What the Budget must present

Its primary drivers should be the difficult global environment, inadequate manufacturing growth, and the urgency of job creation

- NITIN DESAI

A few days from now, Nirmala Sitharaman, in her seventh year as Minister for Finance, will present the Union Budget.

Judging by the past, a long part of the presentation will be a narration of programmatic changes in schemes that are not the direct responsibility of the finance ministry but of other ministries. What really matters are the decisions presented in the Budget about the overall expenditure of the government, how it will be funded, and the proposed changes in taxation. That part of the presentation — the macroeconomic and fiscal impact — is what truly matters.

One crucial decision of macroeconomic significance is the scale of the budget deficit. How it is financed determines the accumulated liability of the government. In the past Budget presentations, the focus has tended to be on the fiscal deficit as a percentage of gross domestic product (GDP). The government has now shifted its goal from the annual rate of fiscal deficit to the overall debt-to-GDP ratio.

The Fiscal Responsibility and Budget Management (FRBM) Act of 2003 specified a 2024-25 goal for the overall debt-to-GDP ratio of 60 per cent, of which 40 percent would be for the Centre and 20 per cent for the states. As against this, the overall debt-to-GDP ratio at present is around 80 per cent, with the Centre’s share at around 57 per cent as of March 2024 and remaining around this level since then. Note also that the asset-to-liability ratio of the Central government, which had reached 100 per cent between the mid-60s and the early ’80s, is now around 45 per cent.