or any tinkering with income tax rates or slabs.


In short, it has been a simple vote-on-account exercise, seeking Parliament’s approval for routine expenditures till the next full-fledged budget is presented. The Modi government has not seen the need for any populist measures ahead of Lok Sabha polls in 2024, unlike in 2019, when it was perhaps more uncertain of the outcome, especially after losing assembly elections in three major Hindi heartland states.


A POSITIVE offshoot of the apparent political confidence is the Modi government’s renewed emphasis on fiscal consolidation. Not only has the Centre’s gross fiscal deficit in the revised estimates for 2023-24 fallen below the budget target, both in absolute terms (from Rs 17,86,816 crore to Rs 17,34,773 crore) and relative to GDP (5.9 to 5.8 per cent), it is expected to decline even more sharply to 5.1 per cent in the coming fiscal year. More encouragingly, this is coming largely from a cut in the revenue deficit — from 3.9 per cent in 2022-23 to 2.8 per cent in the revised estimates (RE) for 2023-24, and to a budgeted 2 per cent in 2024-25.


On the other hand, the Centre’s capital expenditure, which rose by 28.4 per cent in 2023-24 (RE), is budgeted to grow further by 16.9 per cent in 2024-25. This focus on the quantum as well as quality of fiscal consolidation — redirecting spending away from subsidies and other current outlays towards asset-creating capital expenditure — is welcome. It is especially so, ahead of elections.


Finance Minister Nirmala Sitharaman reiterating the government’s commitment to achieving a fiscal deficit of less than 4.5 per cent of GDP by 2025-26, signals two things. First, the Indian economy’s normal growth trajectory has returned, so much so that the government feels less pressure to borrow and stimulate or provide extraordinary support to those worst impacted by pandemic-induced disruptions. Second, the impetus to growth is expected to henceforth come from the private sector. Lower government borrowings — yields on the benchmark 10-year-bond eased by nearly 0.1 percentage points on Thursday — will release more resources for private corporates to invest. Macroeconomic stability — be it government finances, external sector balance or corporate and bank balance sheets — along with a government with a decisive majority, could create conditions conducive for a much-overdue revival of private investment.


THERE ARE four primary drivers of economic growth: Private consumption, private investment, exports and government expenditure. Currently, only the last engine is firing, while the other three are sputtering. The expansion in government spending, especially in the last three years, hasn’t really crowded in private investment as per the conventional Keynesian prescription. India Inc, to quote Sitharaman, is like Hanuman hesitating to fly — in other words, invest. Without that, there can be no sustained formal job creation leading to higher incomes and consumption.


The two sectors that did well even amid the pandemic were IT services and start-ups. The five big IT majors — TCS, Infosys, Wipro, HCL and Tech Mahindra — alone registered a jump in their total employee headcount from 11.5 lakh in March 2020 to over 16 lakh in September 2022, on the back of increased digitisation even from businesses that were traditionally based more on physical contact. But the latest data for December 2023 shows their combined headcount falling to just 15.4 lakh.


It has been worse in the case of start-ups, which are facing a funding winter following the drying up of easy money from ultra-low global interest rates. Generating jobs for the Amrit Peedhi — leveraging the demographic dividend that a young and growing workforce is supposed to bring — is going to be the single biggest policy and political challenge in Amrit Kaal. For that, Hanuman must fly.





February 2, 2024

A defining Test

Against expectations, England won first Test of series. Win at Visakhapatnam could shake India’s proud home record


A laid back coastal city, a once powerful kingdom, the bed of several ferocious cyclones, is set to become the centre of the cricketing universe in the coming days. In Visakhapatnam will unfold, arguably, the most defining Test match this year, one that could potentially signal the end of an era and the beginning of another. Against most expectations, England won the first Test of the series. Another one could shake the edifice of India’s proud home record. Or will the Indians fight back, as they have in the past? Going in, the Visakhapatnam Test seems layered with intrigues — there are plots within plots.


