Economy India

Pre-budget economic review: Political conditions may be unfavorable but economic conditions are favorable for the Modi government-3

Pre-budget economic review

 Political conditions may be unfavorable but economic conditions are favorable for the Modi government-3

 By Manohar Manoj

The third term of the Modi government started under the shadow of NDA unlike its previous two terms when it got a full majority on its own; therefore this time its political circumstances may not be so pleasant, but the economic circumstances are very favorable.

In such a situation, when Finance Minister Nirmala Sitharaman of Modi Government-3 will present her full budget for the year 2024-25 next month in July, she will not have to struggle much in balancing the income and expenditure of the government. On the other hand, the Finance Minister will also have more convenience in incorporating the new development vision of the newly formed government

in the upcoming budget provision. Let us tell you that the Indian economy is going to achieve a growth rate of about 7 percent in the last financial year 2023-24.

 If we talk about the current year 2024, India’s economic growth rate is currently touching eight percent, which is the highest in the world followed by China and Indonesia which are hovering around a five percent growth rate.

Talking about the Indian economy, GST collection is going to increase by about two lakh crores compared to the last year. During the last year, about Rs 11.3 lakh crore has been transferred to the accounts of the states of the country from all central items including GST, which is Rs 1.8 lakh crore more than before. There has been a continuous increase in India’s foreign exchange reserves and this amount has now crossed 650 billion US Dollars. Due to the huge decline in the Indian economy during the Corona period, the size of the fiscal deficit, which had gone above six percent of the GDP, is now on a declining note.

According to the data released by the Controller General of Accounts (CGA), the revised estimate of fiscal deficit in the year 2023-24 is expected to be further reduced from 5.8 percent to 5.6 percent because the revenue collection of the Government of India is 1.2 percent more than the estimate i.e. a total of Rs 23.3 lakh crore has been received. In the upcoming full budget, it is quite possible that the fiscal deficit figure, which was fixed at 5.1 percent in the interim budget for the year 2024-25, may be further reduced due to the increasing trend of revenue collection and then fiscal deficit under the FRBM Act may be settled to four percent of the total GDP in the upcoming years.

If we look at the sector-wise performance of the Indian economy during this period, the production growth rate of eight basic sectors was 6.2 percent in April this year, which was 4.6 percent at this time last year. According to base year 2011-12 prices, India’s agriculture grew by half percent in the fourth quarter of the last financial year, mining by 4.3 percent, manufacturing by 8.9 percent, electricity by 7.7 percent and construction by 8.7 percent. It is to be said that there is a flood of projections by all the rating agencies of the world regarding the future growth rate of the Indian economy. All these projections regarding the growth rate of the Indian economy have been made between 6.5 percent to 7.5 percent. However it is also believed by many experts that the results of increased investment in various infrastructure items of the Indian economy over the last few years will permanently bring the Indian economy to the trajectory of an 8 percent growth rate from the year 2025.

Inflation and unemployment are two such challenges for the Indian economy whose meaning is more political than economic now. In the recently held Lok Sabha elections, the opposition raised both these issues very strongly and because of this the ruling party had difficulty in achieving absolute majority. It is quite possible that in the upcoming budget, there will be pressure on the Finance Minister to create a budget vision containing inflation-controlling and employment-generation-oriented policies. If we look into the structural condition of the economy, inflation is currently around 4.5 percent in the current year, which is slightly higher than the Reserve Bank’s target of 4 percent. The continuous tight monetary policy adopted by the Reserve Bank for the last three years has also been done keeping this goal in mind.

Talking about inflation, a new discussion has started in the country about why only agricultural products are included in the consumer price indices and thus pressure for price control is put on them, which is unfair to the agricultural producers. It is necessary to include all non-agricultural consumer goods also in the Consumer Price Index so that sensitivity towards their prices may be created in the country.

Talking about employment-oriented policies, there will be pressure on the Central and State Governments through their upcoming budgets to fill all the 70 lakh vacant posts in their respective parts and control the plight of the educated unemployed lot in the country. It would be better for both governments to go for contractual kind of employment and labor policies in order to unhesitatingly avail the jobs to the youth.

In the third term of the Modi government, the biggest political challenge for the managers of the economy is going to be regarding the financial operation of all the socio-economic schemes of freebies. The way all the political parties of the country competed in the last Lok Sabha elections by making various announcements of giving free and cash transfers to the public, there will be a period of huge pressure on the exchequer of all the state governments including the Centre. Apart from free food grains, electricity, water, bus travel, pilgrimage, huge amounts of loan waivers and NPAs, various kinds of subsidy expenses, and huge old pension expenses, the exchequer’s revenue achieved through the country’s current rapid growth rate will become bankrupt. It will not only derail the whole fundamental work of government but the seeds of a largely unproductive and doleful economy will be sown in the country.

There is a need to run this economic discussion in the country, after all, which things should be given free and which sections of the society and in what quantity by the government. What amount of subsidy should be provisioned and in what manner the usage rates i.e. user charges of all public utility services should be recovered? In this competitive democracy of India, the way identity factors, money and muscle power and inflammatory and provocative speeches are being used to win elections, now in the same category, there is a competition among political parties to open the treasury of the state and provide free things to the public. Does it have any fixed Lakshman Rekha?

Internal and external security, cleanliness, and justice for all the country’s people should be provided entirely at the government’s expense. Education, health and child nutrition must be also made completely free for the poor and at affordable and fixed rates to the middle and upper middle class and finally the availability of basic services and capital goods at reasonable rates including cost and guarantee of social security to all the poor population of the country. These all are such broad policy guidelines that it is interesting to see how the Governments of India are ready to follow them. In a way, this is an economic acid test not only for the Modi government at the Center but also for many state governments.


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