Introduction
The Union Budget 2024–25 is a critical document that outlines the government’s fiscal policies and strategies for the upcoming financial year. The budget serves as a key instrument for managing the Indian economy and directly impacts inflation, economic growth, and social welfare. The fiscal policy measures announced in the budget aim to address challenges such as rising inflation, slow economic recovery post-pandemic, and the increasing demands for social welfare programs. This article critically evaluates the fiscal policy measures in the Union Budget 2024–25, with a focus on how they address these three key aspects.
I. Fiscal Policy Overview in the Union Budget 2024–25
The Fiscal Policy in India is primarily shaped by the Finance Minister in the annual Union Budget. Fiscal policy refers to the government’s use of public spending and taxation to influence the economy. In the context of the Union Budget 2024–25, the government has focused on a mix of expansionary measures aimed at stimulating growth and contractionary measures to control inflation, while also ensuring targeted welfare interventions.
Key fiscal measures proposed in the budget include:
- Taxation Reforms: Streamlining taxes to promote consumption and investment.
- Government Spending: Allocating funds to critical sectors such as infrastructure, defense, and social welfare.
- Subsidies and Direct Transfers: Ensuring that vulnerable populations are protected from inflationary pressures.
- Fiscal Deficit Targets: Maintaining fiscal discipline to avoid excessive borrowing while financing the necessary reforms.
II. Measures to Address Inflation
Inflation has remained a persistent challenge for India, particularly in the aftermath of the COVID-19 pandemic and global supply chain disruptions. The Union Budget 2024–25 includes several key measures aimed at managing inflationary pressures, especially in critical sectors like food and fuel.
1. Targeted Subsidies
To ease the burden of rising prices, especially for food and fuel, the government has proposed targeted subsidies for essential items such as cooking gas (LPG) and fertilizers. These subsidies aim to protect the most vulnerable populations from the adverse effects of price hikes while ensuring that the overall fiscal deficit remains under control. The Pradhan Mantri Ujjwala Yojana (PMUY), which provides LPG connections to low-income households, has received additional funding to shield them from fuel price hikes.
2. Price Stabilization Fund for Essential Commodities
The government has introduced a Price Stabilization Fund aimed at curbing volatility in the prices of essential commodities such as onions, tomatoes, potatoes, and edible oils. The fund will help the government procure these items during times of surplus and release them into the market when there are shortages, stabilizing prices and reducing inflationary spikes.
3. Reduction in Import Duties on Key Commodities
To counter rising prices, especially in the food and energy sectors, the Union Budget 2024–25 has proposed a reduction in import duties on certain essential commodities like pulses, vegetable oils, and coal. Lowering import duties helps bring down the prices of these products, which in turn eases inflationary pressure on domestic markets.
4. Control Over Fuel Prices
The government has taken steps to regulate fuel prices by ensuring that the impact of global crude oil price fluctuations is minimized. Measures such as the Windfall Tax on Oil Companies have been extended to ensure that profits made by oil companies during times of high global oil prices are shared with consumers, mitigating the burden of rising fuel costs.
5. Strengthening the Monetary-Fiscal Policy Coordination
The Union Budget 2024–25 emphasizes coordination between fiscal policy measures and the Reserve Bank of India’s (RBI) monetary policy. The government has pledged to support the RBI’s inflation targeting framework, which aims to keep inflation within the target range of 2–6%. This coordination is vital in ensuring that fiscal policy does not fuel inflation, while also addressing supply-side issues effectively.
III. Measures to Stimulate Economic Growth
Economic growth in India has been sluggish in recent years, largely due to the pandemic’s impact, global uncertainties, and internal structural issues. To revive the economy, the Union Budget 2024–25 outlines several fiscal measures focused on capital formation, infrastructure development, and promoting investment.
1. Increased Infrastructure Investment
One of the standout features of the 2024–25 Budget is the massive increase in government spending on infrastructure. The government has allocated substantial funds to the development of highways, railways, airports, and ports. The increased focus on infrastructure aims to provide short-term stimulus to the economy by creating jobs, while long-term benefits include increased productivity, connectivity, and improved supply chains.
- National Infrastructure Pipeline (NIP): The NIP will continue to receive funding, with a focus on projects in the transportation, energy, and urban development sectors.
