We have shown in considerable detail in previous articles published in the Janata Weekly on the economic situation in the country in early 2024 that the Indian economy is in deep crisis. The actual growth rate of the economy is much less than is being projected by the Modi Government.[1] The people are facing a colossal unemployment, poverty and hunger crisis.[2] Within the framework of welfare capitalism, the most effective solution to this crisis is that the government should greatly increase its spending on the people, by making a huge increase in the budget outlay.
An analysis of the components of the GDP also points to the same conclusion.
GDP in any economy equals Private Final Consumption Expenditure (or PFCE, which is a proxy for household consumption) + Gross Fixed Capital Formation (or GFCF, which is a measure of total private investment) + Government Final Consumption Expenditure or GFCE (government spending on providing services and goods directly for the country). In this, we are ignoring net exports and some other components as they are a relatively minor factor) (see Table 1).
Table 1: GDP and its Components, 2019–20 to 2023–24 (Rs cr)[3]
2022–23 (1st RE) (2) | 2023–24(SAE) (1) | Growth rate (1 over 2), % | |
GDP at Constant Prices (at 2011–12 prices) | 1,60,71,429 | 1,72,90,281 | 7.6 |
Private Final Consumption Expenditure (PFCE) | 93,23,825 | 96,05,526 (55.5%) | 3 |
Govt Final Consumption Expenditure (GFCE) | 16,13,726 | 16,62,078 (9.6%) | 3 |
Gross Fixed Capital Formation (GFCF) | 53,46,423 | 58,93,155 (34.1%) | 10.2 |
(Figures in brackets = Share in GDP)
Table 1 shows that the 7.6% GDP growth rate clocked in 2023–24 is mainly due to a large increase in private investment (that is, GFCF), which has gone up 10.2% over the previous year. On the other hand, while private consumption (PFCE) is the biggest component of India’s economy, accounting for 56% of the GDP in 2023–24, Table 2 shows that growth rate of private consumption has consistently fallen during the post-pandemic period from 11.7% in 2021–22 to 6.8% in 2022–23 and collapsed to a lowly 3% in 2023–24. But private investment depends upon growth of demand. This only means that the increase in GFCF observed in 2023–24 is not sustainable, unless PFCE picks up in the coming years.
Table 2: Private Consumption: Percentage Change over Previous Year [4]
2020–21 3rd RE | 2021–22 (2nd RE) | 2022–23 (1st RE) | 2023–24 (SAE) | |
Private Final Consumption Expenditure (PFCE) | –5.3 | 11.7 | 6.8 | 3 |
(Actually, due to the Modi Government’s pro-rich pro-corporate policies, growth in PFCE has been slowing down ever since the Modi Government assumed power in 2014 (even if we exclude the pandemic year of 2020–21) — it was an average of 7.5% during the triennium FY15 to FY17, and 6.2% during the triennium FY18 to FY20.[5] Such a long stretch of consumption slowdown has not been observed in the last two decades.[6])
The growth rate of private consumption is the average for both the poor and the rich. Because of the sharp rise in inequality during the Modi years and the huge increase in poverty levels in the country, [7] it is very likely that the small increase in private consumption in 2023–24 only reflects the rising consumption of the rich; the consumption of the poor may even be in decline. Even mainstream political analysts have characterised India’s economic recovery during the post-pandemic period as ‘K-shaped’: led by the upper class, with growth in demand for premium goods outstripping that for the mass-market segment.[8]
This increasing economic distress being faced by the majority of the people during the past decade can also be observed in data put out by the RBI Annual Report of 2024. It shows that net household savings have fallen to a record low of 5.2% of the gross national disposable income (GNDI) in 2022–23, from 7.9% in 2015–16. [9] A report in the Economic Times in fact points out that net financial savings of households as a percentage of GDP in FY23 had fallen to a five-decade low of 5.3%.[10] This means that people are drawing down on savings to fund consumption — an indication of falling incomes and rising distress.
Therefore, for the economy to have a sustained recovery, it is important that the government greatly increases its expenditure. So far as the ordinary people are concerned, even if this does take place, they will only benefit from it if the government increases its spending in such a way that it leads to an increase in domestic consumption and puts purchasing power in the hands of the people. That would lead to an increase in domestic demand, and fuel an increase in private investment.
