The Finance Minister of India, Nirmala Sitharaman, presented the Interim Budget 2024 – 25 on February 1, 2024. The Interim Budget is a provisional budget that outlines the government’s spending and revenue plans for the next few months until the full budget is presented after the general elections. The Interim Budget is usually a low-key affair, but this time, the Finance Minister announced some bold and ambitious targets for the Indian economy.
Here are some of the key highlights and macroeconomic implications of the Interim Budget:
- Fiscal Deficit: The fiscal deficit is the difference between the government’s total expenditure and its total revenue (excluding borrowings). A high fiscal deficit indicates that the government is spending more than it is earning, which can lead to inflation and debt accumulation. The Finance Minister announced that the fiscal deficit target for the fiscal year 2024-25 is 5.1% of GDP, which is lower than the 5.8% of GDP estimated for the current fiscal year 2023-24. The Finance Minister also said that the government aims to reduce the fiscal deficit to below 4.5% of GDP by 2025-26, which is in line with the recommendations of the Fifteenth Finance Commission.
- Capital Expenditure: Capital expenditure is the spending by the government on creating or improving physical assets such as roads, bridges, railways, airports, etc. Capital expenditure is considered to be growth-enhancing as it boosts the productive capacity and infrastructure of the economy. The Finance Minister announced that the capital expenditure outlay for the fiscal year 2024-25 is 3.4% of GDP, which is higher than the 2.9% of GDP estimated for the current fiscal year 2023-24. The Finance Minister also said that the government will increase the capital expenditure by 15% every year till 2025-26.
- Market Borrowing: Market borrowing is the amount of money that the government borrows from the market by issuing bonds and securities. Market borrowing is one of the sources of financing the fiscal deficit. However, excessive market borrowing can lead to crowding out of private investment and higher interest rates. The Finance Minister announced that the net market borrowing for the fiscal year 2024-25 is ₹11.75 lakh crore, which is lower than the ₹12.80 lakh crore estimated for the current fiscal year 2023-24. The Finance Minister also said that the gross market borrowing for the fiscal year 2024-25 is ₹14.1 lakh crore, which is lower than the ₹15.6 lakh crore estimated for the current fiscal year 2023-24.
- Divestment: Divestment is the process of selling the government’s stake in public sector enterprises or entities to private investors. Divestment is a way of mobilising non-tax revenue and improving the efficiency and performance of public sector enterprises. The Finance Minister announced that the divestment target for the fiscal year 2024-25 is ₹50,000 crore, which is higher than the ₹30,000 crore revised estimate for the current fiscal year 2023-24. The Finance Minister also said that the government will complete the strategic sale of Air India, BPCL, and LIC in the next fiscal year.
Wrapping Up
The Interim Budget 2024 – 25 has set some challenging and realistic goals for the Indian economy. The Finance Minister has balanced the need for stimulus and sustainability in the wake of the COVID-19 pandemic. The Interim Budget has laid the foundation for the full budget that will be presented by the new government after the elections. The full budget will have to build on the Interim Budget and address the structural and long-term issues facing the Indian economy, such as tax reforms, social sector spending, health care, education, and employment. The Interim Budget has given a glimpse of the vision and direction of the government for the next five years. It remains to be seen how the vision will be translated into action by the new government.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.For Research Disclaimers Click Here: https://bit.ly/3Tcsfuc
