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Upcoming Budget 2024-25 UPSC NOTE

 Upcoming budget & Growth targets

  • The final Budget for 2024-25, to be presented on July 23, would be the first Budget of the new government. 

  • It is an opportunity for the government to provide its medium-term growth and employment perspective along with its policy priorities. 

  • Given the continued global economic slowdown, India will have to rely largely on domestic growth drivers. 

  • The short-term objective could be to ensure a minimum 7% growth

  • while the medium-term objective may be to sustain the real GDP growth rate in the range of 7%-7.5%

  • This would be facilitated by bringing down the fiscal deficit relative to GDP from the current levels to the Fiscal Responsibility and Budget Management (FRBM) consistent level of 3% in the next three to four years. 

  • The employment objective is not independent of the growth objective except for an additional emphasis on the relatively more labour-intensive sectors in the composition of output.

  • To ensure a 7% plus growth on a sustained basis, we require a real investment rate of 35%

  • As in the latest available data for 2023-24, the real investment rate measured as gross fixed capital formation (GFCF), as percentage of GDP, was 33.3 for 2022-23 and 33.5 for 2023-24

  • Although gross capital formation (GCF) is marginally higher, we need to ensure a level of GFCF at 35% or so in the medium-term to sustain a growth of 7% plus, assuming an incremental capital output ratio of five


  • On the demand side, the contribution of net exports to GDP growth has remained negative or low in recent years due to subdued export prospects (0.5% points in 2022-23 and (-)2.0% points in 2023-24)

  • Until export demand picks up and private investment gathers momentum, India will have to rely on government investment demand to provide support to growth.

  • Estimates indicate that even if the revenue expenditure growth is enhanced to 8%, this would provide additional revenue expenditures close to ₹3 lakh crore over 2023-24 actuals.

  • This would still leave fiscal space to provide for capital expenditure growth of 19.2% in 2024-25 which would be required for supporting investment demand resulting in infrastructure expansion that is consistent with the government’s medium-term objectives. 

  • Some tax rationalisation measures may be undertaken as long as they do not imply any significant revenue sacrifice

Fiscal Responsibility and Budget Management Act

  • FRBMA enacted in 2003, aims to promote fiscal discipline, transparency, and accountability in the management of the India’s finances.

  • Fiscal Responsibility and Budget Management Act, 2003 is regulated by Department of Economic Affairs, Ministry of Finance.

  • FRBMA ensure intergenerational equity in fiscal management and long-term macro-economic stability by reducing fiscal deficit. 

  • It further ensure effective conduct of monetary policy and prudential debt management consistent with fiscal sustainability

FRBM targets

  • It is important to signal commitment to the FRBM targets in the short to medium term

  • If the fiscal deficit to GDP ratio is brought down to 5.1% in 2024-25, it may take another three to four years to bring it down to 3% of GDP

  • As the fiscal deficit to GDP ratio is reduced and nominal GDP growth is kept in the range of 11%-11.5%, the debt GDP ratio and the interest payment to revenue receipts ratio would also come down, facilitating the reduction in fiscal deficit, thereby creating a virtuous cycle.



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Upcoming Budget 2024-25 UPSC NOTE
Upcoming Budget 2024-25 UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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