What to expect from the budget

Narendra Modi's first budget may have many surprises contrary to popular expectations being raised in media. Don't ignore the deficit monsoon and imminent drought in election-bound states that contributed to his victory in recent parliamentary elections.

By Richard Mahapatra
Published: Wednesday 09 July 2014


The euphoria over the National Democratic Alliance's first budget is proportional to Prime Minister Narendra Modi's election victory. On the other hand, his spectacular victory is also proportionate to the rejection of the erstwhile United Progressive Alliance government. Between the preceding and the current government, the much talked about issue is that of reviving the economy. Naturally, the first budget is the occasion where the NDA government will make or is expected to make a statement.

There are two distinct expectations, depending on which side one is: first, the growth brigade is positively positioned to expect a budget that fuels economic growth; second, the group that is inclined towards a welfare state is hesitantly hoping that the current government will retain the huge baggage of social spending initiated by the UPA.

However, the deficit monsoon and an empty coffer have the potential to spring a surprise budget. Both the factors contradict each other and the state elections due in the year-end restrict political risks taking.

The deficit monsoon and the forecast of drought in western and north-western states like Maharashtra and Jharkhand  (see special feature on El Nino) that go to polls in near future will force the government not to bring in drastic cut in welfare budgets. On the other hand, a fiscal deficit of Rs 2,14,327 crore leaves little room for the government to match and increase the social spending of the UPA government.

Down To Earth pitches a list of probable budget outcomes:


  1. Fiscal deficit and social spending: The UPA government allocated Ôé╣5.55,322 crore for social spending in its interim budget in February. At the same time it left behind a fiscal deficit of Rs 2,14,327 crore. With economy slowdown government will find it difficult to generate enough revenue to bridge this deficit and also to increase the social spending. Given media reports on government generating significant funds from disinvestment of government stakes in PSUs, a conservative calculation will put a very basic increase, i.e. around 2-5 per cent in social spending over the interim budget figure.
  2. Deficit monsoon and rural development programmes: If the government is limited in raising social spending, the deficit monsoon, particularly imminent drought in election-bound states, will not allow it to restrict rural development spending. A major chunk of the rural development fund is for the MGNREGA and rural drinking and sanitation programme, crucial in a drought year. In 2009, the last drought year, demand for works went up under the rural job guarantee programme. Moreover, there are programmes like the Drought Prone Areas Programme (DPAP) and the Integrated Watershed Development Programme that have specific drought-proofing and relief components. One may expect government retaining the basic allocation in the last budget for these programmes. To gain political mileage, government may declare a specific provision for drought relief. In a creative accounting, this special provision will include allocation for drinking water and fodder provisions.
  3. Health spending: The BJP has been insisting on expanding health infrastructure in the country. It features in their manifesto. India's 12th Plan is also termed as the health plan. But with little money available, the budget will find it difficult to do it through government investment alone. This opens the doors for public-private route in a major way. The budget is expected to bring in significant provisions for the same. To make specific forecast, the pharma industries may get major fiscal incentives that can be articulated as part of government's health for all campaign.
  4. New cities and cheap housing: Prime Minister Modi has the grand idea of 100 'smart cities'. We expect the budget to have some concrete provisions on the same as part of its focus on infrastructure development. But there may be a surprise in forms of a scheme for cheap housing for poor and the lower middle class. Government's already running housing schemes for poor may be bundled together to craft a new scheme with the same money.
  5. Reshuffling central schemes: The UPA has made legal many schemes like the MGNREGA and the National Food Security Act. Government doesn't have much scope to tinker with it except by introducing amendments that need parliamentary approval. That is another process. But there are 60 plus more schemes that can be rationalised. The UPA had already started pruning the central schemes. One may expect another round of such pruning that will release funds for other flagship programmes.

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