But this means that the Modi Government would have to change the orientation of its economic policies of the past decade. Is any such change visible in Budget 2024?
But before we begin our analysis of Budget 2024, let us take a look at an important consequence of PM Modi’s economic policies.
Modi Years: Huge Increase in Economic Inequality
In a previous article in Janata Weekly, [11] we have given some figures on the enormous amount of public wealth being transferred to the coffers of the country’s biggest corporate houses by the Modi Government.
This vampire-like loot of the nation’s wealth has led to a meteoric rise in the wealth of India’s uber rich during the past 10 years of Modi rule. When the Modi Government came to power in 2014, the Forbes’ list of India’s billionaires[12] had 56 names, with a combined wealth of $191.5 billion.[13] A decade later (by 2024), their number has quadrupled to 200, and their collective net worth has soared to nearly a trillion dollars ($954 billion).[14]
At the same time, the ruthless imposition of neoliberal economic policies by the Modi Government has led to crores of people being pushed into destitution. This has resulted in an unprecedented increase in inequality in the country. A study by a team of economists led by Thomas Piketty and Lucas Chancel at the World Inequality Lab in Paris reveals that inequality in India today is even more than that during the British colonial period. This spectacular rise in inequality has made India amongst the most unequal countries in the world (see Figure 1).[15]
Figure 1: The rise of extreme inequality: Top 1% shares [16]
Just one statistic from the above study is enough to give a sense of how skewed the income distribution has become in the country: the threshold income to make it to the top 10% of income earners in the country is just Rs 2.9 lakhs per year (or Rs 24,200 per month).
Table 3: Income Inequality in India
Income Group | Adults | Income Share (%) | Average Income (Rs) |
Bottom 50% | 46,11,72,416 | 15.0 | 71,163 |
Middle 40% | 36,89,37,933 | 27.3 | 165,273 |
Top 10% | 9,22,34,483 | 57.7 | 13,52,985 |
Top 1% | 92,23,448 | 22.6 | 53,00,549 |
incl. Top 0.1% | 9,22,345 | 9.6 | 2,24,58,442 |
incl. Top 0.01% | 92,234 | 4.3 | 10,18,14,669 |
incl. Top 0.001% | 9,223 | 2.1 | 48,51,96,875 |
The study finds that while the bottom 50% have an average income of just around Rs 6,000 per month (Rs 71,163 per year), the top 0.1% comprising 9.2 lakh adults have an average income of Rs 2.2 crore per annum, and the top 0.001% comprising of just 9200 adults have an average annual income of Rs 48.5 crore.
The wealth inequality is even more stark.
The study finds that an adult needs to own Rs 21 lakhs to belong to the wealthiest 10%.
A significant share of adults owns close to no wealth at all. The bottom 50% of the population owns only 6.4% of the total wealth (see Table 4).
Table 4: Wealth Inequality in India
Wealth group | Adults | Wealth Share (%) | Average Wealth (Rs) |
Bottom 50% | 46,11,72,416 | 6.4 | 1,73,184 |
Middle 40% | 36,89,37,933 | 28.6 | 9,63,560 |
Top 10% | 9,22,34,483 | 65.0 | 87,70,132 |
Top 1% | 92,23,448 | 40.1 | 5,41,41,525 |
incl. Top 0.1% | 9,22,345 | 29.7 | 40,04,54,807 |
incl. Top 0.01% | 92,234 | 22.2 | 2,99,67,73,491 |
incl. Top 0.001% | 9,223 | 16.8 | 22,61,33,54,928 |
On the other hand, there is extreme wealth concentration at the very top. The top 1% own 40% of the total wealth in the country, and have an average wealth of Rs 5.4 crore. The top 0.1% hold 30%, and have an average wealth of Rs 40 crore. While just 9200 adults — the richest 0.001% — control a whopping 17% of the total wealth in the country, and their average net wealth exceeds Rs 2,200 crores![17]
The authors of this report point out that even these figures of extreme income and wealth concentration are only conservative estimates:
[O]ur benchmark estimates are plausibly conservative in the sense that we might be underestimating the true extent of income and wealth concentration in recent years.
