Budget to continue social sector focus with significant ripple effects

Budget provides industries, investors, businesses and citizens with a direction of the government’s strategy. Since the union budget is an annual practice, the government continuously evaluates the effectiveness of budget allocation strategies keeping in view the long-term implications of these decisions. By adopting evidence-based decision-making processes, the government reprioritises and realigns budget allocation to drive sustainable and inclusive economic growth through strategic budget allocation.

This year being the election year, the government will probably not be announcing any major programs in the interim budget. Instead, we believe, the focus will be on key social sectors such as education, healthcare, and infrastructure that have significant ripple effects on the rest of the economy.

The ripple effect is a phenomenon where increased activity in one sector creates a cascading impact on other sectors and stimulates asset and job creation, boosts productivity and income, and enhances the overall competitiveness of the economy. This, in turn, can lead to increased consumer spending, higher tax revenues, and a multiplier effect on other sectors such as retail and manufacturing.

Over the past few budgets, the central government has prioritized capital expenditure. Most of this has been directed towards transport, highways, railways, and defence. The government had placed a strong emphasis on capex in the FY2023-24 Union Budget by allocating Rs 10 lakh crore, which was a 37.4% increase from the revised estimate of FY2022-23.

By consistently allocating funds to infrastructure projects such as roads, bridges, and public transportation systems for the past ten years, the current government is now able to stimulate economic growth by creating jobs, improving connectivity, and attracting investments.

This is creating a positive ripple effect on improving the business environment reducing operational and logistics costs for private companies, and potentially encouraging global and domestic investors to invest more. We believe India will see a significant rise in the private capex cycle as government spending crowds private investment.

The other focus will be on education and health. The Education Ministry had received a budget allocation of around Rs 1.12 lakh crore for 2023-24, a 13% increase over the previous year. The focus was to invest in EdTech, skill development, research and development, and promoting access to quality education for all.

We believe, higher allocation of funds to schools and universities will continue to improve learning environments and better teacher-student ratios. Besides, there will be further impetus on imparting technical skills and trainings to create the workforce of the future. The total education spending as a percentage of GDP has remained stagnant at 2.9% and below the National Education Policy’s recommended 6%.

Similarly, the government will also focus on allocating the budget towards the healthcare sector. Last budget, the healthcare budget was increased by 2.71% year-on-year and prioritized crucial areas like primary healthcare, maternal and child health, and Ayushman Bharat Digital Mission (ABDM). We believe the government will continue its allocation of funds towards the construction of new hospitals, the recruitment of more healthcare professionals, and the implementation of advanced medical technologies.

In short, we believe, in this interim budget, the government will prioritise more social sectors that have significant ripple effects and continue the momentum of the spending as was announced last year.

(Majumdar is Economist, Deloitte India, while Paul is Manager, Deloitte India. Views are those of the authors)