NEW DELHI: The Union Budget 2024 underscores the government’s continued focus on capital expenditure while grappling with fiscal deficit concerns.
The finance minister announced an aggressive push for infrastructure spending, with capital expenditure outlays increasing significantly compared with previous years. However, questions remain about how this investment will be financed without further widening the deficit.
The government has allocated a record sum for roads, railways, and urban infrastructure, emphasising that public investment remains key to economic growth.
With private sector investments yet to pick up momentum, the government is positioning itself as the primary driver of infrastructure expansion.
This approach follows a similar pattern seen in past budgets, where high capital expenditure was used to create jobs and boost demand for core industries like steel and cement.
However, the rising fiscal deficit – expected to remain above the targeted level – has sparked concerns. While the government aims to bring the deficit under control gradually, maintaining high spending on infrastructure means it has limited room for fiscal consolidation in the near term.
Steps to boost revenue
To manage this, the finance minister announced a series of measures aimed at improving revenue collection, including disinvestment targets and adjustments in tax structures. However, previous years have shown that meeting ambitious disinvestment targets is challenging, with several proposed sales of public sector enterprises falling through.
Another key concern is whether the benefits of capital expenditure will trickle down to smaller businesses and workers.
While large projects boost the economy in the long run, immediate relief for struggling sectors and employment generation remains a challenge.
Critics argue that while the government is prioritising long-term growth, short-term fiscal pressures and job creation should not be overlooked.
On the revenue side, indirect tax collections have remained strong, particularly GST, which has consistently met government projections.
Direct tax growth
However, direct tax growth, especially corporate tax revenues, has been inconsistent, prompting some to question the sustainability of high spending without more robust revenue generation.
Despite these concerns, the government remains optimistic about its strategy. It expects that higher capital expenditure will create a multiplier effect, stimulating private investment and eventually reducing fiscal pressures as the economy expands.
The challenge ahead lies in maintaining this delicate balance—sustaining high capital investment without compromising fiscal discipline.
The success of the budget will largely depend on whether economic growth can outpace deficit concerns and whether private sector participation picks up to share the burden of infrastructure expansion.