This much is certain. Rohit Sharma’s men find themselves under enormous pressure. They are injury-ravaged and idea-sapped. If they lose at Visakhapatnam, the backlash could be severe — heads will roll, leadership changes could set in. Most damningly, the halo would fade. India would no longer scare visiting sides. They would be less fazed by the turning tracks, knowing that India’s spin-shy batsmen could stumble into the same graveyard. That was perhaps the biggest blow that England inflicted on India in the first Test at Hyderabad. They debunked the fear of turners. India’s once biggest strength is now their deepest flaw. Thus, England have pushed India into unfamiliar terrain in their own bastion, the first time since Ricky Ponting’s Australia breached the final frontier in 2004. The chaos the defeat whipped up, until the 2007 T20 World Cup redemption and the dawn of a new era, is still fresh in memory.


But India have summoned rare courage in distress in the past. Remember their series win in Australia without half their first-choice eleven and after stumbling to their lowest ever total in Tests. They have gifted players to pull them back into the series. There is the wisdom of the seasoned Rohit Sharma and Ravi Ashwin, homing in on 500 wickets, the explosiveness of Jasprit Bumrah, and the youthful promise of Shubman Gill and Shreyas Iyer. But even as they have the belief and purpose, their calmness and clarity will be gauged in Visakhapatnam, making the game an unputdownable spectacle.






February 2, 2024

Not On Account Of Vote

Politically savvy and fiscally prudent, budget bets on India Inc investing more. Will that happen?


Budgets are embedded in a political context. The salient political message in Modi’s government’s last budget before the Lok Sabha election is unmistakable. They are confident.


Confidence in vote | FM stuck to convention while presenting her sixth budget. It was a vote-on-account, which is what an interim budget is meant to be. In a similar situation in 2019, the interim budget not only introduced an income support scheme for farmers, income tax benefits were also announced. The 2024 vote-on-account avoided change, signalling Modi is confident of returning to power.


But surprise in store | Tucked in the budget speech was the announcement that a high-powered committee would be set up to conduct a detailed study on the challenges arising from demographic changes. The uneven pace of a fall in fertility rates across states is a potential stress point on the federal architecture. Whether this is the only objective or there are other considerations in play will be clearer once the committee is set up.


Fiscal pullback | Modi’s second term saw deficits and debt surge after the pandemic’s outbreak. In its last year, Modi government began to pull back from the high levels of debt and deficit. In revised estimate (RE) of 2023-24, led by both a scaledown in expenditure and tax revenue that beat expectations, fiscal deficit was brought down. It was 5.8% of GDP, 0.10 percentage point lower than the budget estimate (BE) last year.


Capex questions | A highlight of budgets since 2020-21 was a huge ramp up in public investment. Effective capital expenditure increased from ₹6.4 lakh crore that year to ₹12.7 lakh crore in 2023-24. Revised estimates raise the question if there’s sufficient capacity to absorb capital expenditure at this pace. The fiscal pullback in 2023-24 was helped by reduction in capital expenditure. It was ₹12.7 lakh crore in RE 2023-24, lower by almost ₹1 lakh crore than BE.


Tax buoyancy | Tax revenue trend over the last three years has been positive. Gross tax revenue as a proportion of GDP in RE 2023-24 was 11.6%, almost at the level it reached in 2007-08. Importantly, the level has been stable over three years and has been driven mainly by income tax collections. Among taxes, income tax has emerged as the single largest source of tax, which signifies the tax system has become fairer.


Disputes remain unresolved | The missing reform in tax system is a measure to cap rising amounts under dispute. In 2022-23 it was ₹12.21 lakh crore, almost 40% of gross tax revenues. This budget proposed to withdraw tax demand on small sums. There needs to be a solution for larger amounts.


