Key measures, including tax reliefs and incentives for private sector, reflect a balanced approach to making India a developed economy by 2047 A theme that reverberates in the Union Budget for FY 2025-26 presented by Finance Minister Nirmala Sitharaman on February 1, 2025, is ‘sustaining the momentum of high economic growth alongside sticking to fiscal consolidation’. During FY 2024-25, the GDP growth (gross domestic product) is estimated at 6.4 per cent which is more or less close to the 6.5 per cent – 7 per cent projected in the Economic Survey (ES) for 2023-24 presented by Sitharaman in the Parliament on February 1, 2024. For FY 2025-26, according to the Economic Survey presented by her on February 1, 2025, the...
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Category: Fiscal deficit/subsidies
State budgets on the brink: RBI sounds alarm
With outstanding debts exceeding the prudential threshold, the RBI urges states to adopt “next-generation” fiscal rules to ensure sustainable financial management According to a report on ‘State Finances: A Study of Budgets of 2024-25’ released by the Reserve Bank of India (RBI) on December 19, 2024, the consolidated gross fiscal deficit (GFD) of all State governments was contained within 3 per cent of their gross domestic product (GDP) during the financial years (FY) 2022-23 and 2023-24. For 2024-25, their GFD has been budgeted at 3.2 per cent of GDP. They have complied with the stipulation under the Fiscal Responsibility and Budget Management (FRBM) Act, 2003 which requires them to keep it within the 3 per cent cap. But, the good...
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Centre’s fiscal outlook isn’t rosy
In the Union Budget 2024, the government has set a fiscal deficit target of 4.9 per cent of the gross domestic product, which is 0.2 per cent less than the 5.1 per cent target fixed in the Interim Budget. In fixing that target, the finance minister had assumed a dividend receipt of Rs 80,000 crore from the Reserve Bank of India from the latter’s operations during the financial year 2023-2024 to be available for use by the Centre during the FY 2024-2025. In May, the RBI approved a mammoth dividend transfer of Rs 210,000 crore to the Centre, which is Rs 130,000 crore higher than the provision of Rs 80,000 crore in the Interim Budget. Taking nominal GDP of around...
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India narrowly escapes fiscal catastrophe
India needs to strengthen its economic health with sustainable fiscal policies for long-term stability; state guarantees only put it in a perilous situation After the Lok Sabha elections 2024 on June 4, the Center narrowly escaped plunging into a state of ‘fiscal catastrophe’. Even as Modi–-led BJP failed to secure an absolute majority on its own, it garnered the support of 293 MPs including 53 from its allies under the National Democratic Alliance (NDA) and formed the Government. On the other hand, the I.N.D.I.A bloc led by the grand old party (GOP) namely Congress cobbled up a total of 234 MPs. A swing of just 38 from NDA to I.N.D.I.A bloc could have enabled the latter to catapult itself to...
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Debunking claims of fiscal discrimination
Opposition-ruled States, especially southern States, have raised concerns about discriminatory treatment in the current system of fiscal resource sharing between the Centre and the States Various Opposition-ruled States especially from south India have complained of ‘discrimination’ and ‘unfair’ treatment under the present scheme of sharing financial resources between the Union Government and the States. Article 270 of the Constitution provides for the sharing of net tax proceeds collected by the Union government with the States. The taxes that are shared include corporation tax, personal income tax, Central GST (Goods and Services Tax) of CGST, the Centre’s share of the Integrated Goods and Services Tax (IGST), CED on petroleum products excluding the cess and surcharge levied by the Centre etc. All...
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Is the Government debt sustainable?
The Government should take recourse to borrowings only for the creation of long-term assets. This will help generate income streams that can help in servicing the loans Recently, the International Monetary Fund (IMF) has forecast that India’s general government debt – it comprises the debts of the Centre and states – will overshoot 100 per cent of the GDP (gross domestic product) by the financial year (FY) 2027-28. Responding to this, the Ministry of Finance (MoF) clarified that this wasn’t under a ‘baseline scenario’ – a jargon to describe normal economic conditions. It added the IMF was referring to a ‘worst-case scenario’ wherein a global shock would equally affect all countries. Is the government’s debt sustainable? The government’s debt is...
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The Centre has no control over subsidies
The biggest drawback with the current system of food subsidy is making it available at throwaway prices. It allures dubious players who buy it cheap and sell it at higher prices The Union government’s total expenditure on the three major subsidies – fertiliser, food and cooking gas – during the current financial year (FY) is likely to be around Rs 400,000 crore as against Rs 549,000 crore spent during FY 2022-23. From this, it might appear that the government has made serious efforts to trim the subsidy. But, looking at the situation on ground zero, this isn’t so. The subsidy on each tonne of fertiliser produced (or imported) and sold is the excess of the cost of production/import and distribution...
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India’s major subsidies bill balloons. And, it was set to happen
The underachievement of targets is a manifestation of an attempt by the ruling dispensation to artificially suppress the BE in order to show a better picture of the fiscal deficit. The Union government may end up spending Rs 50,000 crore more than the budget estimate (BE) on the three major subsidies — fertiliser, food and cooking gas — during the current financial year. The maximum slippage of Rs 25,000 crore would be in fertiliser subsidy where the revised estimate (RE) is likely to be Rs 2 lakh crore against a BE of Rs 1.75 lakh crore. Food subsidy will increase by Rs 15,000 crore with the RE rising to Rs 2.12 lakh crore against the BE of Rs 1.97 lakh crore....
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Off-budget borrowings are unhealthy in nature
The Union Government wants to ‘pre-pay’ the remaining off-budget borrowings of Rs 170,000 crore over a reasonable period of time Off-budget borrowings or extra-budgetary resources (EBRs) – as these are called in budget parlance — are those borrowings that are raised by public sector undertakings (PSUs) and other agencies of the government such as Food Corporation of India (FCI), Housing and Urban Development Corporation (Hudco), Power Finance Corporation (PFC), NABARD etc to fund its schemes for which repayment of entire principal and interest is done from the Union Budget. The Centre had EBRs close to Rs 670,000 crore by the end of 2020-21. If all obligations about such borrowings are met by the Union government then why does it not...
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Rethinking Universal Basic Income and subsidies
There is a compelling case for disbanding all existing forms of support and replace them by what may be termed as ‘Unconditional Basic Income’ or the UBI system. During an interaction organised by the Confederation of Indian Industry (CII) last month, Chief Economic Advisor V Anantha Nageswaran dismissed the idea of Universal Basic Income (UBI) in India. He expressed concerns that UBI might create create ground for “perverse incentives,” discouraging people from actively seeking income-generating opportunities. As a result, he believes that UBI should not be priority in the near future. Drawing comparisons with developed countries, the current CEA highlights that these nations have limited room for increasing economic growth and creating income generating opportunities. Consequently, their governments have established social...
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