India’s Budgetary Policy: A Changing Trajectory | Manas Mukul Bandyopadhyay & Abhisek Karmakar

Before analyzing India’s budgetary policy, it is essential to keep the following factors in mind. Budgetary policy, also known as fiscal policy, plays a crucial role in India’s economic development since these reasons are lying behind it: i) Economic growth - Budgetary policy helps stimulate economic growth by allocating resources to various sectors, such as infrastructure, education, and health care; ii) Poverty reduction – By allocating funds to social welfare schemes and programmes, budgetary policy helps reduce poverty and income inequality; iii) Microeconomic stability – Budgetary policy helps maintain macroeconomic stability by managing inflation, fiscal deficits, and public debt; iv) Resource allocation – Budgetary policy ensures optimal allocation of resources to various sectors, promoting efficient use of scarce resources.

We must keep in mind that that India’s budgetary policy has undergone significant changes over the years after independence. It would not be out of focus to shed a little light on the difference between the old and present-day budgetary policies. The Old version of budgetary policy (Pre-1991) was like the following: i) Centralized Planning – Budgets were prepared based on centralized planning, with a focus on socialist policies; ii) Public Sector Dominance – Public sector enterprises dominated the economy, with significant government investment; iii) Fiscal Deficit – Fiscal deficits were high, leading to inflation and macroeconomic instability. But, the Present-day version of budgetary policy (Post-1991 onwards) are like the following: i) Market-Oriented – Budgets are prepared with a market-oriented approach, promoting private sector participation; ii) Fiscal Discipline – Fiscal discipline is emphasized, with a focus on reducing fiscal deficits and public debt; iii) Inclusive Growth – Budgets prioritize inclusive growth, allocating resources to social welfare schemes and programmes; iv) Decentralization - Budgets promote decentralization, empowering state governments and local authorities; v) Transparency and Accountability – Budgets are prepared with greater transparency and accountability, using tools like zero-based budgeting and outcome budgeting.

With India’s large population and developing economy, the formulation of budgetary policy for a developing country like ours is crucial. This article will delve into the overall assessment of the changing dynamics of Indian budgetary policy and recent trends that impact our nation’s economy, society, and overall well-being. Therefore, while formulating the budgetary policy, the following areas need to be prioritized as they are extremely crucial: 1. Fiscal discipline – Maintaining a stable and sustainable fiscal position; 2. Economic growth – Promoting economic growth and development; 3. Social welfare – Ensuring the well-being of citizens, particularly the poor and vulnerable; 4. Infrastructure development – Investing in essential infrastructure, such as roads, railways and public utilities; 5. Revenue mobilization – Generating sufficient revenue to fund public expenditures; 6. Debt management – Managing public debt to ensure fiscal sustainability; 7. Inclusive growth – Promoting growth that benefits all sections of society.

To begin with, it is essential to briefly highlight the economic character of India in this context. It is needless to say that India faces various economic challenges like : i) Poverty and income inequality – A significant population lives below the poverty line, with a wide gap between the rich and the poor; ii) Unemployment and underemployment – Unemployment and underemployment are persistent issues, particularly among the youth; iii) Agricultural distress - Low productivity, lack of modernization, and vulnerability to price fluctuations and climate change hinder agricultural growth; iv) Infrastructure deficit - Insufficient transportation, energy, and digital networks hinder economic growth and business operations; v) Fiscal deficit and public debt – High fiscal deficits lead to inflation and economic instability.

The next phase of challenges revolves around Sustainable Development economy. As we all know sustainable development balances economic progress with environmental stewardship and social inclusivity. It is seen that India’s sustainable development approach focuses on: i) Environmental conservation – Preserving natural resources for current and future generations; ii) Social inclusivity – Ensuring access to education, healthcare, and economic opportunities for all; Economic growth – Promoting green technologies, clean energy, and circular economy practices.

Of course, the Indian government has introduced several initiatives to address economic challenges and promote sustainable development, including: i) Make in India – Promoting manufacturing and job creation; ii) Goods and services tax (GST) – Simplifying taxation and promoting economic growth; iii) Pradhan Mantri Jan Dhan Yojana (PMJDY) – Providing financial inclusion and access to banking services; iv) National solar mission – Promoting renewable energy and reducing dependence on fossil fuels.
Under these circumstances, Indian budgetary policy has undergone significant changes in recent years, driven by shifting economic priorities, global trends and domestic political considerations:

Shift from Fiscal Deficit to Fiscal Consolidation

1. Fiscal responsibility and budget management (FRBM) Act - India’s budgetary policy has shifted from a focus on fiscal deficit to fiscal consolidation, with an emphasis on reducing the fiscal deficit to GDP ratio; the FRBM act, enacted in 2003, aimed to reduce India’s fiscal deficit and promote fiscal discipline. The Act set a target of reducing the fiscal deficit to 3% of GDP by 2008; 2. Impact of global financial crisis – The 2008 global financial crisis led to a significant increase in India’s fiscal deficit, as the government implemented expansionary fiscal policies to stimulate economic growth; 3. Return to fiscal consolidation - In recent years, the government has renewed its focus on fiscal consolidation, with the aim of reducing the fiscal deficit to 3% of GDP.