Pointers for the future | Modi government’s fiscal plan is to bank on tax buoyancy, slash subsidies but keep up capital spending in order to lower gross borrowing in BE 2024-25 by 8% to ₹14.1 lakh crore. This is a necessary condition to encourage private sector investment. The big question is – will private sector respond? Interim budget has done all it could to roll out the red carpet. The ball is in India Inc’s court.





February 2, 2024

Interim Budget Gives a Peek Into Longer-Term Things to Come

Given that the political composition of the next government is likely to be the same, policy continuity will be the driving force of sustainable economic growth


Policy continuity serves as the bedrock for sustainable economic growth, a notion famously underscored by Milton Friedman when he said, ‘Only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around.’ This aphorism highlights the value of consistent, well-grounded policy frameworks that can weather the storms of economic upheavals. Reflecting on Thursday’s interim budget, it’s clear that the Modi government is heeding Friedman’s counsel by maintaining a steadfast course on empowerment over entitlement, sustainable development and prudent fiscal management.


Though this budget is interim for 2024-25, the intention is longer-term, with the aspiration of a developed India in 2047. Since 2014, the Modi government has redefined inclusion to mean empowerment, rather than entitlement, and there is evidence — multi-dimensional poverty being one — to show this works. The interim budget sticks to this template of welfarism, with specific focus on the poor, women, youth and farmers. Add to that the continuing focus on sustainable development (rooftop solarisation was announced a few days ago) and capex (railway corridors, airports, metro rail).


Given the necessary emphasis on fiscal consolidation, the moot question was whether the budget arithmetic would permit capex to continue. In 2024-25, capex/GDP ratio is expected to be 3.4%, a healthy enough number. This, despite the fiscal consolidation message being clear enough.


In 2021-22, FM Nirmala Sitharaman announced a fiscal deficit/GDP ratio of 4.5% in 2025-26. But there was Covid and a deviation. In RE 2023-24, the ratio is 5.8%. A reduction of 1.3% in two years is difficult, though not impossible. To get to that terminal goal of 4.5%, BE 2024-25 projects 5.1%, a shade on the optimistic side, but not impossible.


There is near-consensus that real growth in 2024-25 will be 7%, or marginally lower. Hence, the nominal growth assumption of 10.5% is reasonable enough. Disinvestment/ privatisation has flagged. But if taken up after the elections, receipts could be much more than the projected .₹50,000 crore. One can’t pick holes in the numbers and Sitharaman’s budgets have increasingly become transparent, with no sleight of hand.


Though this was an interim budget, there were expectations about tax concessions and relief. Nothing of the sort has happened, and she had suggested as much before the budget. Morally, if not legally, tax (and major expenditure) changes should be left to the incoming government later this year. (If you think about it, there are no new expenditure proposals in the interim budget either — existing schemes are re-emphasised.)


On direct taxes, Sitharaman’s speech gave an interesting figure. Outstanding tax demands up to .₹25,000 and .₹28,000 (depending on the year) will be withdrawn. ‘This is expected to benefit about a crore taxpayers,’ she said. 10 million is a large number, highlighting compliance costs and litigation. Reduction in either is a function of simplification and reduction in exemptions.

There are already two channels (separately for personal income-tax payees and corporates), one with fewer (not zero) exemptions than the other. While some have opted for the new system, the shift can be incentivised further. However, that will have to wait for the full budget. Pen ding simplification and harmonisation of GST, routed through GST Council, too, will have to wait till then.


It is unfair to load an interim budget with the burden of our expectations. But what it has done, given that the political composition of the next government is likely to be the same, is indicative what the full budget might be like. The new government will be for 2024-29. During this period, India’s economy should cross the threshold of $5 trillion of GDP, making it the third largest in the world.


Recently, DEA’s review of the Indian economy spoke about the timeline for $7 trillion by 2030. 2024 is also roughly halfway between 2000 and 2030. Thus, the full budget for 2024-25 will importantly provide medium-term fiscal strategy and factor in anticipated recommendations of 16th Finance Commission. The interim budget gives us pointers.


