By Satya Narayan Misra* in Bhubaneswar, February 3, 2025: The Finance Minister has indicated in the budget document that boosting consumption expenditure, bolstering private sector investment with fiscal prudence are her prime focus. She is aware how the Keynesian prescription of the high consumption propensity of the poor and the middle class triggered private sector investment, resuscitating the American economy from the quagmire of depression in the 30s.

She is also aware that the poor have been targeted enough, through a slew of initiatives in the past, like the PMGKAY that gives free food to around 810 million people costing 2 lakh crore and PM Kissan scheme, benefitting nearly 110 million farmers costing around Rs 1.22 lakh crores. It is now the turn of the middle class, to be propitiated. The reduction in the tax rates will benefit nearly 31% of India’s population (400 million) considered middle class by People’s Research on India’s Consumer Economy (PRICE).

Pensioners will benefit from the higher relief on interest income of Rs 1 lakh. While the government will forego around Rs 1 lakh crore revenue in the process, there is a sense of déjàvu amongst middle class, rarely noticed earlier. With Delhi assembly elections round the corner, the budget bonanza by Modi to the middle class could not have been better timed!

It was Prof Richard Musgrave, the doyen of fiscal policy, who had underlined three templates; allocation priority, distributive justice and economic stabilization as the parameters for assessing the quality of a budget. A careful reading of the budget document reveals that the allocation priority which should be given to social sector, particularly merit goods like quality school education, good health care and adequate nutrition is missing from the budget. The social services account for only 5% of the budget (Rs 1.98 lakh crore). While the allocation for education was Rs 81000 crore in the year 2023-24, the allocation for 2025-26 shows a dip of 20% (Rs 61000 crore).

Sanitation which is a major concern area finds allocation coming down from Rs 64000 crore this year to Rs 26000 crore in the next FY. For a country where 34% children suffer from Stunting and around 50% women suffer from anaemia as per the NFHS V Survey, the allocation against the POSHAN 2.0 scheme has increased from 21200 crore this year to 21960 crore next FY. This flies in the face of FM’s speech where she says that ‘the cost norms for the nutritional support of 80 million children, 10 million pregnant and lactating women under the Poshan 2.0 program will be enhanced appropriately.

The distributive justice dimension can be better discerned from trend of revenue collection. There is a clear deceleration in the collection of corporate tax as compared to personal income tax, while in the year 2013-14, the corporate tax collection was Rs 4.28 lakh crore, and personal IT collection was Rs 2.46 lakh crore, i.e a ratio of 64:36. In 2024-15, the Personal IT collection has increased to Rs 11.99 lakh crore while the corporate tax collection is only Rs 9.8 lakh crore, turning the earlier ratio upside. This is due to the corporate friendly tax policy of the government and slew of hefty tax refunds they have been receiving.

While the personal tax collection in 2024-25 has increased by 19%, compared to the previous year, in case of corporate tax, the increase is only 7%. Distributive justice is heavily skewed against the captive personal IT payers. Also, the existing GST regime is highly regressive in character. To help the poor, GST rates in essential food items, clothing and textiles, health care services and educational services need to be substantially lowered.

On the third parameter of economic stabilisation, Nirmala has certainly stuck to her mandate to abide by the FRBM target of reducing the fiscal deficit to 3%. From 5.6% in 2023-24, she has brought it down to 4.8% in 2024-25, with a target to achieve 4.4% by next FY. With .4% reduction every FY, she should reach the target of 3% by 2028-29.

As against the other parameter of economic stability, ie the level of unemployment, the record of the Modi government is not edifying. The PLI scheme launched in 2020, which focusses on specific sectors like automobiles, electronics and pharmaceutical, has shown some promising results, with over 6.78 lakh jobs created.

Mobile phones where exports have been doubled seem to be dogged by the perception that the value addition is less than subsidy given and reduction in tariff on components as per a study by Raghuram Rajan. The ELI scheme launched last year has not taken off. Neither have the promised upgradation of 1000 ITI has started. This is a serious setback to upgradation of skilling of workers, which so critical to improvement in workers’ compensation package.

The CMIE’s last report puts the unemployment % at 7.8%. The India Employment Report (2024) brings out how casual workers who constitute 25%of the work force get a monthly wage of about 4712 rupees and those in the self-employed category (42%) earn around Rs 6843 rupees per month. Sadly, the budget does not come out with realistic road map to resolve these humongous problems of unemployment, poor pay package and under skilling.

The promise of a Viksit Bharat is predicated on growth rate of 8% and investment of 35%. At the present growth rate of around 6%and investment of 31%, the laudable objective of a developed India is clearly not realizable. In the Harrod Domar Model, it was brought how growth is dependent on investment and factor productivity. India’s incremental Capital output ratio is presently 4.8 which need to be brought down to 4.4.

This will require a change in allocation priority towards human capability development, greater investment in education and big push to skilling to complement the handsome allocation the government has making in economic infrastructure. Freebies to the poor or mollycoddling of the middle class may bring political bonanza to Mr Modi, but his rhetoric of Viksit Bharat will not be realised.

• Professor Emeritus, Kiit University