Splurge or consolidate

The night before the budget is possibly any finance minister's most harrowing time.

- Jayanta Roy Chowdhury

The hard work is all done by then. However, the doubts on whether the policy pronouncements which accompany the budget's accounting will go down in history as transformational reforms or as fiscal disasters weighs heavily on the mind of the minister charged with presenting the document bound in red before Parliament.

Luckily for Nirmala Sitharaman, India's Finance Minister, she has many things going well for her.

India's economy grew by 8.2 per cent in 2023-24. The central Government's tax revenue grew by a spanking 13.4 per cent. The Reserve Bank of India gifted her an unprecedented, all-time high dividend of Rs 2.1 lakh crore, while public sector enterprises gave away another whopping Rs 40,000 crore or so in record dividend payout.

It can well afford to splurge on a number of populist schemes in the run-up to elections to large states like Maharashtra. It can also decide to give a few tax breaks to the middle class, it's most consistent supporters through three general elections.

However, PM Modi's government has tended to be cautious and opt for fiscal consolidation, in a bid to show the world that India is a credible economic giant and not a flash in the pan.

The Union government's fiscal deficit or the gap between its earnings and expenses has steadily fallen from 9.2 per cent of GDP in the year pandemic hit the world, that is 202021, to 5.6 per cent in 2023-24. The Interim Budget, presented in February, had forecast it to be 5.1 per cent for FY 2024-25.

However, with the coffers full, the government is likely to try and better those numbers and show off a more impressive number, by squeezing the deficit to near or below 5 per cent.