Whether she will pare the fiscal deficit target of 5.1 per cent of GDP, using the record dividend received from the RBI, or expand flagship government programmes will be keenly watched.
Union Finance Minister Nirmala Sitharaman is set to present her seventh consecutive Budget, which is a record, on Tuesday, July 23, 2024.
Having presented the Interim Budget for FY25 before the Lok Sabha elections, she will have the opportunity to revisit her fiscal maths and rejig her revenue allocations.
Whether she will pare the fiscal deficit target of 5.1 per cent of GDP, using the record dividend received from the Reserve Bank of India, or expand flagship government programmes will be keenly watched.
In that context, a comparative analysis of Interim Budgets and full Budgets during election years since 1991 shows the budgeted fiscal deficit has either remained the same or declined in the full Budget from the Interim Budget for that year, except in 2009-2010, following the global financial crisis.
Moreover, the budgeted revenue deficit has also seen a declining trend except in the full Budgets of 2009-2010 and 2019-2020.
Both the trends have been witnessed, notwithstanding a change in political leadership.
Surajit Mazumdar, professor at Jawaharlal Nehru University, said the Interim Budget of 2009-2010 was placed just a few months after the outbreak of the global financial crisis, and it didn t fully factor in the fiscal impact of the recommendations of the Sixth Pay Commission.
The implications of these events for fiscal parameters couldn't be accounted for fully in the Interim Budget and by the time of the regular Budget, estimated GDP was lower while the imperatives of imparting a fiscal stimulus to the economy to counter the recessionary tendencies led to upward revisions in fiscal and revenue deficit, he added.
A higher fiscal deficit is perceived negatively and it is the most talked about economic indicator of the country.
So governments try to reduce the budgeted fiscal deficit when they get a chance to revisit the fiscal maths in the full Budget.
If we compare the actual and the budgeted fiscal deficits of all the years we have taken into consideration, we observe that except in 1998-1999 and 2019-2020, the fiscal deficit has either reduced or has remained constant, thereby indicating that the governments were able to achieve its fiscal consolidation targets in the first year of forming the government.
For example, in 2004-2005, the budgeted fiscal deficit was 4.4 per cent while it finally came to 3.88 per cent, denoting the highest reduction.
However, in 1998-1999, the final fiscal deficit came to 6.29 per cent as against the budgeted figure of 5.1 per cent.
Similarly, in 2019-2020, the fiscal deficit was 4.64 per cent, which far exceeded the budgeted figure of 3.3 per cent.
But one has to keep in mind that off-Budget borrowings often allowed the government to show lower fiscal deficits until the 2020-2021 Budget, when the government started showing such financial liabilities in the Budget to give a more accurate picture of its fiscal position.
Budgeted capital expenditure as a percentage of total expenditure has always risen during the transition from the Interim to the full Budget, irrespective of leadership change.
This is because, by convention, governments refrain from announcing any high-profile schemes in the Interim Budget.
Once a government takes office, it announces its flagship schemes in the Budget and that increases budgeted capex.
The biggest increases in budgeted capex were recorded in 2004-2005, 1991-1992, and 2009-2010, respectively, when there was a coalition government.
Similarly, budgeted revenue expenditure (as a percentage of total expenditure) has always fallen, although marginally, during the transition period but a big fall was in 1991-1992, 2004-2005, and 2009-2010.
Total expenditure has always seen an increasing trend during the transition phase although the rise has been marginal.
The highest rise in total expenditure was seen in 2009-2010 and 2004-2005, both of which were years of coalitions.
However, the same pattern is not seen in the coalition governments of the 1990s.
Feature Presentation: Aslam Hunani/Rediff.com
