The Budget did not change its nominal GDP growth assumption in spite of the RBI and the IMF projecting a real GDP growth at 7.2 per cent and 7 per cent respectively. However, the Economic Survey 2023-24 had projected a real GDP growth in the range of 6.5-7 per cent for 2024-25.

Taking its mid-point at 6.75 per cent and combining with an implicit price deflator (IPD)-based inflation of 3.5 per cent gives a nominal GDP growth of 10.5 per cent. This associated with an assumed annual buoyancy of gross tax revenues (GTR) at 1.03 translates into a growth of GTR at 10.8 per cent yielding a magnitude of ₹38.4-lakh crore.

Compared to the Interim Budget, higher transfers to the States in terms of tax devolution to the tune of ₹27,428 crore have been provided resulting in a fall in government’s net tax revenues of nearly ₹18,000 crore.

However, due to RBI’s increased dividends, total revenue receipts and non-debt receipts are estimated to increase by margins of ₹1.28-lakh crore and ₹1.27-lakh crore, respectively, as compared to the Interim Budget. This increased amount was allocated largely between two heads — about ₹72,000 towards reduction in fiscal deficit and about ₹55,000 crore for increasing revenue expenditures. This increase was allocated mainly for labour and employment, housing, urban development, agriculture, and renewable energy.

Employment focus

As a counterpart to production linked incentives (PLI), the Budget has introduced a new incentive window through an employment-linked incentive (ELI) scheme. Additional incentives are being provided to facilitate higher participation by women in the workforce.

An additional scheme of the government pertains to provision of internship opportunities in the private sector partially funded by the government and partially by the companies through their CSR funds. These incentives will supplement the employment generation linked to government’s large capital expenditure of ₹11.11-lakh crore which was already provided for in the Interim Budget.

The government’s ELI scheme focuses on incentivising absorption of workers into the formal sector. It is expected that this scheme would gather momentum over time.

The government has accelerated the process of fiscal consolidation by targeting a reduced fiscal deficit to GDP ratio of 4.9 per cent in 2024-25 as compared to 5.1 per cent provided in the Interim Budget. Relative to 2023-24, when it was at 5.6 per cent, this implies a correction of 0.7 per cent points.

An important implication is that government’s gross and net market borrowings would be reduced in terms of magnitude which would now amount to ₹14.01-lakh crore and ₹11.63-lakh crore, respectively, in 2024-25. This turnaround would facilitate a reduction in policy interest rates and encourage private investment.

The emphasis on fiscal consolidation implies reaching the FRBM target of 3 per cent of GDP by 2027-28 with an annual correction of nearly 0.6 per cent points on average over the next three years. In the medium-term therefore, the private sector would be progressively facilitated to increase its investment demand.

Overall, the final 2024-25 Budget makes only marginal changes to the Interim Budget. It might have underestimated real GDP growth which is likely to be in the range of 7 per cent to 7.5 per cent.

With an IPD based inflation of 3.7 per cent to 3.8 per cent, a nominal GDP growth of 11-11.5 per cent in 2024-25 appears feasible.

However, possibly the government is considering that the actual capital spending would effectively take place only in the post-monsoon months of the fiscal year and, in fact, a part of the budgeted capital expenditure would be passed on to the State governments as interest-free loans for them to undertake capital expenditures. Since States’ utilisation may also be partial and the government may not be able to fully utilise the budgeted amount, there is an apprehension that the real GDP growth may be somewhat lower.

The writer is Chief Policy Advisor, EY India and Member, Advisory Council to the Sixteenth Finance Commission. Views are personal.

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