BALANCING ACTS: MODI GOVERNMENT’S STRATEGIC FISCAL ADJUSTMENTS AND CATCHING UP WITH RISING DEMANDS

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In a proactive move to address the evolving economic landscape, the Modi government is gearing up to present its inaugural supplementary demand for grants. This proposal encompasses crucial sectors such as fertilizers, food, and fuel subsidies, along with the rural employment guarantee scheme, reflecting the government’s commitment to sustaining social welfare measures. Anticipated to be tabled during the upcoming Winter Session of Parliament, this allocation is poised to make a significant impact without exerting substantial pressure on the fiscal deficit.

Contrary to concerns about draining the nation’s coffers, the proposed supplementary demand for grants is expected to result in a minimal net outflow of cash. Finance ministry insiders reveal that any financial commitments stemming from new initiatives, particularly those announced in the lead-up to parliamentary elections, would only materialize once these schemes are fully operational. Consequently, the overall expenditure for the current fiscal year is not anticipated to witness a material increase.

“Certain funds designated for subsidies and the rural employment guarantee scheme, accessed through the contingency fund under the condition of subsequent parliamentary regularizations, will be presented for approval as the Lok Sabha convenes,” assert officials from the finance ministry. This strategic approach ensures financial prudence while allowing for the implementation of vital socio-economic initiatives.

Despite prevailing concerns about nominal GDP growth, officials express confidence in the government’s ability to meet the fiscal deficit target of 5.9 per cent of GDP for the fiscal year. While robust revenue collections have been a consistent trend, the persistent deflation in the wholesale price index may keep nominal GDP below the targeted 10.5 per cent as outlined in the budget for 2023-24.

Experts, including Aditi Nayar, Chief Economist at Icra, and Vivek Kumar, Economist at QuantEco Research, echo optimism regarding the fiscal scenario. Nayar emphasizes the likelihood of a modest net cash outflow in the supplementary demand for grants, offset by savings in various government departments. Kumar anticipates the use of surplus non-tax revenue, internal savings, and expenditure rationalization in the final quarter to prevent any significant slippage in the fiscal deficit ratio.

Government officials shed light on the ongoing recalibration of provisions, emphasizing that adjustments are based on discussions on revised estimates with respective departments. The prudent approach undertaken aims to avoid major cash outflows, ensuring fiscal stability amid evolving economic conditions.

Accounting for additional costs tied to the extension of the free foodgrains scheme under the National Food Security Act (NFSA), Icra estimates a potential increase in the subsidy outgo by Rs 30,000 crore to Rs 40,000 crore. This projection considers the government’s decision to extend the scheme for an additional five years. Additionally, the recent hike in LPG subsidies and increased expenditure on P&K fertilizers will contribute to an additional financial commitment of Rs 9,500 crore and Rs 15,000 crore to Rs 20,000 crore, respectively.

Notably, the outlay for the National Rural Employment Guarantee Act (NREGA) has already surpassed the budgetary allocation. Icra estimates a supplementary allocation ranging between Rs 25,000 crore to Rs 30,000 crore, translating to an additional spending of Rs 0.8-1.0 trillion. However, experts suggest that this expenditure could be balanced by potential savings, which have historically ranged between Rs 1.1-2.3 trillion in recent years.

As the government navigates the intricate web of fiscal responsibilities and social welfare commitments, this strategic fiscal adjustment seeks to strike a balance between meeting rising demands and maintaining financial prudence. Stay tuned as India charts a course through economic uncertainties with strategic fiscal maneuvers.

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