Budget 2024: It’s tax buoyancy that shrank the deficit
Live MintA quick glance at the fiscal arithmetic reveals that there is no severe fiscal austerity proposed in the budget. Given nominal GDP growth of 10.5% and aggregate tax revenue growth of 11.5%, the government has met its fiscal deficit target through tax buoyancy, and not through severe public expenditure reduction. As against a 2023-24 Budget Estimate of ₹61,000 crore, the realized disinvestment proceeds were only ₹30,000 crore in 2023-24 Revised Estimate. However, increased tax buoyancy and subtle revenue expenditure repriotization have helped the reduction in revenue deficit-to-GDP ratio from 2.8% in 2023-24 to 2% in 2024-25. If we identify any deviations between the BE and RE for revenue and spending, it is significant to ask the sources of fiscal forecasting errors–whether it is random due to the exogenous macroeconomic challenges, or whether it is due to the bias of policy makers in the North Block due to incorrect assumptions and model projections.