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IT was an interim Budget and Lok Sabha elections are round the corner, but Union Finance Minister Nirmala Sitharaman stayed clear of any big populist announcements; to the contrary, she signalled the beginning of a slow tapering of government heavy-lifting of the economy.
Not only did she pare down the growth in expenditure by a percentage point to 6% in 2024-25, she also told the markets the government would borrow less, so that the private sector can get the required credit at lower interest rates.
Presenting her sixth straight Budget, Sitharaman said the government had overcome every challenge of the pre-2014 era and placed India on a resolute path of sustained high growth.
She sounded certain the BJP would return to power in 2024. “In the full Budget in July, our Government will present a detailed roadmap for our pursuit of ‘Viksit Bharat’,” she said.
While Sitharaman did not announce any big-ticket welfare programme, she said the government will launch a scheme for the middle class “living in rented houses, or slums, or chawls and unauthorised colonies” to buy or build their own houses.
Depending on the scale of the scheme, it has the potential to give a fillip to the construction sector, which not only provides jobs, but boosts domestic demand for capital goods, steel, cement, etc.
Govt & Politics
US clears sale of 31 MQ-9B armed drones to India (Page no. 5)
(GS Paper 2, International Relation)
The US government has put its stamp of approval on the sale of 31 MQ-9B Sea Guardian drones to India. This means that the deal for the world’s best drones will be inked soon.
On Thursday evening, the US State Department approved a possible Foreign Military Sale (FMS) to India of MQ-9B Remotely Piloted Aircraft and related equipment for an estimated cost of US$3.99 billion.
The Defense Security Cooperation Agency (DSCA) delivered the required certification notifying Congress of this possible sale today.
From today the formal notification starts. And then after 30 days LoA (Letter of Approval) will be sent to India for final price negotiations.
The whole deal is under government-to-government agreement and through the Foreign Military Sales (FMS) route.
Explained
Converns over GDP, spending cuts; fiscal deficit is bright spot (Page no. 6)
(GS Paper 3, Economy)
Finance Minister Nirmala Sitharaman presented the Union Budget for the next financial year (2024-25). It was her sixth budget presentation, but was different from all the others because this was an interim budget.
As such, it was natural for the FM to spend more time recapping the achievements of the two back-to-back governments under Prime Minister Narendra Modi over the past decade than announcing major new initiatives. Here are some of the main takeaways from the interim Budget of 2024-25.
The nominal Gross Domestic Product (GDP) is the size of the Indian economy in terms of today’s prices. This number when divided by the rupee-dollar exchange rate gives India’s GDP in trillions of dollars. The nominal GDP is the actual observed value.
The real GDP growth as well as the real GDP growth rate are derived from the nominal GDP data by removing the effect of inflation. So, if nominal GDP growth in a particular year is 12% and inflation is 4%, then the real GDP growth will be 8%.
Infra
Households to get 200 units free power under rooftop solar scheme (Page no. 8)
(GS Paper 3, Economy)
People availing of the government’s newly-announced rooftop solar scheme will be entitled to 300 units of free electricity every month and help them save up to Rs 18,000 annually.
The ‘Pradhanmantri Suryodaya Yojana’ was announced by Prime Minister Narendra Modi on January 22, shortly after he returned from Ayodhya where he led the consecration of the new Ram temple. Rooftop solar systems would be installed in “one crore houses”, Modi said, though without specifying a timeframe for the target to be achieved.
Although full details of the new scheme were still not available, Sitharaman, in her Budget speech, said it would enable for each participating household “savings up to Rs 15,000-18,000 annually” by getting free solar electricity and by selling the surplus power to the distribution companies.
Rural
Job guarantee scheme outlay stays at 86000 cr no change in PM Kisan (Page no. 9)
(GS Paper 3, Economy)
Finance Minister Nirmala Sitharaman has provided Rs 86,000 crore for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) scheme in the Interim Budget for 2024-25, retaining it at the same level as provided for in the revised estimate for 2023-24.
While she had provided only Rs 60,000 crore for 2023-24 in her Budget presentation last February, the government had to increase the allocation during the year following continued robust demand for work under the scheme, despite the economy emerging fully from the Covid and Ukraine war-induced disruptions.
The two pandemic years of 2020-21 and 2021-22 saw all-time-high funding and job generation under MGNREGA, which guarantees a minimum 100 days of unskilled manual work in a financial year (April-March) to every rural household on demand.
Even 2022-23, which unleashed Russia’s invasion of Ukraine, generated higher than average (pre-pandemic) person-days of employment.
Welfare
2cr new rural houses, scheme for urban buyers (Page no. 10)
(GS Paper 3, Economy)
Keeping in view the emerging demand of households, Finance Minister Nirmala Sitharaman announced that two crore more houses will be built under the Pradhan Mantri Awaas Yojana-Gramin (PMAY-G) in rural areas in the next five years, while for cities, the government would bring a new scheme to help middle-class homebuyers buy or build their own homes.
In her Budget speech, Sitharaman said that despite the challenges due to Covid-19, implementation of PMAY-G continued and the government is close to achieving the target of three crore houses.
