Budget Making in the Shadow of Global Finance Capital

After averting an electoral defeat in the 2024 Lok Sabha elections, through the deployment of every possible manoeuvre against the letter and spirit of the Constitution of India, a Union government was formed but with no majority for the Bharatiya Janata Party (BJP). But it seems that the neo-fascist dispensation has learned no lessons after their electoral setback.

Previously, in the interim Union budget in early 2024, the neo-fascist regime was apparently filled with hubris (deriving from their communal offensive) and failed to even make a show of providing any relief to the working people of this country. In the Union budget 2024, presented on July 23, the dispensation seeks to conceal its contractionary macroeconomic policy thrust with verbiage to the contrary. Before proceeding to critically examine the details, let us see why Union budge- making has been degraded in this way.

Since the Indian economy is operating within the ambit of international finance capital (firstly due to the absence of capital controls), policy-making in India has to continually seek to win and retain its confidence. In the first place, this requires the fiscal deficit to be curtailed by compressing expenditure but not by increasing taxation of the corporate financial oligarchy.

In fact, policy makers operating within the neoliberal framework are compelled to make ever more “concessions” to international finance capital and the domestic corporate financial oligarchy. Moreover, the Indian economy has a chronic current account deficit due to the combined impact of being ensconced within the framework of imperialism and a policy process that is incapable of breaking out toward authentic autonomy due to the emergent neoliberal political economy.

The Indian economy is currently beset with a chronic multifaceted jobs crisis, high food prices that disproportionately impact the working people, historically unprecedented inequalities in income and wealth, attenuation of private investment (due to dim prospects regarding macroeconomic demand).

Instead of authentically addressing any of these problems, the pusillanimity of the neo-fascist dispensation with respect to international finance capital, has resulted in a contractionary macroeconomic policy thrust in Union budget 2024, embellished with long-winded waffling. The following data succinctly beings this out.

According to data provided in the Union budget 2024 documents and also commented upon in the public domain, the revenue of the government increased by approximately 14.5%, while government expenditure has increased by approximately 5.94%. Rather than using these government revenues on programmes to address the problems, such as the jobs crisis, income inequalities, declining private investment, this regime has deployed them to reduce the fiscal deficit. Therefore, the entire budget operates within the parameters set by international finance capital. Let’s see how.

It can be examined from Figures 1 and 2 that shares in total taxes of income taxes and indirect taxes increased while that of corporate taxes declined over the years. The gross tax revenue increased from Rs. 30,54,192 crore in 2022-23 (Actual) to Rs. 38,30,796 crore (Budget Estimates) in 2024-25 (Figure 1).

Source: Authors constructed this figure using Government of India Budget 2024-25 data,

# includes GST compensation cess

Source: Authors constructed this figure using Government of India Budget 2024-25 data, # includes GST compensation cess

Figure 2 shows the share of corporate taxes in gross tax revenue (BE) declined from 28.5% in 2023-24 to 27.2% in 2024-25. The share of income taxes increased from 26.8% to 30.2% over the same period. Moreover, the share of Goods and Services taxes (GST) increased from 27.0% in 2022-23 (Actual) to 27.2% in 2024-25.

Both these policy trends involve a regressive tax structure with consequent contractionary macroeconomic impact. Apart from this, the share of custom duties declined from 7% to 6%, which is indicative of a policy bias toward foreign firms headquartered outside India resulting in a rising level of adversity for domestic firms involving a further contractionary macroeconomic process.

Turning to government expenditure, while the budget speech does pay lip service about employment generation, rural development and small-scale industries, the changes in budget allocations are at variance with not only with the piously expressed concerns in the budget speech but also the severity of these problems. Let us examine what has been done in the union budget in this regard.

The budget for the Ministry of Micro, Small and Medium Enterprises has stagnated at Rs. 22,137.95 crore between 2023-24 and 2024-25, which involves a real decline as the average inflation rate is approximately 5%. The budget for the Department of Rural Development, too, has declined in real terms. This is the case since the nominal increase of rural development budget is less than 4% from Rs. 1,71,069.46 crore to Rs. 1,77,562.05 crore.

There is no nominal increase in Mahatma Gandhi National Rural Employment Guarantee Scheme budget and it is stagnant at Rs. 86,000 crore, which once again involves a real decline which also exposes the non-seriousness of this regime with respect to the jobs crisis. There is a mere 2.5% nominal increase in budget for women and child development from Rs. 25,448.68 crore to Rs. 26,092.29 crore, once again implying a real decline. There is a paltry 1.3% nominal increase in the budget for youth affairs and sports from Rs. 3,396.96 crore to Rs. 3,442.32 crore, which amounts to a real decline.

