Event Report
Mannat Ghumman
IMPRI #PolicyWebTalk recently organised an insightful 6-day panel discussion on the prospects of the Union Budget. Held from July 24th to July 29th, 2024, this event was part of the IMPRI 5th Annual Series of Thematic Deliberations and Analysis of Interim Union Budget 2024-25. On July 26th, 2024, the Center for the Study of Finance and Economics (CSFE), IMPRI Impact and Policy Research Institute, New Delhi, hosted a discussion on “New India’s Economic Transformation and Union Budget 2024-25.” The webinar revolved around discussing the nuances of the Union Budget from the micro as well as the macro perspective.
The panel featured a distinguished lineup of experts. The Chair for the event was Prof. Mukul Asher, Visiting Distinguished Professor at IMPRI and Former Professor at the Lee Kuan Yew School of Public Policy, National University of Singapore (NUS). The panellists included Prof. A Amarender Reddy, Dr. Radhika Pandey, and Prof. Prabir De. Each expert brought their unique insights and perspectives, enriching the discussion with in-depth analyses and forward-looking views.
Prof. Mukul Asher opened the lecture by emphasizing the fiscal prudence of the 2024-25 Union Budget. He highlighted its significance in maintaining India’s credit rating and promoting internationalization, while also pointing out the numerous initiatives aimed at enhancing India’s comprehensive national power. The lecture laid out a long-term vision for a developed India by 2047, marking the centenary of India’s independence. Prof. Asher used the Rule of 72 to illustrate that India’s GDP, currently at USD 3.98 trillion, could potentially double to nearly USD 8 trillion by 2031, assuming consistent growth rates. A significant highlight of the budget is the strategic shift from focusing on the fiscal deficit to the debt-to-GDP ratio. Prof. Asher drew comparisons with other countries, noting that India’s GDP per capita is 69% of Indonesia’s, suggesting a gradual catch-up with its neighbor. He also underscored the importance of managing high revenue expenditure and ensuring the taxes collected are efficiently utilized.
Rumel Dahiya’s input on Comprehensive National Power (CNP) was incorporated into the discussion, defining it as a country’s capability to pursue its strategic objectives internationally. Dahiya elaborated on various factors that constitute CNP, including economy, military strength, internal cohesion, governance, human capital, science & technology, and others. Prof. Asher explained the importance of macroeconomic stability, citing the budget’s projection of a 4.9% fiscal deficit and its aim to improve the debt-to-GDP ratio. He provided an in-depth analysis of India’s GDP per capita and revenue receipts, emphasizing the government’s efforts in improving infrastructure and capital expenditure, which currently stands at 3.4% of GDP.
The lecture transitioned into a discussion on hard power, such as defense and technological self-reliance (Atmanirbharta), and the importance of resilience against global and domestic shocks. Prof. Asher also touched upon the critical need for internal stability and effective governance to enhance national power. Prof. Asher outlined the budget’s priorities, including population productivity, employment, skilling, and human resource development.
He highlighted innovative schemes for internships and social justice initiatives, with a focus on Eastern India. The budget also emphasized urban development, energy security, renewable infrastructure, research and development, and land reforms. A significant part of the budget is dedicated to improving India’s data infrastructure. Prof. Asher mentioned the proposal for a data innovation map to enhance decision-making processes, reflecting the budget’s forward-looking approach to national policy.
Dr. Radhika Pandey, Senior Fellow at the National Institute of Public Finance and Policy (NIPFP) and Visiting Senior Fellow at IMPRI, provided an in-depth analysis of the fiscal math and changing priorities of the Union Budget 2024-25. She highlighted how the budget has navigated changing political realities and diverse expectations while maintaining a focus on fiscal consolidation. Dr. Pandey began by noting that despite the dynamic political landscape, the government has retained its focus on fiscal consolidation. The fiscal deficit target for the current year was initially 5.1%, but it has been revised down to 4.9%, largely due to higher-than-expected dividends from the Reserve Bank of India (RBI). This additional fiscal space, created by the unexpected RBI dividend, has allowed the government to reduce the fiscal deficit and increase revenue expenditure.