Increased Emphasis on Capital Expenditure

1. Infrastructure development – The government has recognized the importance of infrastructure development in driving economic growth. As a result, there has been a significant increase in capital expenditure on infrastructure projects. Hence, the government has increased its focus on capital expenditure, particularly in infrastructure sectors such as roads, railways, and urban development; 2. Public-private partnerships (PPPs) – The government has also promoted PPPs as a means of financing infrastructure projects. PPPs have been used to finance projects in sectors such as roads, railways, and urban development, as mentioned above; 3. Impact on economic growth – The increased emphasis on capital expenditure has had a positive impact on economic growth, as infrastructure development has helped to improve productivity and competitiveness.

Rise of Non-Tax Revenue

1. Dividends from public sector undertakings (PSUs) – The government has received significant dividends from PSUs, particularly in the oil and gas sectors; 2. Spectrum auctions - The government has also generated significant revenue from spectrum auctions, which have been used to finance various development projects; able to generate revenue from sources 3. Rise of non-tax revenue – Non-tax revenue, including dividends from public sector undertakings and spectrum auctions, has become an increasingly 3. Impact on fiscal deficit - The rise of non-tax revenue has helped to reduce the fiscal deficit, as the government has been able to generate revenue from sources other than taxation.

Growing Importance of States’ Finances

1. Decentralization of fiscal powers – The 14th Finance Commission’s recommendations led to a significant decentralization of fiscal powers, with states receiving a larger share of tax revenue; 2. States’ fiscal autonomy - The decentralization of fiscal powers has given states greater fiscal autonomy, allowing them to prioritize their own development projects; 3. Impact on fiscal federalism – The growing importance of states’ finances has had a significant impact on fiscal federalism, with states playing a more important role in the country’s fiscal architecture.
Recent Trends in Indian Budgetary Policy

1. Increased focus on social sector spending - The government has increased its focus on social sector spending, particularly in areas such as healthcare, education, and rural development; 2. Growing emphasis on digital economy – The government has placed a growing emphasis on the digital economy, with initiatives such as Digital India and the Goods and Services Tax (GST); 3. Increased investment in infrastructure – The government has augmented its investment in infrastructure, particularly in sectors such as roads, railways, and urban development.

Challenges/Hindrances and Opportunities/Prospects

1. Fiscal discipline – Maintaining fiscal discipline remains a key challenge or hindrance for the government, particularly in the face of increasing demand for public spending; 2. Revenue mobilization – The government faces significant challenges in mobilizing revenue, particularly in the face of a slowing economy like India; 3. Inequality and poverty – The government must balance its focus on economic growth with the need to address inequality and poverty; 4. Opportunities for growth – India’s budgetary policy has the potential to drive growth and development, particularly if the government can maintain fiscal discipline and mobilize revenue effectively and properly.
In the context of the above discussion, we will conclude the article by highlighting the key aspects of the Union Budgetary policy for 2025, which aims to accelerate growth, secure inclusive development, and invigorate private sector investments. The budget’s theme, ‘Viksit Bharat’, encompasses zero-poverty, universal access to quality education and healthcare, and empowerment of women and marginalized communities.

Major Highlights: 1. Agriculture – The government has introduced the ‘Prime Minister Dhan-Dhaanya Krishi Yojona’ to enhance agricultural productivity, promote crop diversification, and improve irrigation facilities; 2. MSMEs – The investment and turnover limits for MSMEs have been enhanced to promote growth and employment; 3. Infrastructure Development – The government has allocated funds for urban infrastructure development, including the creation of an Urban Challenge Fund; 4. Education and Skill Development – The budget proposes the establishment of 50000 Atal Tinkering Labs, expansion of medical education seats, and the launch of a National Manufacturing Mission; 5. Healthcare – The government plans to set up Day Care Cancer Centres in all district hospitals and provide healthcare services togig workers under the PM Jan Arogya Jojana.

While the budget presents several opportunities for growth and development, there are simultaneously challenges ahead. The government must ensure effective implementation of its policies and programmes, address potential issues related to fiscal deficits, and balance the needs of various sectors and stakeholders. Overall, the Union Budgetary Policy for 2025 presents a comprehensive vision for India’s growth and development, with a focus on inclusivity, sustainability, and innovation.

(Authors: Dr. Manas Mukul Bandyopadhyay ( M.Phil., Ph. D.), Associate Professor and Head, Political Science (Retd.WBES) Chandernagore Govt. College, Chandernagore, Hooghly; Dr. Abhisek Karmakar (M.Phil.,Ph. D), Associate Professor, Political Science, Galsi Mahavidyalaya, Purba Bardhaman)