Union Budget | 8 critical steps to push up revenues, optimise expenditure

The budget is an apparatus in the hands of the government to raise revenues and spend the same for the welfare of the people.

The government should exercise utmost care in raising revenues by imposing taxes that result in ‘tax revenue’ while broadening the tax base and spending the revenue in a productive and judicious manner.

On the other hand, the government should restrain from resorting to loans and market borrowings, unless it is warranted. As it is, the debt-to-GDP ratio was 81 per cent in FY22.

Spending a rupee

More importantly, every rupee spent should adhere to the principle of “obtaining value for money” compulsorily. There should be a mechanism to study and evaluate the outputs and outcomes realised every year else it would go on without any checks and balances.

Further, we should realise that the taxpayers’ money is so precious that we are answerable for its expenditure.

As a matter of fact, public expenditure management systems require four forms of fiscal discipline that are supposed to be followed compulsorily by all the governments (according to the IMF). They include:

• Control of aggregate expenditure to ensure affordability that is consistent with the macroeconomic constraints.

• Effective means for achieving a resource allocation that reflects expenditure policy priorities.

• Efficient delivery of public services with a focus on productive efficiency.

• Minimisation of the financial costs of budgetary management that implies efficient budget execution, cash and debt management practices.

Priorities and imperatives

The Government of India is going to present Union Budget 2024-25 on July 23, Tuesday. It should be based on a realistic macroeconomic framework and focus on the following eight points.

1. MSP for farmers

The first priority is to save the farmer from losses. As agreed upon, the government should be able to help farmers in ‘doubling their incomes’, a mere pronouncement yet, by providing Minimum Support Price (MSP) which covers the total cost plus 50 per cent profit on it.

Despite Direct Benefit Transfers (DBT), not much has been done to improve the farmers’ incomes and they need a realistic MSP for all major crops.

The share of Gross Value Added (GVA) of agriculture and allied sectors in Indian economy at current prices has declined from 20.3 to 18.3 per cent during 2020-21 to 2022-23. Further, the growth of GVA of agriculture and allied sectors declined from 4.1 to 3.3 per cent during the same period (PIB, 21 March 2023).

2. Infrastructure development

Infrastructure development by enhancing capital expenditure which can create employment through various projects on a long-term basis is essential. The share of GVA of the manufacturing sector has come down from 16.8 per cent (within Industry) in 2016-17 to 14 per cent in 2023-24.

In fact, the promotion of growth of the manufacturing sector in terms of infrastructure development, job creation, skill enhancement, simplified processes and fostering innovation is critical, for it boosts employment and income in the economy.

3. Focus on MSMEs

The medium and small enterprises (MSME) sector, which is huge and labour-intensive, is still facing challenges like lack of credit, collateral required for obtaining credit, productivity issues, marketing obstacles, inadequate infrastructure, and absence of latest technology that resulted in less than expected employment growth in it.

According to data from the Ministry of MSME, as of August 2021, the share of MSME GVA in all-India GDP at current prices was 30 per cent for the year 2019-20. The share of MSME manufacturing in all-India manufacturing gross value output was substantial during 2019-20 and recorded 36.9 per cent.

Further, the share of export of MSME products in all-India exports was 49.5 per cent in 2020-21. It has shown the significance of MSMEs in terms of GVA, exports and contribution to the GDP. Therefore, the Budget should provide incentives to MSMEs and startups, especially in developing regions and districts.

4. Jobs for youth

Generation of quality employment for the youth should be stepped up, both for manual labourers and educated unemployed who are struggling to find productive employment.

The unemployment numbers are said to be declining but the reality appears to be different at the grassroots level.

On the other hand, educated unemployed is on the rise as employment creation in the government sector has become stagnant.

5. Social sector expenditures

Increased budget allocations to the health and education sectors, i.e., 3 per cent and 6 per cent of GDP, respectively, is an urgent need as many are not able to access secondary education, leave alone higher education. The poor are unable to get better healthcare.

In fact, primary health centres and primary schools at the village level play a vital role in providing healthcare and education to the children which, in fact, is a great investment in human capital and thus promotes human resources.

The absence of primary healthcare resulted in enormous out-of-pocket expenses by people and as a result many are falling into poverty. This author’s study revealed that the healthcare expenditure in the private sector has pushed nearly 24 per cent people into the poverty trap in Telangana.

Hence, the government should ensure accessible, affordable, and sustainable healthcare facilities in the public sector so that people may not fall into poverty. If one person falls sick in a lower middle class family, leave alone poor, it has repercussions on the family’s budget. Private healthcare, which is quite expensive, commands nearly 70 per cent of the market.

Similarly, education has become commercial activity and the private schools, colleges and universities are fleecing money from the parents in the absence of proper regulation while quality is a casualty. With the entry of private entrepreneurs into education, it has become a monopoly instead of creating competition in the market, with the benefits passed on to the consumers. Therefore, the governments should focus on strengthening regulatory mechanisms and people should have access to information without any cost.

6. Social protection

Social protection to the poor and vulnerable sections with a focus on senior citizens by developing social registries comprising the details of individuals and households and their economic position among others is an immediate need.

The expenditure on social protection, excluding healthcare, as a percentage of GDP is less than 1 and there is every scope to improve it further immediately.

The government should focus on the delivery of quality public services. To achieve this, it should introduce transparency in all systems and ensure accountability of government functionaries.

7. Tax compliance

The Centre should design mechanisms and methods by which we can collect taxes from all individuals, professionals and entities/organisations without giving scope for evasion.

Tax compliance by the business community has to be improved by ensuring the commitment of government functionaries. If anyone is not complying with the rules, they should be given stringent punishment.

Finally, it depends on the government’s commitment and will to implement foolproof systems that can help in raising revenues and create confidence in people. It is not only raising tax revenues and spending the same but also meaningful public expenditure with outputs and outcomes that matter to the people today.

8. Review of expenditure

Therefore, the institutionalisation of a review of public expenditure every year should be introduced immediately with the help of third-party experts and economists.

Finally, the regulation of the private sector in the social sector, tax compliance by businesses from all sectors and accountability of government functionaries while ensuring value for money being spent by the government are critical at this juncture. For this, a regular review of public expenditure should be institutionalised and systems and structures need to be created and strengthened immediately.