While some may have hoped for a sprinkle of fiscal fairy dust of freebies, this budget is more like a steadfast sherpa, guiding the economy through the thin air of financial challenges with a steady hand and clear vision.





February 2, 2024

The Stitch In Time That Will Save Nine

FM delivered admirably on fiscal consolidation — now to address a few concerns later this summer


A useful starting point to discuss the interim budget is the macroeconomic background against which it was set. Growth in India clocked 7.7% in H1 FY24. This pace is likely to step down as the global economy and India’s public investment slow down. We are already seeing signs of this. November saw the fourth sequential contraction in IP out of the previous five months.


This has escaped market scrutiny, as it has been masked by stronger y-o-y prints. Notwithstanding the slowdown, growth is likely to track around 6.5% for FY24 and moderate to around 6% in FY25.


In line with global developments, inflation in India, too, has declined, aided by the normalisation of supply chains after the pandemic, war in Ukraine and China’s large export price deflation. Inflation is not yet in RBI’s comfort zone, but it is getting there. Once the US Fed starts easing (likely by June), RBI, too, will have the space to cut rates and support demand.


Against this background, there was no macroeconomic compulsion for retaining the easy fiscal stance. Instead, policy needed to attend to two urgent issues:


›Public sector’s debt dynamics Public debt as a share of GDP in FY24 has not only increased but, at 83%, it is also now substantially higher than the prepandemic (FY19) level of 70%. (I am ignoring the rise in the pandemic year when GDP contracted.) And the arithmetic going forward is not pleasant.


Even if central government deficit goes down to 4.5% of GDP by FY26, as promised, and state government deficit returns to 2.5% of GDP (from over 3% at present), stabilising debt at the current level will require nominal GDP growth to be sustained at around 10% a year. This will imply a sustained real GDP growth rate of 6.5%. This is a very tall order.


But why worry about debt when globally every country seems to have no restraint? This is not entirely true. Economies with extensive financial repression and outsized state ownership, as in China, or those with reserve currencies, such as the US, have more leeway to be profligate, but not emerging market economies like India.


Why an above 80% of GDP debt stock has not raised concerns so far is because financial repression in India is still substantial, although much lower than in the past. And because large excess private savings have been funding the public sector borrowings cheaply. Not that financial repression is a good thing, but it is the second reason that is more worrisome.


The reason why the private sector is awash with savings is because both consumption and investment remain weak since the pandemic. Both need to recover strongly to sustain high growth. When they do, there needs to be adequate domestic funding available. Otherwise, foreign borrowing will rise (current account deficit) and that has never been good for India’s financial stability. (Remember the ‘taper tantrum’?)

› Widening imbalances below the surface of India’s strong overall growth Weak private consumption and investment versus strong government spending; within consumption, the rising divide between strong high-end and subdued low-end purchases; the loss of momentum in manufacturing versus services… to name a few. Such imbalances are normal in an economy recovering from multiple shocks. But they need to be narrowed to ensure overall growth.


The budget delivered admirably on fiscal consolidation, even besting JPMorgan’s pre-budget forecast of FY25 deficit being cut to 5.2% of GDP. For all the reasons laid out above, this was clearly needed. On addressing the underlying imbalances, there wasn’t much in the interim budget that was notable. Perhaps in keeping with the spirit of an interim budget, GoI has postponed the needed policy changes to July.


Fiscal policy alone cannot rectify the imbalances. But it has a crucial role to play in preventing them from turning into deeper fault lines.





February 2, 2024

Interim continuum

Budget spells out priorities if this govt is re-elected


The most striking aspect of the interim Budget for FY25, presented by Finance Minister Nirmala Sitharaman on Thursday, is its accent on fiscal consolidation and the absence of populist flourishes that one might have expected with general elections due in summer. The interim Budget lays out the macroeconomic roadmap that industry and financial sector players can expect in the event of the Modi government returning to power.