Two crore more houses will be taken up in the next five years to meet the requirement arising from the increase in the number of families,” the finance minister said, while presenting the Union Budget (Interim) 2024-25.
In all, the government has allocated Rs 54,500.14 crore for PMAY-G, which is almost equal to the current year’s budgetary allocation of Rs 54,487.00 crore. However, it is 41 per cent lower as compared to the revised estimate (RE) of Rs 32,000.01 crore.
Govt makes HPV shot for girls a priority no separate allocation yet (Page no. 10)
(GS Paper 3, Economy)
UNION Finance Minister Nirmala Sitharaman announced that the government will encourage vaccination for girls in the age group of 9 to 14 years for prevention of cervical cancer. The minister, however, did not make any mention of separate allocation for the same.
“The blueprint of how the government will support HPV vaccination hasn’t been finalised yet. However, the mention in the Budget speech shows the intention of the government to tackle vaccine-preventable cancer,” said a health ministry official.
Sitharaman in her Budget speech also said the vaccine management platform U-WIN — on the lines of CoWIN used for Covid-19 vaccination — would be rolled out across the country for the universal immunisation programme.
Editorial
Stability over political gestures (Page no. 12)
(GS Paper 3, Economy)
Economic theory suggests that governments should spend more when private firms and households do not feel confident and hold back spending.
Once the latter feels confident, the government should dial back on its expenditure. This counter-cyclical fiscal strategy smoothens growth and makes it more sustainable.
While governments, especially democratically elected ones, find the first part easy to do, they are generally reluctant to step back when the economy recovers.
However, surprising forecasters positively, the government continued to prioritise macroeconomic stability over easy political gestures.
The fiscal deficit target of 5.1 per cent of GDP for FY2024-25 (FY25) is lower than even the lower end of the range of economist projections of 5.2 per cent to 5.5 per cent.
The finance minister also reiterated the commitment to bring the deficit down below 4.5 per cent of GDP by FY2025-26 (FY26).
The targeted primary deficit ratio for FY25 is 1.5 per cent, lower than the primary deficit seen in FY20. If the government achieves its FY26 deficit target, the primary deficit can be 0.8 per cent of GDP, close to pre-Covid levels of 0.4 per cent, marking a nearly complete unwinding of the fiscal expansion driven by the pandemic.
Ideas Page
The what if of growth (Page no. 13)
(GS Paper 3, Economy)
Unlike a full budget, an interim budget does not usually contain new expenditure plans or taxation proposals. It is an interim measure to keep the current government going for one more quarter before elections take place.
Sticking to tradition, the FM presented a “vote on account” budget and did not announce major schemes or tax changes.
This strategy allowed the government to fulfil its promise of fiscal consolidation. For the past few years, the Centre has run a fiscal deficit much higher than the 3 per cent medium-term target set by the Fiscal Responsibility and Budget Management (FRBM) Act of 2003.
This was necessary and inevitable during the pandemic period. But given that the economy has been growing rapidly, it makes little sense for the government to keep running a high deficit.
The government too has reiterated its commitment to fiscal consolidation. This is crucial because persistently high fiscal deficits create several problems.
At the most basic level, they raise concerns about financial and macroeconomic stability and can be detrimental to the economy’s growth. At a more day-to-day level, they increase the government’s indebtedness.
Govt & Politics
Viability gap fundingg for tapping off shore wind leads green push (Page no. 14)
(GS Paper 3, Environment)
Moving ahead finally to harness the untapped potential of off-shore wind energy, Finance Minister Nirmala Sitharaman announced viability gap funding for setting up at least one gigawatt of wind energy capacity.
Off-shore wind refers to wind turbines located in the middle of the sea, rather than at the coastline. Greater wind speeds and lack of any obstruction in the middle of the sea means the turbines are able to achieve higher rates of conversion of wind energy into electrical energy.
But these also have higher construction and maintenance costs, thereby raising the entry barrier. The increased costs can be offset only through large-scale systems operating at greater efficiencies.
India does not have any off-shore wind project as of now, but several lucrative sites, mainly off the coastline of Gujarat and Tamil Nadu, have been identified for potential projects.
Bhutan gets lion’s share in MEA development aid (Page no. 14)
(GS Paper 2, International Relation)
Bhutan, Nepal, Maldives, and Mauritius have got the lion’s share of the Ministry of External Affairs’ development assistance for 2024-25. The MEA’s total development assistance to various countries and regions such as Latin America and Eurasia has been pegged at Rs 4,883 crore.
The ministry was allocated a total of Rs 22,154 crore for the 2024-25 fiscal in the Interim budget as against last year’s outlay of Rs 18,050 crore.
In line with India’s ‘Neighbourhood First’ policy, the largest share of aid portfolio for 2024-25 went to Bhutan with an allocation of Rs 2,068 crore as against Rs 2,400 crore in 2023-24.
Nepal would be provided Rs 700 crore against Rs 650 crore in 2023-24. The assistance to the Maldives has been kept at Rs 600 crore as against Rs 770 crore in 2023-24, despite recent strain in the bilateral ties.
The allocation for Chabahar Port has also been maintained at Rs 100 crore, underlining India’s focus on connectivity projects with Iran.