Topic 1 : Neglecting the farmn
Introduction: The first advance estimate for agriculture GDP in 2023-24 reveals a modest growth of 1.8 per cent, a significant dip from 4 per cent the previous year. This reflects stress in the farm sector. The interim budget has largely ignored the farm sector.
Allocation to the farm sector in the interim budget
- The allocation for the Department of Agriculture and Farmers Welfare (MoAFW) has seen a slight uptick of 0.6 per cent.
- In real terms, its allocation has gone down.
- The Department of Agricultural Research and Education (DARE) received Rs 99.4 billion (BE) for FY25, a marginal 0.7 per cent increase over Rs 98.8 billion (RE) in FY24.
- The two together accounted for just 2.7 per cent of the total budget expenditure (Rs 47.6 trillion) and 4.9 percent of the centre’s net tax revenue (Rs 26 trillion).
- However, the Ministry of Fisheries, Animal Husbandry and Dairying witnessed a 27 per cent increase — a commendable step, especially because there is an urgent need to manage foot and mouth disease, increase productivity and reduce methane emissions.
- A major income support for the agriculture ministry comes in the form of PM-KISAN, credit subsidy and the PM-Fasal Bhima Yojana.
- All these measures combined amount to Rs 5.52 trillion (BE) for FY25, slightly less than INR 5.8 trillion (RE) in FY24.
- This support accounts for 12 per cent of the overall interim budget and a significantly higher —21 per cent —of the Centre’s net tax revenue in FY25.
- It is compelling to note that the budget allocations for food and fertiliser subsidies, individually, account for a much higher budget than that compared to the Ministries of Agriculture and Farmers Welfare and Fisheries, Animal Husbandry and Dairying.
Allocation to food security
- In FY25, the budgeted food subsidy fell to Rs 2.05 trillion (BE), compared to Rs 2.12 trillion (RE) in FY24 — a 3.3 per cent drop.
- However, this still underscores a significant bias towards consumers, as the subsidy caters to them rather than the ‘annadata’ (farmers).
- Free ration to 800 million people through the PM-Garib Kalyan Yojana is, of course, an accomplishment.
- But the necessity of extending this support to such a vast number of people must be questioned, especially when the FM says that roughly 25 crore people have been lifted out of multidimensional poverty in the Modi government’s 10 years.
Need to rationalize food subsidy
- There is an urgent need to rationalise the food subsidy, on the lines of the Targeted Public Distribution System (TPDS).
- Under TPDS, wheat and rice were given free to only the Antodaya category (extremely poor) of consumers but charged 50 per cent of the Minimum Support Price (MSP) to Below Poverty Line (BPL) category and 90 per cent of MSP to Above Poverty Line (APL) category.
- Rationalisation along such lines can save the government at least Rs 50,000 crore, which can be allocated for agri R&D and more irrigation, especially micro-irrigation.
- This could help the country to produce “more with less” and ensure food security in the face of climate change.
- But this is an election year, and one could not expect major changes in the interim budget. Perhaps, it can be taken up in the July budget.
Allocation to fertiliser subsidy
- The fertiliser subsidy has come down from Rs 1.89 trillion (RE, FY24) to Rs 1.64 trillion (BE) in FY25.
- Whether this will finally result in a reduction or not will depend a lot on what happens to gas prices in FY25.
- But what is needed is rationalisation, especially in minimising the diversion of fertilisers to non-agricultural sectors, including beyond Indian boundaries.
- It is widely acknowledged in expert circles that around 20-25 per cent of urea is diverted.
- A potential solution is to shift from subsidising the price of urea to directly empowering farmers through direct cash transfers.
- This will enable farmers to purchase fertilisers at market prices while reducing leakages.
- This shift could result in savings of Rs 30,000-40,000 crore.
- The funds could then be directed towards enhancing development initiatives like PM-KISAN.
Conclusion: The budget for agriculture seems muted. One only hopes that the July budget will have major announcements for farmers and make agriculture vibrant and sustainable.
Topic 2 : About popularity, not populismn
Introduction: 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.
Comparison of interim budget for 2024-25 to 2019-20
- 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.
Renewed emphasis on fiscal consolidation
- 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.
Rise in capital expenditure
- 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.
How the fiscal consolidation will be achieved by the government?
- 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.
Some concern on only government expenditure is driving growth
- 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.
- 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.
Conclusion: A positive offshoot of apparent political confidence is Modi government's renewed emphasis on fiscal consolidation. Going ahead, generating jobs for the 'Amrit Peedhi' is going to be the single biggest policy and political challenge in 'Amrit Kaal'.