The focus on capital expenditure for infrastructure, robust tax collections (amidst modest targets) and welfare schemes for the ‘youth, poor, women and farmers’ has been a trademark feature of recent Budgets, and this one is no different. However, there is no mistaking the accent on fiscal belt-tightening after the inevitable departure from fiscal targets in the Covid years. While the fiscal deficit for FY24 is pegged at 5.8 per cent this year, slightly better than the projection of 5.9 per cent, it is expected to be down to 5.1 per cent in FY25 and 4.5 per cent in FY26. The decline is more than what most had anticipated, as a result of which the bond markets are celebrating with yields dropping sharply. In absolute terms, the fiscal deficit is down by nearly ₹50,000 crore over current year’s revised estimates to ₹16.8-lakh crore, and nearly double that over FY24 Budget estimates. The reasons are not far to seek. An expected 14 per cent increase in interest costs to nearly ₹12-lakh crore in FY25, about 25 per cent of the total budget, cannot be sustained as it will edge out fiscal space. The 5.1 per cent target is expected to be achieved by keeping the overall increase in government expenditure to 6 per cent from ₹44.9-lakh crore this fiscal to ₹47.7-lakh crore, while net tax revenue is expected to rise more than 12 per cent (a tax buoyancy of about 1.2 which is reasonable) to ₹26-lakh crore. However, capital expenditure has been raised by 17 per cent over the revised estimates for this fiscal of ₹9.5-lakh crore to ₹11.1-lakh crore. As a proportion of the size of the Budget, this remains quite the same as FY24, or about 22-23 per cent. The capex accent of the Budget becomes clear from the fact that about 57 per cent of the rise in gross budgetary support (₹1.6-lakh crore out of ₹2.7-lakh crore) is accounted by it.


This could be the architecture of future Budgets if the government returns to power. If one takes a decadal view of this government’s finances, it shows that the direct taxes to GDP ratio has risen from 10 per cent in FY15 to 11.6 per cent in FY24, clearly marking tax reform successes, formalisation and more revenue-led fiscal management. Welfare delivery, thanks to technology via the Aadhaar and mobile linkage, has brought about another paradigm shift in fiscal policy. As the Finance Minister said, savings in welfare deliveries through Jan Dhan Yojana have created fiscal space. This, along with improved tax buoyancy over the years, has created more room for capex and welfare spending. From a wider perspective, the Centre over the years has focused on creating entrepreneurs, whether it is in the IT sector, farming, or among the poorer folk generally. The skilling initiatives and credit schemes are tailored to this end. It is its unstated approach to the jobs question.


The outlays give an indication of focus areas: energy, urban development and rural development are key sectors. An oilseeds mission is expected, of which earlier Budgets had provided some indication. It is not clear whether the expected reduction in fertilizer subsidy can materialise. A rooftop solar route to providing 300 units of free power seems like a better way to go, compared to providing free power from non-renewables, but it will face implementation challenges. The same holds true for rural demand creation through PM Awaas Yojana.

A corpus for IT start-ups and the promise of healthcare benefits to women, besides creating medical colleges, stood out in a speech with more references to the middle class than in recent years – a segment that has seen its disposable income shrink under inflation pressure. For all its accent on inclusiveness, it was surprising that there was no direct reference to pockets of distress in rain-fed regions. An increase in PM Kisan instalments was expected, but perhaps the government refrained over inflation fears. Other interesting statements of intent with some political overtones included a package for the ‘eastern region’ to take it a growth driver. This was finally a workmanlike Budget, notwithstanding signs of weak rural demand in a poor agriculture year.