An additional Rs 55,000 crore has been allocated to revenue expenditure in the full-year budget, focusing on productive expenditures such as employment-linked incentive schemes, education, and the Pradhan Mantri Awas Yojana. Dr. Pandey emphasized the budget’s shift towards a new fiscal framework, moving from a single fiscal deficit target to reducing the debt-to-GDP ratio. This change aims to enhance the transparency of the fiscal framework, boost foreign investments in sovereign debt, and reduce borrowing costs. Dr. Pandey provided a detailed trajectory of the fiscal deficit, highlighting its decline from 9.2% of GDP during the COVID-19 pandemic to an estimated 4.9% for the current year. She pointed out the gradual decline in the size of the government budget as a share of GDP since the pandemic, with a notable increase in capital expenditure, both by the central and state governments. The central government’s provision of 50-year interest-free loans to state governments to boost capital expenditure was also highlighted.
A significant change from the interim to the full budget is the reduction in the growth rate of corporate tax from 14.5% to 12%, reflecting lower profit projections for companies in the first quarter. In contrast, the projections for income tax collections have been revised upward. Dr. Pandey also noted the increase in net tax revenue allocations for states, despite the overall gross tax revenues remaining similar between the interim and final budgets. The lecture discussed the significant jump in non-tax revenue, primarily due to the RBI dividends. However, there was underperformance in disinvestment proceeds, with the government managing to garner only around Rs 33,000 crore of the Rs 50,000 crore target. Dr. Pandey pointed out the reduction in subsidies, particularly for food and fertilizers, as a positive step towards improving the quality of expenditure and reducing the debt-to-GDP ratio. Dr. Pandey emphasized the importance of improving the quality of expenditure by reducing subsidies and interest payments as a share of total expenditure. This would help in bringing down revenue expenditure and enhancing the overall fiscal health of the government.
Prof. A. Amarender Reddy, Joint Director at the School of Crop Health Policy Support Research (SCHPSR), ICAR-National Institute of Biotic Stress Management (NIBSM), Raipur, and Visiting Senior Fellow at IMPRI, delivered an insightful lecture on the agricultural sector’s challenges and the government’s strategies to bridge the productivity gap between agricultural and non-agricultural sectors. Prof. Reddy highlighted the significant productivity gap between the agricultural and non-agricultural sectors. Despite rapid growth in non-agricultural sectors, a substantial portion of the population (around 45-46%) still relies on agriculture. Increasing agricultural productivity is crucial, and the government aims to achieve this through research and development (R&D) and innovation. The lecture emphasized the necessity of a comprehensive revamp of the agricultural research system to enhance productivity.
The agricultural research system in India is predominantly public sector-driven, although the private sector has been increasingly contributing, especially in the seed sector. Prof. Reddy discussed the government’s plans to incentivize private sector involvement in agricultural R&D, recognizing its potential to significantly impact productivity growth. Prof. Reddy pointed out regional disparities in agricultural productivity, particularly in Eastern India and rainfed areas. The government is focusing on improving technology adoption and productivity in these regions. Specific emphasis has been placed on pulses and oilseeds, which are crucial for reducing import dependency. Currently, India imports 58% of its domestic consumption of pulses and around 30% of its oil consumption.
The lecture highlighted the need to reduce international and regional yield gaps. India’s average yield is less than 1 ton per hectare, significantly lower than the global average of 2 tons per hectare. The government is focusing on areas with competitive advantages, such as fisheries and meat production, to enhance self-sufficiency and competitiveness in international markets.
To address rising production costs, the government is promoting natural farming practices, which reduce the reliance on fertilizers and other external inputs. This approach aims to lower the cost of production for farmers and reduce the government’s fertilizer subsidy burden. Initiatives include creating natural farming clusters and involving Panchayati Raj institutions. Prof. Reddy emphasized the importance of digital infrastructure in boosting agricultural productivity. States like Karnataka and Andhra Pradesh have shown that digital infrastructure can significantly enhance value addition and market linkages for farmers. The government is focusing on digital initiatives like PM-Kisan, which provides direct financial support to farmers, and the Prime Minister’s Fasal Bima Yojana (Crop Insurance Scheme).