Astonishingly, the higher education budget declined by 17% from Rs. 57,244.48 crore in 2023-24 to Rs. 4,7619.77 crores in 2024-25. Moreover, there is a negligible nominal increase of 0.70 % in the budget for school education and literacy from Rs. 72,473.80 crore to Rs. 73,008.10 crore which, too, reflects a real decline.

The budget touts a Model Skill Loan Scheme that will ostensibly be revised to allow for education loans up to Rs. 7.5 lakh seemingly with a government guarantee. The Union government claims that this will aid 25,000 students each year.

The budget speech also talks about providing government support for a 3% annual interest subvention for education loans up to Rs. 10 lakh for higher education. It has been claimed that this will ostensibly benefit one lakh students each year. Besides the paltry numbers involved, this education loan approach is at complete variance with the reality that education in India does not guarantee gainful employment and, therefore, an ability to repay education loans. It is also a bit rich to talk up minor increases in government backing for education loans after the budget for higher education has been cut by Rs. 9,624 crore in nominal terms. Moreover, the intention seems to be transfer resources from public education to the coffers of private education and finance capital through increasing student loans.

In other words, the budget allocation for the social sector is not only contractionary it also disproportionately singles out working people in terms of adverse impacts. But there is an additional budgetary manoeuvre that furthers the macroeconomic contraction.

The budget estimate for agricultural and allied activities was Rs. 14,4214 crore in 2023-24, which suffered a decline to Rs. 14,0533 crore in terms of realised estimates in 2023-24. This budget manoeuvre involves making tall claims in terms of budget estimates that is reported in the mainstream media which is then scaled back in the revised estimates. Now the budget estimate for 2024-25 is Rs. 14,6819 crore (Table 1 and Figure 3).

In other words, there is a manipulative ratchet effect whereby in a year realised estimates are lower than budget estimate and the next year’s BE shows a small increase compared with the previous year’s BE. The same budgetary manoeuvre has been adopted for the education sector whereby the BE of Rs. 1,16,417 crore declined to Rs. 1,08,878 crore in the revised estimates. For this year, 2024-25, the BE for education is Rs. 1,24,638 crore.

Table 1: Expenditure of Major Items (In ₹ crore)

Source: Authors constructed this table using Government of India Budget 2024-25 data.

# Programme outlays excluding net transfer to/ from dedicated reserve funds, refers to material excess transfers from Consolidated Fund to designated Reserve Fund in Public Account; (-) refers to expenditure met from designated Reserve Fund in Public Account (-). Reserve Funds indicated here are Madhyamik and Uchhatar Shiksha Kosh, Agriculture Infrastructure and Development Fund, and Central Road and Infrastructure Fund

As far as the health sector is concerned, the budget and revised estimates were Rs. 88,956 crore and Rs. 79,221 crore in 2023-24, respectively, which once again involves the budgetary manoeuvre at work. The BE for health is Rs. 90,171crore in 2024-25.

As far as social welfare expenditure is concerned, in 2023-24, the budget and revised estimates were Rs. 55,080 crore and Rs. 46,741 crore, respectively, while the BE is Rs. 56,501 crore in 2024-25.

Source: Authors constructed this figure using Government of India Budget 2024-25 data.

# Programme outlays excluding net transfer to/ from dedicated reserve funds, refers to material excess transfers from Consolidated Fund to designated Reserve Fund in Public Account; (-) refers to expenditure met from designated Reserve Fund in Public Account (-). Reserve Funds indicated here are Madhyamik and Uchhatar Shiksha Kosh, Agriculture Infrastructure and Development Fund, and Central Road and Infrastructure Fund

Figure 3 shows the budgetary manoeuvre gaps between budget and revised estimates of major expenditures item wise during 2023-24. These involve macroeconomic contraction by stealth.

The other device to further macroeconomic contraction is the cut in subsidies especially for food, fertiliser, and petroleum. The fertiliser subsidy has declined from Rs. 1,88,894 crore RE in 2023-24 to Rs. 1,64,000 crores BE in 2024-25 (Table 1 and Figure 4).