February 2, 2024

Prudence first

Interim Budget sticks to fiscal glide path


In an election year, the Union government is supposed to present merely a vote-on-account on February 1; major policy proposals and tax changes are postponed until July, under a new administration with a fresh mandate. However, the vote-on-account has over time morphed into a grander “Interim Budget” that can bend, if not break, the convention preventing electioneering through Budget proposals. This year, however, in a welcome return to transparency and convention, the Interim Budget stuck to the essentials: Presentation of the last year’s performance, and conservative allotments for the coming year. There were no grand giveaways, no conspicuous welfarism, no populist posturing through tax tweaks. If anything, this reveals the confidence with which the government views its prospects in the coming election. Clearly, it believes that no last-minute boosts to its economic record need to be planned.


Union Finance Minister Nirmala Sitharaman and her team in the ministry also need to be commended for the transparency of the Budget figures. The schedule recording off-Budget borrowing was empty this year, a pleasant change from some past years. The deficit numbers, therefore, will be viewed as trustworthy. Together with the restoration of the vote-on-account convention, this is a compliment to the budgetary ethics of the current ministry. For the equity markets, which ended the day just about where they started, this may count as a non-event — but a non-event is precisely how a vote-on-account should feel. That said, there are important points buried in the Budget mathematics that provide a sense of the government’s expectations over the coming year.


Its commitment to the fiscal consolidation glide path comes through in the macro numbers. This year, the target of 5.9 per cent of gross domestic product (GDP) was beaten, with 5.8 per cent being achieved through a combination of higher non-tax revenue through dividends from nationalised banks and the Reserve Bank of India, and a small squeeze on capital expenditure. Next year’s target, of 5.1 per cent of GDP, will be achieved according to the Budget through relatively modest efforts on the revenue side. Gross tax revenues to achieve this deficit target have been projected to grow with a buoyancy of only 1.1, considerably lower than was on display this year.


The tendency towards restraint and responsibility in this Budget is reflected also in its approach to state finances. As our columnist Akash Prakash points out, half the positive revenue surprise this year has been transferred to the states. As a consequence, the overall net tax revenue accruing to the Union government has not seen the forecasted bump over the estimates in Budget 2023. That said, there are aspects of the global scenario that do not seem to have sufficiently informed the Budget’s thinking, and could over the course of the coming year severely undermine its commitment to control spending.


First, there is the possible under-provision for subsidies. The urea subsidy, for example, is due to go down by 9 per cent or so in the coming year compared to the Revised Estimates for 2023-24. The petroleum subsidy, though much lower now, is also supposed to decline. Built into this is a certain sanguine approach to the possible path of oil and gas prices in the medium term. Chaos in West Asia is a non-zero possibility, given the multiple fronts on which violence has broken out in recent months. It is not wise to be overconfident about oil and gas prices.


Second, the defence budget seems to be disconnected from global threats in both the short and the long terms. The allotment for defence has been marginally decreased in the coming year, which means of course that in real terms there will be a marked fall in the defence budget. While defence capital expenditure may nevertheless marginally increase, it is clear that the government must re-examine its long-term approach to the financing of India’s military. Salaries and especially pensions cannot be allowed to eat away into the space for big capital improvements for ever, especially if real expenditure on the military is stagnant or decreasing.


Third, the global tendency towards high-subsidy industrial policy has not been sufficiently answered in New Delhi except through rhetoric. Although multiple production-linked incentive (PLI) schemes have been announced, including for emerging and frontier technologies that are crucial to future growth and to economic security, the actual budgetary allotment for the PLI programmes does not match the promises in press releases. The downside risk to the fisc if the government is forced to scale up PLI spending as part of a global subsidy race to the bottom should not be ignored.


Overall, however, Ms Sitharaman has been judicious in how she plans for the future. Reading between the lines, it is easy to detect that the government views its chances of presenting a full Budget later this year as a certainty. The effects of the pandemic on spending and the deficit, which were an obstacle in the government’s approach to fiscal responsibility, are clearly fading. But, equally, Prime Minister Narendra Modi’s second-term economic approach, which relied on funnelling ever more money to government capex — particularly in transport — is reaching the limits of its usefulness. An increase of only 17 per cent to capex was promised for the coming year. Broader plans for the coming five years will now have to be presented, as is appropriate, in July.






