Finance Minister Nirmala Sitharaman is in a strong position as she prepares to unveil the Union Budget for 2024. The government has an unexpected surplus of Rs 2.6 lakh crore to work with, thanks to a hefty Rs 2.1 lakh crore dividend from the Reserve Bank of India, far exceeding the budgeted Rs 80,000 crore. Additionally, higher-than-expected tax collections could add another Rs 1.3 lakh crore to the available funds.
As of now, the direct tax collections from April to July have shown a significant growth of 20%, reaching Rs 5.75 lakh crore. With corporate tax up by 12% and income tax by 21%, the government’s revenues are proving stronger than anticipated.
Given this surplus, Finance Minister Sitharaman faces a key decision: whether to prioritize fiscal consolidation or boost spending. Historical data suggests that capital expenditure (capex) has seen steady growth, with last year’s spending at Rs 11.1 lakh crore, a 17% increase from the previous year. To continue this trend, a 25% growth in capex would require an additional Rs 80,000 crore.
If the Finance Minister opts for this, it would still leave Rs 1.4 lakh crore available for other uses. This surplus could be used to address immediate needs like tax relief or increased rural spending. Historically, rural and agricultural spending has been relatively modest, with growth rates of 8.7% in FY25 and only 4.2% the previous year. Despite the importance of rural investment, most funds have gone into revenue expenditure rather than productive investments.
The FM might also consider using part of the surplus to address fiscal consolidation, potentially improving India’s sovereign rating and reducing funding costs. However, with private sector investment lagging due to confidence issues rather than capacity needs, increasing domestic consumption through targeted relief measures could stimulate growth.
Ultimately, Sitharaman might choose to focus capex spending on projects that directly benefit rural areas, thereby addressing both immediate and long-term economic needs.