The food subsidy has also declined from Rs. 2,12,332 crore in 2023-24 to Rs. 2,05,250 crore in 2024-25. The petroleum subsidy has also declined from Rs. 12,240 crore to Rs. 11,925 crore over the same period. This macroeconomic contraction will induce an income deflation involving a squeeze on the working people.

Source: Authors constructed this figure using Government of India Budget 2024-25 data.

Figure 4 shows declining growth of expenditure between 2023-24 and 2024-25 on subsidies on fertilisers (13.2%), food (3.3%), petroleum (2.6%) and expenditure for Union territories (4%), reflecting lower expenditures on these items in 2024-25.

In the light of this overall macroeconomic contraction, other policy proposals in the Union budget, such as the employment linked incentive (ELI) scheme, internships and the ostensible funds provided for Bihar and Andhra Pradesh will be briefly examined.

The ELI scheme involves government financial support if they hire more workers and employ them for a certain period of time. However, this is unlikely to result in any meaningful increase in employment. Let’s see why.

A firm will increase employment under this scheme if the excess of the difference in revenue under the two scenarios (opting for the employment linked incentive scheme and otherwise) exceeds the difference in costs less the amount of government support. In the face of all round macroeconomic contraction that is furthered by the Union budget 2024, and which disproportionately impacts the working people and small industries (which are relatively labour intensive) and therefore adversely impacts revenues of firms, most firms are unlikely to increase employment unless the ELI scheme is very generous.

However, the promised support under this scheme is quite modest, has an early end date for firms which opt for it and penalties for premature retrenchment. Therefore, under these circumstances the ELI scheme is unlikely to lead to any appreciable decrease in unemployment. Instead, it may give rise to spurious employment numbers in some private firms to try and take advantage of the modest government support provided. Schemes such as these are indicative of the neoliberal straitjacket within which the neo-fascist dispensation operates and it is therefore no surprise that the real allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme has declined in the Union budget 2024.

As far as internships are concerned, the Union budget 2024 claims that one crore people will get internships in the top 500 companies. While the Union government will provide some funds, the overwhelming part of the required funds is envisaged to come out of the corporate social responsibility expenditures of these companies.

It is not clear which criteria will be used to identify the top 500 companies and the people who will be eligible to apply and secure these internships. Further, how would the Union government ensure that these schemes are implemented by the top 500 companies?

Most importantly, how many of these one crore internees would obtain gainful employment thereafter given the policy induced macroeconomic contraction that currently prevails? It is evident that this scheme is yet another contrivance by this regime to try and demonstrate that it trying to tackle the jobs crisis, while it is actually making this crisis more adverse through its policies that are in thrall to international finance capital.

The grants to state governments in Union budget 2024 has been reduced. Therefore, it is not surprising that the Union government has refused the legitimate demand of Andhra Pradesh and Bihar for special category status. They did so because, conceding this demand would immediately raise demands for an authentic fiscal federalism on the part of other states.

This is unacceptable to the neo-fascist dispensation for two reasons. One, the ongoing attenuation of federalism is a key policy device to compel state governments to adhere to neoliberal policy imperatives. Two, this attenuation of federalism is also a means for the neo-fascist dispensation to selectively undermine state governments that are run by the Opposition and inter alia disproportionately favour those in the domestic corporate financial oligarchy who are allied most closely with itself.

Therefore, much of the promised support to AP and Bihar will involve schemes with catchy names but no budget allocation and instead involve loans (from multilateral agencies) that have to be repaid with interest. Besides, these loans will come with conditionalities designed to secure these state governments more firmly to the neoliberal project.

However, in the public domain it is presented as if there have been large grant provisions to AP and Bihar since the two leading parties of these states are key allies of the current Union government. The political parties leading both state governments could see through this ruse and raised the demand for authentic federalism. However, in case these political parties leading these two state governments are themselves complicit in this ruse, then the Opposition parties in these states (along with all other state governments) will be required to lead this resistance to the undermining of federalism.

Budget 2024 demonstrates the vacuity of the neo-fascist dispensation in authentically addressing any of the pressing problems confronting the Indian economy due to its entanglement with international finance capital.

Opposition to this regime’s policies will, therefore, need to be grounded in an alternative economic strategy, supported by capital controls, that foregrounds employment generation through the enhancement of macroeconomic demand through public expenditure.

Narender Thakur is professor, Department of Economics, Dr. BR Ambedkar College, University of Delhi. C. Saratchand is professor, Department of Economics, Satyawati College, University of Delhi. The views are personal.