February 2, 2024

Budget reflects govt’s confidence with continuity

Refusal to win brownie points with specific voter groups in an election year is remarkable


Restraint seems to be Nirmala Sitharaman’s middle name. That was validated by a realistic interim Budget for 2024-25, which, despite its fair share of political rhetoric, stood out for its commitment to fiscal prudence as well as the continued thrust on capital expenditure. The finance minister outlined some plans that will benefit primarily the middle class, youth, and the rural population, but some of these are extensions of existing schemes and modest in their scale. Ostensibly with a view to addressing the stress in the rural economy, the aggregate outlay on four key schemes—MGNREGS, PMAY-Grameen, PMGSY and PM-Kisan—has been raised by a reasonable 13.2% on the back of a 10% fall in each of the two previous years. There is also a jump in the outlay for food storage and warehousing.


But there were no immediate giveaways either in the form of income transfers or more free foodgrains and no attempts to put more money in people’s hands by way of income tax cuts. In fact, the food subsidy bill has been pruned slightly to Rs 2.05 trillion from Rs 2.21 trillion. Indeed, the National Democratic Alliance’s (NDA’s) decision to not offer any freebies or sops ahead of the general elections speaks volumes about how confident it is about returning to power.


Meanwhile, the finance minister has targeted a much smaller fiscal deficit target of 5.1% of GDP, down from 5.8% in the current year—helped by an economy that’s growing at 7%, and buoyant tax collections. In reality though, there could be room to spend more than the budgeted amount because the nominal GDP growth assumption of 10.5%, although much higher than the 8.9% for the current year, is somewhat conservative. The numbers will cheer Mint Street, which hasn’t yet been able to rein in inflation to the extent it would have liked. The smaller market borrowings, projected at Rs 11.75 trillion, helped by the cushion from the GST compensation cess, should drive down bond yields. On Thursday, the benchmark yield closed at 7.05%. If sustained, it would lower the government’s interest bill—current debt servicing costs account for a large share of revenues.


Importantly, it will give the Reserve Bank of India (RBI) much-needed wiggle room on rate action. The lower bond yields should translate into a lower cost of capital and crowd in private sector borrowings. In fact, should the investments into bonds by foreign portfolio investors courtesy the index inclusion (currently estimated at $20- $25 billion) come through as anticipated in June, banks would probably be left with surpluses. That could compel them to step up lending as they search for better yields from borrowers. An upgrade from the ratings agencies would come as an additional boost for companies as it would lower borrowing costs overseas.


It is important, even critical, that the private sector steps in to invest more meaningfully. While the allocation for capex in the interim Budget is bigger by 11% on a high base, it needs to be supplemented. Else, the economy, which has been largely sustained by government capex rather than any meaningful improvement in consumer demand could lose momentum. In this context, it is somewhat surprising that the 15% concessional rate of corporation tax will no longer be available for new units, though there is nothing that stops the government from reintroducing it in the full-fledged Budget.

The government’s balance sheet is targeted to expand at a little over 6% in the current year—a modest increase. The Centre’s net tax revenue targets too are not ambitious and bake in a growth of 11.9% at a much lower but realistic buoyancy of just 1.1%. In the current year, tax revenues are estimated to grow at nearly 11% at a much higher buoyancy of 1.4. These would be supported by non-tax revenues, though the government could work harder on disinvestments, where it has repeatedly missed its very modest targets. It is welcome that the Centre plans to encourage states to spend on tourism and other areas by offering them long-term loans at zero or soft interest rates.


Disappointingly, the outlay for health at 0.28% of GDP is smaller than in the previous two years; at 0.38% of GDP, even the education budget is not large enough. If the government believes it is short on resources, it must come up with incentives to encourage the private sector to spend in these areas. The defence budget allocation at 1.39% of GDP is the smallest in four years but would probably see an increase in July. Overall, the interim Budget is a reflection of the government’s confidence with continuity.