In addition to agricultural policies, the government is also focusing on rural development programs such as MGNREGA, Pradhan Mantri Gram Sadak Yojana, and the National Rural Livelihood Mission. These programs aim to improve rural infrastructure, create employment opportunities, and enhance rural livelihoods. Prof. Reddy noted that agricultural policies are often hindered by implementation challenges at the grassroots level. There are gaps between government plans and actual implementation, which vary across states. Digital infrastructure is seen as a potential solution to bridge these gaps and ensure effective policy implementation.
Prof. Prabir De, a renowned expert from the Research and Information Systems for Developing Countries (RIS), New Delhi,. Prof. De’s presentation focused on India’s ambitious target to achieve a $30 trillion GDP by 2047 and the steps necessary to realize this vision.
Prof. De emphasized the critical role of international trade and global engagement in achieving India’s economic goals. The Finance Minister’s vision of India becoming a $30 trillion economy by 2047 is not merely an aspirational figure but a strategic goal supported by a detailed action plan. The current GDP, which stands at approximately $3.42 trillion, needs to grow at a robust rate to meet this target. Prof. De outlined that achieving this would require a sustained annual growth rate of about 10%, along with significant improvements in capital expenditure and infrastructure.
One of the key areas highlighted by Prof. De was the necessity for a substantial increase in capital expenditure, particularly in infrastructure. The current annual infrastructure budget is about $1.63 trillion, which needs to be nearly doubled to $7 trillion by 2047. This increase is crucial for supporting India’s growth and development, as high-quality infrastructure is essential for economic expansion.
Prof. De stressed that India’s international trade strategy must evolve in response to global economic shifts. The presentation underscored that protectionist policies are not a viable path forward. Instead, India must focus on enhancing its global connectivity and trade networks. He noted that while India’s exports have been rising, there is a need to move beyond primary exports and invest in secondary and tertiary sectors, such as pharmaceuticals and electronics. The role of digital technology in transforming India’s economy was another focal point. Prof. De pointed out that technological advancements, including digital payment systems and e-commerce, are rapidly reshaping India’s economic landscape. The rise of digital services is expected to contribute significantly to GDP growth, with a projected shift in the structure of exports and services. To bolster its global trade position, India is pursuing more strategic free trade agreements (FTAs). These agreements are designed not only to enhance trade but also to align with India’s broader economic and strategic interests. Prof. De highlighted that successful FTAs would facilitate better market access and support India’s goal of becoming one of the top global economies.
The lecture also addressed the challenges posed by global crises, such as supply chain disruptions and geopolitical tensions. Prof. De emphasized the importance of strengthening international infrastructure connectivity projects, such as the International North-South Transport Corridor (INSTC) and other regional initiatives, to mitigate the impact of these crises on India’s trade and economic stability. Looking ahead, Prof. De recommended several policy measures to support India’s economic ambitions. These include enhancing infrastructure quality, investing in digital and technological advancements, and strengthening global trade promotion efforts. Additionally, there is a call for improved support mechanisms for exporters and a more streamlined customs process through digitalization.
Conclusion
In summary, the Union Budget 2024-25, as analyzed by these experts, represents a significant step towards realizing India’s long-term economic goals. The concerted efforts to improve infrastructure, foster technological innovation, and enhance international trade position India for substantial growth. The discussions highlighted that while ambitious, the roadmap to a $30 trillion economy is grounded in strategic planning and effective implementation of policies that address both domestic and global economic dynamics. As India navigates this transformative journey, the insights from this panel discussion will serve as crucial guidance in shaping a resilient and prosperous future.
Acknowledgement: Written by Mannat Ghumman, Research Intern at IMPRI.
