One of the famous sayings and Subhashit in Sanskrit speaks about the Utility of the person, things and elements Mother Nature has given us.
The Verse
पिबन्ति नद्यः स्वयमेव नाम्भः स्वयं न खादन्ति फलानि वृक्षाः।
नादन्ति सस्यं खलु वारिवाहाः परोपकाराय सतां विभूतयः॥
Meaning: The Rivers, which constantly flow with water, roughing through stones, pebbles and coarse surfaces, do not drink their own waters;
The trees that face rough winds, wild storms, and torrential rains, don’t eat their own fruits.
The clouds that collide and move through large swathes of sky, indeed, do not eat the crops, they have watered.
Similarly, the wealth, acumen and good deeds of the good people are always directed towards helping others, enabling others and protecting others.
The Event
On July 23, 2024, the maiden budget of Modi 3.0 was presented by Finance Minister for the 7th time, the longest-serving finance minister of the country, since independence.
This is a clear message that the government had sent of the intent, focus and continuity of the policies that were laid and established way back in Modi 1.0 and such practice and course of action would continue at a faster pace, with flawless execution.
The Naysayers Narrative
While Budget 2025 spoke of many things, as the Budget needs to chart down the action the government intends to undertake in the residual 8 months, 3 things stand out.
1. Equilibrium & Equanimity between Fiscal Math, the roadmap of the future fiscal deficit and Capex Thrust for prospective Growth, and the continued juggernaut of infrastructure creation, entailing a multiplier effect.
2. Creating clean land, and real estate records, Simplifying the tax regime, easing the reigns of customs duty and ensuring the wider number of people understand and pay taxes voluntarily.
3. The unequivocal push on employment creation, skill enhancement, bridging the gap between education and employment requirements.
Naysayers focused on the Capital Markets tax, which was initiated to curb speculative activity in the markets, as the market regulator found enough and more shreds of evidence that huge speculative activity is burning a big hole in the savings of the common man who is enticed to make quick money by playing these short term derivatives instruments without having adequate understanding of the same.
Furthermore, institutions involved in HFT (High-Frequency Trading) outbet the retail investors in F&O(Futures & Options), thereby retail faces the losses, whilst these organizations make tons of money at the behest of small investors’ ignorance.
Real Estate Capital gains were rationalized to bring all investment classes at par with one having no arbitrage against the other.
Establishing Ground for Growth
One of the challenges that Bharat’s economy as well as the global economy has been facing is the fear, of whether or not the private sector will take the risk of setting up additional capacity and investing in incremental capital expenditure that is essential for the economy to run fast.
In an uncertain environment, business people are relatively reluctant to borrow or use their own funds to increase business activity. But to drive the economy, Investments are needed and that’s where Bharat’s line of thinking differed from the Western Governments and the campaign continues and is bringing the brightest results for the country.
During COVID, when the West doled out cash handouts to support the economy and householders, Bharat gave a fillip to government capex to ensure all segments of the economy grow unilaterally, rather than just boosting and driving immediate consumption, thereby flaring up inflation as it happened in the developed economies.
One has seen, subsequent to the cash dole, how inflation has sequentially eroded the Wealth of the Western Middle-Class householders, whereas, the government of Bharat’s decision to pursue another path driven by Capex and Infra creation has yielded results. Budget 2025 has brought the same spirit back.
Tracking some numbers
In FY 20, the Capital Expenditure of the Central government, PSUs and government-owned enterprises was ~ Rs 3.39 lakh crores. While this expenditure for FY 25 is slated at Rs 11.11 lakh Crores, a whooping jump of 3.3X in 6 years, a never before in the Independent history of Bharat.
There is a double-engine move by the government, not only the capex percentage by the government has jumped, but it’s also on a larger economic base.
Chart 1
The above chart shows that through the years the government has spent more money on Infrastructure creation and Capital formation as a percentage of GDP as the size of the economy has also swelled from ~ USD 2.7 trillion to ~ USD 4 trillion presently. For FY 25, the capex as a percentage of GDP will stand at 3.4 per cent.
Heavy Spending has been on sectors like roads, transportation, the creation of Highways, logistics, building Railways Infrastructure, defense services, telecommunication, and segments that will enable enhanced productivity of the common man and businesses at large.
This spending has also been balanced by maintaining the fiscal deficit, which stood at 9.2% in FY 21 and is projected to be 4.9 per cent for FY 25 and 4.5 per cent for FY 26. Considerable reduction in Unproductive operating expenses and reduction to elimination of freebies has done the magic here.
Reduced fiscal deficit is also empowering the private sector to borrow at cheaper costs, by eliminating the crowding out effect (Large government borrowing increases the risk-free rate, thereby reducing the credit availability for the private sector and forcing the private sector to borrow at steep interest rates).
How does it benefit the common man and business person?
Two costs are prohibitive by the business people as both of them can’t be controlled by them.
1. Logistics Cost – A decade back, the logistics cost in Bharat as a % of GDP stood at around 9.5% to 9.9 per cent and the same has been brought down dramatically with enhanced infrastructure to ~ 7.5 per cent to 7.8 per cent.
2. Interest Costs – Precovid, the Mortgage rate or popularly called Home Loan rates in the US were ~ 3.5 per cent and in Bharat, they stood at 7.5 per cent.
Today, the same Mortgage rates in the US stand at 7.75% whilst in Bharat the rates stand at 8.4%.