The Telegraph

February 1, 2024

Partial picture


In a report on the Indian economy in lieu of the usual, pre-budget Economic Survey, the finance ministry has outlined the achievements of the Indian economy during the Narendra Modi years and indicated some medium-term projections about economic growth. The report highlights the growth rates of the Indian economy in the last one or two years, claiming that a 7% growth rate is something to be impressed with when seen in the context of the global growth rate of 2%. This claim, however, hides the fact that there was a sharp decline in growth during the pandemic years: hence, the 7% growth has to be viewed against a very low base year figure. Longer averages portray a much more modest rate of growth in the post-Covid years. There is a claim that the Indian economy will become a $7 trillion economy by 2030 (not $5 trillion as promised earlier by the prime minister) and is likely to become the third largest economy in the world in the coming three years. There is also an assertion that India will become an advanced economy by 2047. But the report does not clarify what the qualitative features of a developed Indian economy would be by that time.


Most analysts of India’s economic development would highlight the vital necessity of creating an adequate number of jobs for the country’s rapidly-growing young population. The report claims that overall employment has increased and unemployment has fallen in urban areas. The truth is that agricultural and manufacturing jobs have fallen since Covid and only low-end, service-sector jobs and precariously uncertain employment in the construction sector have increased. Between 2012 and 2018, about 100 million workers left the labour force. After 2018, about 135 million new workers are estimated to have entered the work force. During the same period, only 5 million jobs were created in the formal sector. About 50% of the 135 million workers went to agriculture, remaining underemployed in a segment facing recurrent crises of falling water tables and climate change-induced crop failures. At the moment, about 450 million people of the working-age population are out of the labour force in India. They have given up looking for a job. The employment picture will become grimmer if one factors in labour market disruptions that are likely to take place on account of the spread of Artificial Intelligence and the more discernible aspects of climate change. Being proud of the economy’s achievements is one thing; presenting half-truths — a terribly unwise thing to do — is quite another.





The Telegraph

February 1, 2024



A court of law exists to resolve conflict of varied hues. It is rare for a court to fall victim to conflict itself. Unfortunately, the Calcutta High Court has been a witness to such an unprecedented discord involving two different benches as well as the state advocate-general. It all began when Justice Abhijit Gangopadhyay chose to ignore the stay ordered by a division bench led by Justice Soumen Sen in a case related to MBBS admission. Angry words were exchanged in the court room along with — astonishingly — the casting of political insinuations. Calcutta High Court’s chief justice, T.S. Sivagnanam, has been anguished by what, in his words, is “an untoward situation”: he has pledged to bring back normalcy. The Supreme Court has, quite correctly, intervened in the matter. In cognisance of such an unwarranted clash between members of the judiciary, the highest court has set up a bench — it is led by the Chief Justice of India — to hear the matter itself.


The law is supposed to be beyond reproach. As an institution upholding law, the court — any court — should stay above perceptible divisions. Members of the court should emulate the high standards set by the judiciary. The voicing of differences in public or interventions that can lead to conflict between judicial benches is unjustifiable. The lack of amity among brother judges does not sully merely the court. It has wider ramifications. Mr Sivagnanam was alert to this possibility when he stated that the rancour between the judges that dented the image of the Calcutta High Court could have a “long-term effect on the public at large.” The impact, an undesirable one, could be the erosion of the people’s trust in the court of law. This, in turn, has deeper connotations. The application of the rule of law — one of the basic tenets of the compact between law and society — could be weakened as a result. Already, the strain between the judiciary and the government of the day, principally on the hotly-contested collegium system, is a matter of public record. The impact of adversity among judges could deepen the gathering public anxiety. The indecorous exchange in the Calcutta High Court is hopefully an aberration. There must be no occasion for an encore.


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