11 Jan, 2024 10:23 AM

Despite FMs statement, Interim Budget may see populist announcements

Despite FMs statement, Interim Budget may see populist announcements

In a recent address at an event organized by the industry chamber CII, Finance Minister Nirmala Sitharaman hinted at the upcoming Interim Budget, suggesting it might lack "spectacular" announcements. Given the BJP's recent victories in key states, positioning the party strongly for the impending Lok Sabha elections in May, expectations are that the budget, scheduled for presentation on February 1, grand populist schemes .

The BJP-led NDA government, however, might not pass up the opportunity presented by a pre-election budget. The 2019 Interim Budget saw the launch of the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) by then Finance Minister Piyush Goyal, providing income support to small and marginal farmers. Speculation abounds that a similar scheme might be on the cards for the upcoming budget, particularly to address the current slump in rural consumption.

The depressed rural consumption landscape may warrant financial injections into the hands of the public. However, Sitharaman's decision to open the fiscal floodgates must carefully consider inflation, particularly concerning food inflation, which, though stabilized, remains a cause for concern. The government aims to boost rural consumption without fueling inflationary pressures, striking a delicate balance.

Recent data suggests a likely uptick in retail inflation in December, driven by higher food prices. Inflation, a key economic indicator, rose to 5.87% in December, highlighting the need for cautious economic management. Food inflation, fueled by factors such as vegetable prices and household staples, remains a significant contributor. Experts emphasize the government's challenge in managing inflation while implementing populist schemes to elevate rural livelihoods.

Consumer goods companies note that demand for daily groceries, personal, and home products in rural areas lags behind urban growth. While FMCG volume growth for the September quarter was 7.2% year-on-year, rural FMCG sales expansion was around 6%, compared to 8% in urban areas. This disparity underscores the need for measures to stimulate rural consumption, especially for those at the bottom of the economic pyramid.

Sitharaman faces the task of boosting rural consumption without exacerbating inflation concerns, particularly with the looming Lok Sabha elections where food prices can influence voter sentiment. Mega welfare spending, akin to the PM-KISAN scheme announced in the 2019 Interim Budget, might not find a place in the upcoming budget due to fiscal constraints and the need for prudent economic management.

Adding to the fiscal challenges is the prediction that India's fiscal deficit may breach the government's target of 5.9% in FY24 due to higher revenue expenditure and lower-than-expected nominal GDP. Despite potential revenue gains, the government's commitment to additional spending on schemes like fertiliser subsidies and rural employment may necessitate a second supplementary demand for grants, further impacting fiscal calculations.

In essence, Nirmala Sitharaman's pre-election budget for 2024 will be a delicate balancing act, navigating through concerns over fiscal deficit, inflation, and the imperative to stimulate rural consumption without triggering adverse economic repercussions.

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