Budget 2024: How economy fared better than estimated, what this means for FY25

India’s economy continues to remain a bright spot. This is something economists have been saying for the past couple of years. In her interim Budget speech, Finance Minister Nirmala Sitharaman gave us some numbers to back these claims.

As India goes into election season, it has every reason to smile. Sitharaman said on Thursday that there was macroeconomic stability, investments were robust, and the economy was doing well.

People were doing well as average real income had increased by 50 per cent, she said. Inflation had moderated and there was an effective and timely delivery of programmes and large projects.

All in all, it looks good. Turns out the economy has fared better than what Budget 2023 estimated. We explain.

What are Budget estimates and revised estimates?

During the Budget presentation, the government lays out the estimated earnings and spending during the coming financial year. The funds allocated for the work to be done, the other activities and for ministries are laid out.

These numbers are not a final commitment and change and hence the government provides revised estimates. Any additional projections made in the revised estimates need to be authorised for expenditure through the Parliament’s approval.

Budget estimates represent the government’s ambitions and revised estimates show how the expenditure is likely to pan out. The actuals give the real number for how much was extended, according to a report in Business Standard.

Also read: Big takeaways from Budget: What Nirmala Sitharaman said on taxes, economy, fiscal deficit

What were the revised estimates for FY 2023-24?

The revised estimate of the total receipts other than borrowings is Rs 27.56 lakh crore, of which the tax receipts are Rs 23.24 lakh crore. The revised estimate of the total expenditure is Rs 44.90 lakh crore, according to the Budget speech.

The revenue receipts are at Rs 30.03 lakh crore and are expected to be higher than the Budget estimate, reflecting strong growth momentum and formalisation in the economy.

The revised estimate of the fiscal deficit is 5.8 per cent of GDP, improving on the Budget Estimate, notwithstanding moderation in the nominal growth estimates, Sitharaman said in her speech.

Nirmala Sitharaman leaves her office for the President’s house before presenting the Budget in the Parliament in New Delhi. AP

What are the projections for FY 2024-25?

In the coming financial year, the total receipts other than borrowings and the total expenditure are estimated at Rs 30.80 lakh crore and Rs 47.66 lakh crore respectively. The tax receipts are estimated at Rs 20.02 lakh crore.

The scheme of 50-year interest-free loans for capital expenditure to states will be continued this year with a total outlay of Rs 1.3 lakh crore, FM said in her speech.

“We continue on the path of fiscal consolidation, as announced in my Budget Speech for 2021-22, to reduce fiscal deficit below 4.5 per cent by 2025-26. The fiscal deficit in 2024-25 is estimated to be 5.1 per cent of GDP, adhering to that path,” said Sitharaman.

This suggests the government has to bring it down by almost 200 basis points over the next two years. In other words, from 5.8 per cent of GDP in 2023-24 to less than four per cent of GDP in 2025-26, according to a report in The Indian Express.

The fiscal deficit is the amount of borrowing that the government has to make when it cannot meet all its expenses with its income. With every year, the fiscal deficit adds to the government debt.

A high fiscal deficit is not a promising sign and the finance ministry has been working to reduce it.

In her speech, the FM announced the target for FY26 at 4.5 per cent of GDP.

A view of the ongoing coastal road project in Mumbai. India has pegged the fiscal deficit target for 2025 at 5.1 per cent of the GDP. AP

The gross and net market borrowings through dated securities during 2024-25 are estimated at Rs 14.13 lakh crore and Rs 11.75 lakh crore respectively. Both will be less than that in 2023-24.

Now that private investments are happening at scale, the lower borrowings by the Central Government will facilitate a larger availability of credit for the private sector, according to this year’s Budget speech.

What are experts saying?

The government is seen to be prudent about spending, which instils confidence that it will meet the target of limiting the fiscal deficit to 4.5 per cent of GDP over the next two years, Rumki Majumdar, an economist at Deloitte India was quoted as saying by Mint.

“The assurance from the government will help investors’ confidence and also ensure that sovereign yields are range-bound, which is important for financial stability,” she added. “Besides, a controlled fiscal deficit reduces inflationary pressures and also increases room for private borrowing, thereby crowding in private investment.”

A farmer works on rice saplings at a paddy field on the outskirts of Guwahati. The Indian economy continues to be a bright spot, say economists. AP

So what did FM have to say about the road ahead?

The next five years will see unprecedented economic growth in India.

India’s economy, the fastest growing among major nations, is going through profound change, she said in Parliament, adding that the government aims to make the country “Viksit” (developed) by 2047.

“The next five years will be years of unprecedented development and golden moments to realise the dream of developed India by 2047,” the FM declared.

With inputs from agencies

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