Budget 2024: An exercise in manipulated accounting and a poor attempt at propaganda

Priorities have shifted from comprehensive planning to accounting exercises, with limited spending on crucial areas like employment and food security.

Union Finance Minister Nirmala Sitharaman with the Budget briefcase.  | Photo Credit: ALTAF HUSSAIN/REUTERS

With the short-term, frenzied interest that accompanies annual Budget presentations having ended, it is time to look at issues that were largely ignored in the debate. Prime among them is the question of how much or how little new taxes were raised to finance the many pressing demands that face the government: from investments in essential infrastructure to building the much-needed human capital, promoting employment, and ensuring universal access to necessities.

In an accounting sense, budgets reveal where each average rupee the government spends came from and to which areas each average rupee spent was allocated. But in a developmental sense, what matters is how much by way of additional resources the government has been able to garner to support and spur a growing economy and deliver benefits to citizens. It also matters from whom those resources (if any) were raised. From whom the government raises its past and new resources and to whom it delivers the Budget’s benefits reveal its distributional consequences.

However, neoliberalism’s transformation of the objectives of budget-making has changed the lens through which budgets are viewed. One consequence of neoliberalism on the fiscal front has been that budgets underplay the resource mobilisation aspect. While taxes (especially cesses and surcharges not shared with States) are occasionally imposed or raised, the focus is on “rationalisation” of the tax structure and reducing the burden of taxation. The net result is that even while the nation’s tax-GDP ratio is low, little effort is made to raise it.

This is surprising in the current global context wherein the expenditures needed to pursue the UN’s sustainable development goals and address the climate change challenge make it imperative to raise the government’s resource mobilisation significantly. In fact, around the time when Budget 2024-25 was presented, the G20 Finance Ministers’ meeting in Rio had agreed on jointly pursuing a proposal to impose a 2 per cent wealth tax on the super-rich to mobilise around $250 billion each year to help address the climate crisis and reduce poverty and social deprivation.

There was no such intent visible in the Indian government’s Budget. That should surprise for many reasons. India’s corporate sector, according to Economic Survey 2023-24,released just before the Budget, is “swimming in profits”. It is also buried in wealth. A much-publicised marriage of a scion of a leading Indian business family was celebrated with unabashed ostentation that is reported to have cost thousands of crores of rupees. India has its super-rich, and they are prone to blowing their money on wasteful expenditure. But there is virtually no wealth tax imposed on them.

‘Rich not undertaxed’

What is surprising in the current context is that, despite all this, the claim is that India’s rich are not undertaxed and that the country’s tax levels are at some “optimum”. Following the Budget presentation, the Revenue Secretary argued that India’s “tax to GDP, given [its] level of development, is actually not so low”. Noting that the ratio is around “12 per cent for the government of India, and another 6 per cent in States, so it is about 18 per cent,” he reportedly went on to maintain that “if you plot it with per capita income of various countries, then we are slightly above what that per capita income should actually indicate”.

The evidence does not warrant that judgment because what matters is not just per capita income but the distribution of India’s large absolute GDP. The country is characterised by extreme inequality. Yet, India’s tax-GDP ratio in 2022, while equal to that of Kenya and Burkina Faso, was lower than that of El Salvador, Nepal, and Chile; significantly lower than that of Türkiye, Bolivia, and Nicaragua; and substantially lower than that of Brazil, Uruguay, and Namibia.

A second feature of neoliberal budget-making is establishing that the government is fiscally prudent, to signal which it must keep the deficit under control. However, since ensuring that—when increased taxation is sought to be abjured—is difficult, the government seeks to dig into its own vaults to scoop out some money. Public sector equity is divested, some units are privatised or sold, assets are monetised, and profitable units and even the RBI are forced to pay large sums as special dividends to the government. However, it has become clear that such exceptional financing is not enough to meet even restrained expenses.

So, there is now less emphasis on traversing to a low deficit-to-GDP ratio, such as 3 per cent, and more on keeping the deficit within a flexible “target” range. In fact, following this year’s Budget, Finance Secretary T.V. Somanathan went to the extent of admitting that the 3 per cent of the GDP target “has no scientific basis” and declaring that from 2026-27, the government’s “endeavour will be to keep the fiscal deficit each year... ( at a level)... such that the Central Government debt will be on a declining path as a percentage of the GDP”. But that demands reduction of the fiscal-deficit-to-GDP ratio or the current year’s borrowing relative to the GDP, even if not to some irrational 3 per cent target.

Following these two aspects of neoliberal budget-making, a third feature of recent budgets is a focus on limiting or reducing the inflation-adjusted expenditure side. But that is not easy. Since now it is the private sector rather than the state that should lead the developmental thrust, it has to be incentivised. Tax concessions and straightforward transfers, through initiatives such as the “production-linked incentive schemes” or subsidies labelled as “tax expenditures”, are doled out to the corporate sector. That fattens profits but does not really stimulate much new private investment.

In an effort to divert attention from this engineered redistribution of income, each Budget claims that it spurs growth, through enhanced capital spending by the government, as well as delivers transfers and benefits to one or more needy sections. Such claims dominate the lengthy and tiring Part A of the Budget speech. But, given the self-imposed constraints on additional resource mobilisation, allocations for “expansionary” spending and “largesse” fall far short of the expenditure actually needed.

The new normal

Deflation and austerity become the new normal. For example, while track renovation and allocations for safety equipment for the railways languish, much is made of new lines and new fast trains. Measly sums are promised as employment-linked subsidies to underpaid workers or oversubsidised corporates and as provisions for “skilling”. These are presented as a solution for an employment problem that comes from inadequate demand and inappropriate growth.

Meanwhile, other “flagship” schemes from the past, such as the employment guarantee programme or the subsidy on food for beneficiaries of the National Food Security Act, stagnate or decline.

The result is that both from the resource mobilisation and expenditure allocation perspective, the Budget is no more an annual plan and instrument to spur growth and improve distribution. It has become an exercise in manipulated accounting and a poor attempt at propaganda.

C.P. Chandrasekhar  taught for more than three decades at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. He is currently Senior Research Fellow at the Political Economy Research Institute, University of Massachusetts Amherst, US.