Budget: Will Fiscal Push for Higher Capex Come at the Cost of Social Welfare?

We look here at the budgetary allocations made to the different ministries in the Interim Budget documents.

India’s fiscal landscape has witnessed a surge in the year-on-year increase in capital outlay, as evidenced by the substantial growth in recent years. The surge, exemplified by a 73% increase in 2021-22, followed by an 11% rise in 2022-23, reflects the government's commitment to enhancing public infrastructure to attract domestic private investment.

The proposed increase in the provisional capital expenditure (capex) outlay for the financial year 2024-25 to Rs 11.11 lakh crore in the Interim Budget 2024-25, reflecting an 11.1% rise, signifies the government's continued commitment to robust economic development. The move comes after a notable 37.4% increase in the capex-outlay announced for the year 2023-24 in the previous budget.

This substantial allocation, amounting to 3.4% of India's GDP has effectively failed so far in increasing/enhancing private capital investment across sectors (see here for an explanation of why).

Allocative Differences in Year-On-Year Ministry-Wise Outlays 

We look here at the budgetary allocations made to the different ministries — Defense, Health and Family Welfare, Housing and Urban Affairs, and Rural Development, etc. — in the Interim Budget documents.

The highest allocation has been made in favour of the defense ministry for 2024-25, which amounts to Rs 6,21,541 crores, marginally lower than the revised estimates for 2023-24.

On the other hand, there has been a 12.9% increase in the fund allocation in favour of the Ministry of Health and Family Welfare and an 11.9% increase in favour of the Housing and Urban Affairs Ministry, which is indicative of the increased spending on some of the welfare programs introduced by the Modi government. The graph below highlights 54% of the estimated expenditure for 2024-25, spread across 13 ministries. 

It is interesting to note there is a continued decline in the estimated expenditure towards education (7% decline from 2023-24 to 2024-25), consumer affairs and food distribution (4% decline), and a minimal increase in expenditure on agriculture and farmer welfare (0.6% increase). This is yet again indicative of the worrying trend that the government in its focus on capital expenditure, is sidelining crucial social welfare spending that is important for the nation’s development.

These trends become even more worrying considering the high retail inflation levels, which soared to 5.69% in January 2024 (where food inflation has remained in double digits), when salaried individuals have not seen a considerable increase in their incomes, and unemployment continues to loom over the youth. This has been accompanied by a 7% fall in the overall subsidies being offered by the government in 2024-25, especially the 13.2% decline in fertilizer subsidies and a 3.3% decline in food subsidies, at a time when inflation rates remain high, especially in rural areas. 

Social Welfare Scheme-wise Budget Outlays 

There seems to be a disproportionate allocation of funds in the Interim Budget with certain schemes being focused on while reducing expenditure towards others. These changes, however, are directly proportional to the increased funding to ministries such as Road Transport, Housing, and Urban Affairs. 

As indicative by the graph below, the top beneficiaries of the Interim Budget are the Pradhan Mantri Awas Yojna, which saw a whopping 49.1% increase since last year, and the Pradhan Mantri Krishi Sinchai Yojana, which saw a 29.7% increase in allocated expenditure. 

While the above schemes received a higher proportion of expenditure vis-a-vis last year, flagship programs such as MGNREGA and the PM KISAN continue with the same amount of funds allocated to them as last year. 

This raises concerns about the promises made to job seekers in India who continue to remain jobless as unemployment soars at 7.38% in 2024 due to the failed supply-side interventions by the government over the years, to systematically address the problem.

This author has earlier discussed the challenges associated with the employment generation concern in India, leading to jobless growth and high youth unemployment issues. A low allocative spending on MGNREGA and other essential employment security (and pension-related) schemes tells a tragic tale of the government’s misplaced fiscal priorities.

One area however which has rightly received greater fiscal attention (at least in the last two/three budgets) is PMAY (Prime Minister Awaas Yojana), a program aimed at improving access to affordable housing for the poor, economically and socially backward communities across the country. The flagship program was essential for the Modi government in ensuring cheaper, affordable housing, which tends to be one of the biggest challenges in terms of asset ownership for the average (poor) citizen. See below. 

MGNREGA

The flagship government scheme guaranteeing 100 days of wage employment has seen a consistent reduction in the allocation of funds since the onset of the COVID-19 pandemic and remains the same as last year for the interim budget.

The reduction in MGNREGA funding has also been attributed to the increased funding for programs such as the PM Awas Yojana which aims at increasing rural work opportunities, however, there is no concrete evidence to show the falling demand for employment opportunities under MGNGREGA.  

Farmers' Welfare Missing in Budget Outlays for 2024-25?

• Increased credit target: The Interim Budget 2024-25 has set a target to disburse Rs.20-Rs22 Lakh Crore to farmers, this move is expected to assist and empower them to increase productivity. 

• Continuation of existing schemes: Flagship Schemes such as PM Kisan Samman Nidhi and PM Fasal Bima Yojana were extended for the upcoming years 

• Promotion of Food Processing Industries: Emphasis on the value addition of crops to diversify farmers' income was a key initiative that was taken up by the government Scheme like Pradhan Mantri Kisan Sampada Yojana is an example 

• Atmanirbhar Oil Seeds Abhiyan: A strategy was proposed to be formulated to achieve atmanirbharta for oil seeds such as mustard, groundnut, sesame, soybean, and sunflower. This will cover research for high-yielding varieties, widespread adoption of modern farming techniques, value addition, and crop insurance.

The graph above shows farmers haven’t received a greater fiscal priority in Modi Government’s budgets over the last few years. The volume of each of these allocations was a drop in the bucket given the nature of concerns faced by farmers due to stagnating incomes and high input prices over the last few years.

It is also worth noting that while the Finance Minister in her budget speech highlighted the government’s aim to improve the well-being of farmers, the same cannot be said when assessing numbers since there has been a continuous decline in the allocation of funds to the department of fertilizers, which in turn has caused a steep decline in fertilizer subsidy that is most helpful to farmers.

Expenditure towards schemes such as Pradhan Mantri Fasal Bima Yojana have seen a significant drop in the estimated expenditure and actual expenditure, raising concerns about the well-being of farmers in India.

In Conclusion: The social welfare expenditure in the interim budget is heavily capital expenditure driven with a stronger focus on building houses and roads, vis-a-vis the welfare in terms of increased focus on education, and agricultural benefits to farmers. The estimated versus actual expenditure by the government towards the Umbrella Program for Development of Minorities and the Umbrella Program for Development of Other Vulnerable Groups had a difference of 9% and 12.5%. The situation was the same with respect to the programs for the development of the Scheduled Castes and Scheduled Tribes. It is noteworthy that both the key schemes of the interim budget, i.e. PM Awas Yojana and PM Sadak Yojana fell short by a large proportion in successfully spending their allocated budgets for the year 2023-24 on programs and meeting targets.  

(Deepanshu Mohan is a Professor of Economics and Director, the Centre for New Economics Studies (CNES), Jindal School of Liberal Arts and Humanities, O P Jindal Global University. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)