January 16, 2025 / 13:12 IST

There was a time when budgets were awaited with great anticipation. They were then the principal instrumentality for announcing new reforms from the whole of the government. Now things are different. Over time, the budget has become an exercise in reporting the fiscal situation of the central government. This is indeed a pity. The budget itself, followed by debates during the budget session concentrates people’s attention on the state of the economy and government’s economic policy like nothing else. It also positions the Ministry of Finance in the driver’s seat for all economic policy making. This is how it should be.  It is ultimately the MoF’s mandate to maintain macroeconomic stability and sustain a high growth trajectory.

Nevertheless, even if the forthcoming budget is confined to being a statement of government’s fiscal math, there are some issues which merit the government’s urgent attention. Let us all first agree that if GDP growth remains at the present levels of 6.5 percent both in FY 25 and FY 26, if not a tad weaker, we will not achieve our ambitious targets of being a $10 trillion economy, in nominal terms, by 2035 and Viksit Bharat by 2047. This budget should therefore showcase government’s resolve to accelerate GDP growth.

Evidently, global conditions may not be so supportive of growth. Global economy is getting highly fragmented. Global trade growth has been slower than economic growth for the last few years and will likely continue given rising protectionist tendencies.  With disruptions in global supply chains, countries perceive interdependence as a vulnerability. And to top it all, the climate window is rapidly closing raising the costs of mitigation, adaptation and carbon sequestration.

In this rather challenging global outlook, what can the forthcoming budget offer to lift private investors’ spirits, export prospects and domestic consumer sentiments, which surely are the three principal drivers of economic growth?

Government subsidies or ramping up of public capex can only act as temporary substitutes for weaknesses in these three principal growth drivers. It is illusory to consider public capex or transfer payments as becoming growth drivers, unless of course we have decided to revert back to our socialist past and centralised planning. God forbid.

A capitalist economy driven by private enterprise cannot be sustained without eliminating petty corruption, rent-seeking and affording a high social status to those who add value and create wealth. The Prime Minister unequivocally supported this when he called for the wholesale elimination of the stifling regulatory and compliance burden that stifle private sector initiative and growth and prompt young entrepreneurs to register their businesses off-shore. Running a start-up, small or medium enterprise is even now a struggle and certainly not a joy. Some advances have been made by making compliances online. Yet, a lot remains to be done.

The finance minister should announce the setting up of a national mission to eliminate the harassment and tax issues that private entrepreneurs and professionals are facing. She should chair the mission with all state finance ministers as its members. The Inter State Council, a constitutional body, can serve as the platform to first achieve a consensus on the objectives and then to monitor the progress and report it to the Mission.

The second measure that the budget should include is to announce the end of double taxation of dividend income as it exists at present. Dividends are first taxed as part of corporate profits and then again as part of the personal income of shareholders. This is surely unfair. It acts as double whammy on both investors’ spirits and consumer sentiments. We should revert to the earlier regime of taxing dividends only as part of corporate profits.

The third measure would be to find ways to effectively operationalise ‘outcome budgeting’ that has been in the making for longer than a decade. This will help eliminate the completely ineffective and perhaps wasteful expenditure. No adverse political or social affects will ensue. For example, it is perhaps not so well known that the central government has more than 791 training institutes! I am convinced, having had a chance to look over them, that a large majority of these institutes are now redundant.  There are bound to be other examples. I hope that the pioneering work started by the former expenditure secretary T.V. Somnathan (Cabinet Secretary at present) with inputs from the DMEO in NITI Aayog of comparing actual performance against agreed targets of individual ministries has been further strengthened as a way forward for establishing the outcome budget process.

Fourth, it is widely known that debt servicing (interest + principal repayments) gobbles up 24 percent of central government’s total expenditure. This huge amount can surely be put to more growth enhancing outlays, for example, on health and education which have been perennially deprived of the necessary resources. It is critical to allocate more resources to these social sectors and also to fund green energy transition and promote R&D and innovation. Can the finance minister reduce this debt-servicing overhang while also reducing the fiscal deficit?

Yes, it can be done.  Raising taxes at this stage, weather direct or indirect, is bound to dampen the growth impetus. The way forward is clear and eminently implementable. We have to accelerate the privatisation of loss-making public enterprises, including banks, and also start the long-awaited process of asset monetisation.

Rajiv Kumar is Chairman at the Pahle India Foundation. Views are personal, and do not represent the stand of this publication.

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