Budget: Nirmalaji's Huge Rural Sector Challenge

Alloting more funds for MNREGA and PM-KISAN could wipe out the entire additional money that the Centre may have for FY25.

In spite of the bonanza from the Reserve Bank of India, which transferred more than double the surplus that was expected in the Interim Budget for 2024-2025 and the likely slight uptick in tax collections, Finance Minister Nirmala Sitharaman will need to prioritise the demand from the farm and rural sector within the budgetary considerations to stay on the path of fiscal consolidation.

The government has around Rs 1.09 trillion more from the RBI transfers than the Rs 1.02 trillion pegged from this head and dividends from public sector banks.

Besides, the government received Rs 13,440 (Rs 134.40 billion) crore as dividend from the State Bank of India, Canara Bank, Indian Bank, Bank of India, and EXIM Bank.

Tax revenues, net of devolution to the states, were Rs 2,600 crore (Rs 26 billion), higher during FY24 than what was pegged in the revised estimates.

And tax collections in the current financial year so far show that there could be a bit of upward revision in the Budget estimates for FY25 in the full Union Budget to be presented on July 23 than what was pegged in the Interim Budget, mainly from personal income tax.

Elbow room

Icra Chief Economist Aditi Nayar anticipates an upside of Rs 1.2 trillion in tax and non-tax receipts relative to the amount pencilled into the Interim Budget estimates for FY25.

Surplus transfers from RBI and dividends from PSBs form part of the non-tax receipts.

"We assess a revenue upside of Rs 1.2 trillion relative to the Interim Budget Estimates, which is the effective cushion available to the government to expand expenditure without increasing the size of the fiscal deficit," she says.

As such, any extra expenditure on the rural sector in the Budget needs to fit into this cushion of the extra money 1.2-1.21 trillion since the other avenues may not provide anything substantial.

For instance, take the demand to increase the PM-KISAN allocation from the current Rs 6,000 per farmer a year to at least Rs 8,000.

Based on the allocation in the Interim Budget for FY25, which was around Rs 60,000 crore (Rs 600 billion), a hike in the allocation will push this up to Rs 80,000 crore (Rs 800 billion).

This is based on the premise that 95 million to 100 million farmers are eligible for annual income support under PM-KISAN.

This additional spend of Rs 20,000 crore (Rs 200 billion) can be funded by the higher revenues of the government for FY25.

Then comes the demand for hiking the wages under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) to Rs 400 a day and raising the mandatory days of employment from 100 days to 200.

The latter, according to estimates, is expected to cost the exchequer Rs 4.15 trillion if all the eligible workers are provided employment for at least 200 days.

The Interim Budget allocated Rs 86,000 for MGNREGA. That means an additional Rs 3.29 trillion would be needed.

This would not fit into the resources that the government may have for FY25.

As such, the demand of 200 days needs to be examined carefully.

The average employment provided under MGNREGA has not touched 60 days in any year since the scheme was introduced, even though it says 100 days is mandatory.

Even if the current legal obligation of 100 days of employment is provided, the government will get a higher bill under MGNREGA for FY25, at around Rs 2.07 trillion, compared to what the Interim Budget had pegged.

This is after assuming that the average cost per day per person is Rs 345 (at FY24 levels) and around 60 million households worked under the MGNREGA in FY24.

This measure would need Rs 1.21 trillion extra and single-handedly wipe out all the extra money that the Centre may have at its disposal.

Now comes the second demand, the one of raising the average mandatory wages under the scheme to Rs 400 per day from the existing Rs 289 per day (for FY25).

A back-of-the-envelope calculation shows that the wage bill will rise to Rs 1.25 trillion, against around Rs 71,000 crore (Rs 710 billion) pegged in the Interim Budget, if the number of days is retained at the FY24 level of 52.

On top of this, the material expenditure will be borne.

This alone would require extra money to the tune of Rs 54,000 crore (Rs 540 billion), which fits well into the Centre's resources. But this is only the wage cost.

If the number of days is raised to 100 and the wages are raised to Rs 400 per day, an additional Rs 1.03 trillion would be required.

This, along with PM-KISAN, would again wipe out the entire additional money that the Centre may have for FY25.

As such, the government will have to tweak the demand for MGNREGA, but it can easily finance the demand for PM-KISAN to not allow fiscal slippage.

Spend on the rural housing may remain intact at around Rs 81,000 crore (Rs 810 billion), including the states share.

A news report recently said the government planned to increase the subsidies on rural housing in the upcoming Union Budget by as much as 50 per cent from the previous year.

The previous year's spending was Rs 54,000 crore (Rs 540 billion).

For rural road, spending is expected to remain at around the Interim Budget level of Rs 19,000 crore (Rs 190 billion).

There are demands from the main allies of the Bharatiya Janata Party-led government at the Centre to provide special packages for Bihar and Andhra Pradesh, besides calls from many sections to review the Agnipath scheme for the armed forces.

Bank of Baroda Chief Economist Madan Sabnavis says the RBI surplus can be used to take care of contingencies such as slippages in disinvestment or a contingency like the packages for certain states.

GDP growth, Sabnavis says, is very much on target and tax revenues will be according to the Budget drawn up earlier.

"There can be an upside, however," he says.

As such, he does not expect any significant increase in social welfare programmes.

It would only be marginal for some schemes, he says, adding the Centre's fiscal deficit will be retained at the Interim Budget level of 5.1 per cent of GDP, or improved to 5 per cent.

Feature Presentation: Aslam Hunani/Rediff.com