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MAKING SENSE OF THE BUDGET

Syllabus:

GS 2:

• Government Policies and Interventions .

GS 3:

• Government Budgeting

Why in the News?

The 2024 Union Budget represents a significant shift in economic strategy, addressing past policy failures and acknowledging broader economic challenges. It aims to tackle issues like regional disparities, agrarian distress, and employment by implementing new measures and investments, reflecting a response to recent electoral setbacks and economic realities.

Source: Mint

Overview of the Budget:

• Economic Discrepancy: India’s broader economy faces challenges despite promising GDP growth numbers. The recent Lok Sabha election results highlight the political consequences of ignoring economic distress.
• Budget Significance: The Union Budget for 2024-25 marks a shift in approach from previous years, focusing on significant changes in economic management by Finance Minister Nirmala Sitharaman.
• Government Finances: Budgets detail government earnings, expenditures, and borrowings, offering a snapshot of fiscal health and future projections to ensure sustainable economic management.
• Fiscal Deficit: Excessive borrowing increases national debt burdens, requiring the government to manage deficits prudently and reduce overall debt relative to GDP.
• Economic Management: Budgets are crucial for shaping the economy by determining tax policies and spending priorities, affecting businesses and individuals across sectors.

Approach Since 2014

• Majority Government: Prime Minister Modi’s first two terms were notable for the BJP’s single-party majority, allowing for a more cohesive economic strategy without coalition constraints.
• Economic Philosophy: Modi’s administration embraced “Minimum government, maximum governance,” aiming to reduce government size and encourage private sector-led growth while maintaining essential governance.
• Tax and Fiscal Policies: The approach included lowering tax rates and broadening the tax base to boost revenue, alongside strict adherence to fiscal norms to support private sector borrowing.
• Reforms and Digitalization: Significant reforms included GST, Insolvency and Bankruptcy Code, and corporate tax cuts, aligning with the philosophy of reducing taxes to spur investment and job creation.
• Economic Challenges: Despite reforms, economic momentum faltered, with stagnation and high unemployment exacerbated by the COVID-19 pandemic, impacting overall consumption and growth.

The 2024 Election

• Government Response: Prior to the Lok Sabha election results, the government was criticized for not acknowledging broader economic challenges and for questioning private sector responses.
• Election Results Impact: The election results, including setbacks in key states like Uttar Pradesh, revealed the political costs of economic denial, influencing the direction of the new Budget.
• Course-Correction: The Budget proposals reflect a shift towards addressing economic distress and correcting previous strategies, highlighting the need for renewed economic focus and policies.

Course-Correction

Coalition Budget

• Regional Projects: The Budget includes major infrastructure projects for coalition partners like Bihar and Andhra Pradesh, focusing on road connectivity, power, and industrial development.
• Eastern Development: The “Purvodaya” initiative aims to boost development in eastern states including Bihar, Andhra Pradesh, Odisha, and Jharkhand, addressing regional disparities.
• Infrastructure Investments: Bihar will receive funds for road projects, flood control, and new infrastructure, while Andhra Pradesh will benefit from investments in industrial and essential infrastructure.

Recognition of Agrarian & Rural Distress

• Farmer Income Issues: Despite promises to double farmer incomes, income growth remains stagnant due to low produce prices and ineffective policy measures.
• Agricultural Reforms: The Budget addresses agrarian distress by focusing on transforming farm research, boosting pulse and oilseed production, and promoting natural farming methods.
• Previous Farm Laws: Controversial farm laws from the previous term, which were repealed after strong opposition, highlight the need for effective and acceptable agricultural policies.

Focus on Jobs & Skills

• Employment Challenges: The previous Production-Linked Incentive (PLI) Scheme had limited success in job creation due to potential for labor replacement by machinery.
• New Priorities: The Budget prioritizes employment and skilling, introducing “Employment-linked Incentive” schemes to provide financial assistance for first-time employees and employers.
• Skill Development: A major focus is on skilling 20 lakh youth over five years, addressing both unemployment and unemployability issues exacerbated by a growing youth population.

