ABCDE Wishlist for India's Union Budget 2025: Key Expectations and Recommendations

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The Union Budget is a pivotal event in India's economic calendar, shaping the nation's financial and developmental trajectory. As Finance Minister Nirmala Sitharaman prepares to present the Budget on February 1, 2025, there is a spectrum of expectations from various sectors. This article delves into an 'ABCDE' wishlist, outlining key areas of focus for the upcoming budget.

A for Allocation to States

In recent years, the central government has significantly increased capital expenditure (capex) loans to states, aiming to boost infrastructure development and economic growth. For instance, the 'Viksit Bharat' loan scheme allocated an additional ₹662 billion, elevating the total budget allocation in this segment to ₹2.3 trillion. However, as of November 2024, only 32% of the Budget Estimates (BE) had been utilized, with the 'Viksit Bharat' component at a mere 4%.

This underutilization suggests that while the intent to empower states through increased capex is commendable, execution challenges persist. To maintain the momentum of aggregate capex, it may be prudent to reallocate some funds back to central projects. Traditional sectors like roads, railways, and defense still offer substantial opportunities for investment. Additionally, expanding focus to areas such as ports, warehousing, logistics, and smart cities could further stimulate economic growth.

B for Balanced Spending Between Revenue and Capex

The central government's capex has seen a remarkable rise from ₹3.5 trillion in FY21 to ₹9.5 trillion in FY24. Despite a target of ₹11.1 trillion for FY25, spending up to November 2024 was only 46% of the target and 12% lower year-on-year. Factors such as elections, weather conditions, and slower state spending have contributed to this shortfall.

Concurrently, revenue spending in critical areas like health and education has remained static, constituting 0.3% and 0.4-0.5% of GDP, respectively, over the past four years. For India to achieve productivity-led growth, it is imperative to invest in these sectors. Moreover, initiatives like the Production Linked Incentive (PLI) scheme, export incentives, and renewable energy require adequate funding.

Therefore, a rationalized expenditure strategy that prioritizes productive areas is essential. Innovative financing avenues, including the National Investment and Infrastructure Fund (NIIF), National Bank for Financing Infrastructure and Development (NaBFID), and asset monetization, should be leveraged to enhance infrastructure spending. Additionally, subsidies and populist measures at both central and state levels need to be curtailed to ensure fiscal discipline.

C for Consolidation

The government's commitment to fiscal targets—4.9% for FY25 and 4.5% for FY26—is commendable. However, strict adherence to these targets should not impede growth. Past experiences have shown that off-balance-sheet debts can obscure the true fiscal deficit, leading to sudden spikes when these liabilities are accounted for.

Currently, revenue growth is moderating, with corporate tax collections from April to November 2024 showing a 1% year-on-year decline. In this context, a more flexible approach to fiscal consolidation may be warranted. A gradual glide path, allowing for strategic investments that spur growth, could lead to more sustainable fiscal health in the long term.

D for Divestment

In 2024, India led the global Initial Public Offering (IPO) market, accounting for 27% of volume and ranking second in value at $19.9 billion. Despite this favorable environment, the government's divestment targets have remained modest, with actual achievements falling short. For instance, the divestment target for FY23-25 was ₹600 billion, with only about 50% realized; year-to-date achievement stands at 18%.

To finance capex and drive growth, especially when tax revenues are under pressure, accelerating the divestment of Central Public Sector Enterprises (CPSEs) is crucial. This strategy would not only generate revenue but also enhance efficiency by fostering private sector participation.

E for Execution

A well-formulated budget sets the stage, but effective execution is the key to realizing its objectives. Delays in project implementation can negate the intended benefits, hindering growth and development.

Accelerating the execution of initiatives in infrastructure, PLI schemes, housing, renewable energy, and water resources can create jobs, boost exports, increase incomes, reduce costs, and improve the quality of life. These outcomes, in turn, drive growth and enhance tax revenues, contributing to sustainable fiscal consolidation.

Beyond 'E': Additional Considerations

While the 'ABCDE' framework addresses core areas, other aspects warrant attention. For instance, income tax rationalization could stimulate consumption. However, such measures may offer only short-term relief. Sustainable growth is better achieved through structural reforms that enhance productivity and income levels.

The Household Consumption Survey 2023-24 indicates an improvement in consumption patterns, with rural areas experiencing faster spending growth compared to urban centers. This shift underscores the need for policies that support both rural and urban populations, fostering balanced economic development.

Additionally, the services sector has been a significant contributor to growth, exports, and employment. To achieve the vision of a $5 trillion economy and developed nation status by 2047, it is imperative to diversify growth drivers, ensuring that other sectors also contribute robust