- Urban and Rural Infrastructure: Special emphasis has been placed on developing smart cities and improving rural infrastructure, ensuring that growth is inclusive and reaches underserved regions.
2. Tax Reforms to Encourage Investment
To attract both domestic and foreign investments, the Union Budget 2024–25 proposes a reduction in corporate tax rates and a simplified tax regime for new industries. This includes:
- Corporate Tax Reductions: The government has reduced the tax burden on corporations by providing incentives for businesses in key sectors such as green energy, electric vehicles, and electronics manufacturing.
- Start-up Incentives: Several tax incentives have been extended to start-ups to encourage innovation and entrepreneurship. Additionally, measures have been taken to simplify the Goods and Services Tax (GST) process for small businesses.
3. Promotion of Green Energy and Sustainability
The Union Budget 2024–25 places a strong emphasis on the transition towards green energy. This includes financial support for solar power, wind energy, and the electric vehicle (EV) sector. The government has proposed a set of fiscal measures to incentivize clean energy projects, such as:
- Subsidies for Solar Panels and EVs: Direct subsidies for the installation of solar power systems and electric vehicles.
- Green Bonds: The issuance of green bonds to finance renewable energy infrastructure, which is expected to reduce India’s carbon footprint while creating jobs in the renewable energy sector.
4. Enhancing Digital Economy
The government has also made significant investments in the digital economy. With the digital sector growing rapidly, the Union Budget 2024–25 focuses on improving internet connectivity, digital literacy, and cybersecurity. The aim is to create a digitally connected and inclusive economy, ensuring that growth is driven by innovation in technology and automation.
IV. Social Welfare Measures
Social welfare remains a priority for the Indian government, especially in addressing inequality and ensuring that vulnerable populations are supported. The Union Budget 2024–25 has announced several measures to strengthen social security and improve living standards.
1. Expansion of the Pradhan Mantri Garib Kalyan Yojana (PMGKY)
The government has significantly expanded the Pradhan Mantri Garib Kalyan Yojana, a flagship social welfare program that provides direct transfers to low-income households. Under the 2024–25 budget, an additional allocation has been made for providing food security and healthcare benefits to the marginalized sections of society, especially in rural areas.
2. Strengthening the Healthcare System
Healthcare spending has received a substantial boost in the budget, with the government aiming to improve access to quality healthcare services, especially in rural and semi-urban areas. The Ayushman Bharat scheme, which provides health insurance coverage to low-income families, has been expanded to include more beneficiaries, thereby improving access to healthcare services and reducing out-of-pocket expenditures.
3. Skill Development and Employment Generation
To tackle unemployment, the government has pledged additional funding for skill development programs, particularly for youth and women. Schemes like Pradhan Mantri Kaushal Vikas Yojana (PMKVY) will be enhanced to provide vocational training in sectors with high demand for skilled labor, such as manufacturing, IT, and healthcare.
4. Affordable Housing and Urban Development
The Union Budget 2024–25 allocates significant funds to the Pradhan Mantri Awas Yojana (PMAY) for affordable housing. This aims to ensure that the economically disadvantaged sections of society have access to quality housing, thereby addressing the issue of urban poverty.
V. Challenges and Limitations
While the Union Budget 2024–25 has laid down comprehensive fiscal measures, several challenges remain in fully achieving the targets:
- Implementation Delays: There may be delays in the implementation of infrastructure projects and social welfare programs due to bureaucratic hurdles and logistical challenges.
- Fiscal Deficit Concerns: While the government aims to maintain fiscal discipline, the increased spending on infrastructure and social welfare may result in a higher fiscal deficit, which could affect India’s credit rating and future borrowing capacity.
- Inflationary Risks: The budget’s expansionary fiscal measures, particularly subsidies, could exacerbate inflationary pressures in the medium term if not carefully managed.
VI. Conclusion
The Union Budget 2024–25 presents a balanced approach to addressing inflation, growth, and social welfare in India. By focusing on targeted subsidies, infrastructure investment, and green energy initiatives, the government has taken steps to mitigate inflation and promote long-term economic growth. Additionally, significant allocations for social welfare programs demonstrate the government’s commitment to inclusive growth and poverty alleviation. However, challenges related to implementation, fiscal deficits, and inflationary pressures remain, and it is crucial for the government to ensure effective execution and monitoring of the proposed measures for optimal results.