Big Importance of Small Businesses

• MSME Challenges: Small businesses have faced severe challenges from demonetization, lockdowns, and policy changes. Despite their significant economic contribution, policy focus has often been on larger businesses.
• Support for MSMEs: The Budget emphasizes support for MSMEs and labor-intensive manufacturing sectors, aiming to alleviate financial stress and boost their role in the economy.
• Manufacturing Focus: Special attention is given to MSMEs and manufacturing, recognizing their importance in driving economic growth and employment.

Recognizing the Centre Can’t Do It Alone

• Collaborative Approach: The Budget acknowledges the need for cooperation between the Centre and states for effective implementation of policies and reforms.
• State Partnerships: Emphasis is placed on working with states as partners rather than political opponents, facilitating development through collaborative efforts and shared responsibilities.
• Industrial Parks: The Budget includes plans for “plug and play” industrial parks in 100 cities, developed in partnership with states and the private sector, to enhance infrastructure and investment readiness.

The Budget Upshot

• Policy Shift: The Budget signals a departure from previous single-party majority strategies, recognizing economic distress and the need for a new policy framework.
• Economic Framework: Finance Minister Sitharaman plans to introduce an economic policy framework outlining the approach for future reforms, focusing on employment opportunities and sustained growth.

Key recommendations for the Budget based on the editorial:

1. Address Economic Discrepancies: Implement targeted economic policies that address the disconnect between GDP growth and broader economic distress, focusing on measures that stimulate consumption and job creation.
2. Revise Fiscal Management: Adopt a balanced approach to borrowing by reducing fiscal deficits and managing debt levels. Implement strategies to ensure that borrowing supports productive investments rather than increasing the debt burden.
3. Enhance Employment Generation: Expand and refine employment-linked incentive schemes to better support job creation. Focus on industries that have high potential for job growth and skill development.
4. Support for Small Businesses: Increase support for MSMEs through targeted financial aid, simplified regulatory processes, and incentives for labor-intensive industries. Ensure policies are designed to alleviate financial stress and stimulate growth.
5. Strengthen Agricultural Sector: Focus on agricultural reforms that address income issues and enhance productivity. Invest in farm research, boost production of pulses and oilseeds, and promote sustainable farming practices.
6. Foster Regional Development: Prioritize infrastructure and development projects in economically lagging regions, including road connectivity, industrial development, and essential services. Support initiatives like “Purvodaya” to boost regional growth.
7. Improve Public-Private Collaboration: Enhance cooperation between the Centre and state governments for effective policy implementation. Promote public-private partnerships to develop industrial parks and infrastructure projects.
8. Focus on Digital and Infrastructure Investments: Invest in digitalization and infrastructure improvements to streamline government operations, boost economic efficiency, and support long-term growth.
9. Promote Fiscal Transparency: Ensure transparency in budgetary allocations and expenditures. Provide clear reporting on how funds are utilized to build trust and ensure effective use of resources.
10. Review Tax Policies: Evaluate and adjust tax policies to enhance revenue while ensuring they do not stifle business growth or burden individuals. Consider measures to broaden the tax base and improve compliance.

Conclusion:

The 2024 Union Budget marks a critical departure from past strategies, emphasizing regional development, agrarian reform, and job creation. By acknowledging previous economic shortcomings and adjusting policies, the Budget sets a new course for addressing India’s pressing economic issues, aiming for balanced and inclusive growth in the coming years.

Source:The Hindu

Mains Practice Question:

Discuss the major changes introduced in the 2024 Union Budget and their implications for India’s economic management. How does the Budget address previous policy shortcomings and what impact might these changes have on regional development, employment, and agrarian distress?

Associated Article:

https://universalinstitutions.com/budget-session-of-parliament/