Why Nirmala Sitharaman's Budget 2023 likely to avoid populist measures
In the last 20 years, only two out of four full-year budgets presented before general elections had a significantly higher chunk on rural spending, compared to defence and infrastructure.
Union finance minister Nirmala Sitharaman’s Budget 2023, a key deciding factor prior to the 2024 Lok Sabha election, may avoid populist measures. According to an analysis by HT’s sister publication Live Mint, there is no definite trend of releasing populist pre-election budgets in the past.
In the last 20 years, only two out of four full-year budgets presented before general elections had a significantly higher chunk on rural spending, compared to defence and infrastructure. Spending on the social sector saw a spike only in one pre-election budget. In 2008, however, the first United Progressive Alliance (UPA) government released a budget that focused on welfarism.
During the tenure of the first National Democratic Alliance (NDA) government, spending on defence decreased from 2000-03 average of 18 per cent to 15.2 per cent of the budget share in 2003-04. Spending on rural and welfare schemes also saw the same trend, while infrastructure saw a slight increase.
The UPA-I government saw lesser spending on defence and infrastructure, while welfare schemes saw a marginal increase. Expenditure on rural measures rose to 16.2 per cent in 2008-09 from 2005-08 average of 9.2 per cent.
In 2013, the UPA-II invested only 10 per cent in the rural sector, a significant dip from 2010-13 average of 12.4 per cent. There was no change in outlays for the social sector.
Defence expenditure saw an increase only in the 2018 budget (out of all the budgets included in the report) of the NDA-II. The year saw a thrust of 7.5 per cent from 2015-18 average of 6 per cent for infrastructure. Disbursements in the rural sector saw a marginal rise.
According to Anitha Rangan, an economist at Equirus, the past decade has pointed towards a focus on “structural reforms” instead of overt populism. A reason for this sway may be the fact that announcing a populist budget to convert votes may not always result in a healthy fiscal trajectory.
Another reason for a full-year budget to not appear populist is because most schemes are announced for a couple of years, like the Pradhan Mantri Ayushman Bharat Health Infrastructure Mission from 2021-22 to 2025-26. Populist-led spending decisions, which are not restricted to the budget, can also be taken by governments.
Although the push for the rural sector has always been significant, rural to urban migration and the increased role of the services sector in domestic growth have led to an urgent demand for infrastructure. According to Rangan, the report found the NDA regime focusing more on infra-capex, while the UPA governments were aligned towards social expenditure.
Due to the government’s commitment to fiscal consolidation, high borrowings, expected moderation in tax revenue, and high levels of committed expenditure, there is not enough room for populism in the upcoming budget, Madhavi Arora, lead economist at Emkay Global Financial Services, told Live Mint.
With the rural sector still reeling from the effects of Covid-19, Budget 2023 is expected to strengthen the sector while continuing to focus on capital expenditure.