For instance, we are unable to account for offshore wealth when estimating the wealth distribution. We know, however, that over 1% of India’s GDP worth of wealth is parked as offshore assets by Indians in Dubai alone (Alstadsæter et al., 2024). Further, Indians account for over 20% of all foreign-owned real estate in Dubai (Alstadsæter et al., 2022). These strongly indicate that we are likely under-estimating wealth at the very top of the distribution.
Budget 2024: No Attempt to Increase Revenues
Huge scope for increasing tax revenues
The developed countries collect the bulk of their tax revenues from the rich, that is, through direct taxes — direct taxes account on average for about 70% of total taxes in Europe. On the other hand, this ratio is just around 35% for India; indirect taxes account for around 65% of the total tax revenues of the Government of India (Centre and States combined). Not only that, because of the enormous amount of subsidies and tax concessions given to the country’s richie rich, the total tax revenue of the Government of India (Centre + States) is very low: India’s tax-to-GDP ratio is just around 16–17%, while that for the 38 countries of the OECD averages 34%, and it hovers at between 27–33% for India’s Emerging Market peers like Brazil and South Africa.[18]
Considering the huge income and wealth concentration with the richest 0.01% and 0.001% adults in the country, it is obvious that there is a huge scope for increasing the country’s tax revenues by increasing direct taxes on the very rich.
We make our calculations based on data given in the interim Union Budget of 2024. Even if the FM imposes a small wealth tax and inheritance tax on the very rich to increase the Gross Tax Revenues by Rs 26.2 lakh crore (that is, from Rs 38.3 lakh crore in 2024–25 BE to Rs 64.5 lakh crore), our tax-to-GDP ratio would only increase to 25%.[19] It would still be around 10 percentage points below most developed countries.[20]
Let us now take a look at the Budget 2024 figures to see what efforts the FM has made to increase the government’s revenues.
Paltry Increase in Gross Tax Revenue
However, in the Interim Budget 2024, the FM has announced no changes in direct and indirect taxes. Therefore, Gross Tax Revenue in the 2024–25 budget has gone up by only 11.45%.
To this limited increase in Gross Tax Revenue, increase in GST contributes 11.6%, while increase in direct taxes contributes a tad more at 13.1% (Table 5).
Table 5: Gross Tax Revenue, Fiscal Deficit and Budget Outlay, 2023–24 and 2024–25 (Rs cr)
2023–24 BE | 2023–24 RE (1) | 2024–25 BE(2) | Increase, 2 over 1, % | |
Gross Tax Revenue | 33,60,858 | 34,37,211 | 38,30,796 | 11.45 |
Within this: | ||||
Direct Taxes | 18,23,250 | 19,45,000 | 21,98,830 | 13.05 |
GST | 9,56,600 | 9,56,600 | 10,67,650 | 11.61 |
Fiscal Deficit | 17,86,816 (5.9) | 17,34,773 (5.8) | 16,85,494 (5.1) | |
Budget Outlay | 45,03,097 | 44,90,486 | 47,65,768 | 6.13 |
(Note: Figures in brackets are percentages of GDP)
Reduction in Fiscal Deficit
The other way in which the FM can increase the budgetary outlay is by increasing government borrowings, that is, by increasing the fiscal deficit. That fiscal deficit is bad for the economy, and governments should not raise money for increasing welfare expenditures by indulging in deficit financing, is bunkum! This fraudulent theory is a part of the neoliberal ideology. It had been debunked long ago by John Maynard Keynes, one of the greatest economists of the 20th century. He had argued that in an economy where there is poverty and unemployment, the government can, and in fact should, expand public works and generate employment by borrowing, that is, by enlarging the fiscal deficit; such government expenditure would also stimulate private expenditure through the ‘multiplier’ effect. All developed countries, when faced with recessionary conditions, have implemented Keynesian economic principles and resorted to high levels of public spending and high fiscal deficits — such as during the 2007–09 financial recession and now during the pandemic crisis.[21] The reason why Nirmala Sitharaman harps on the need to reduce India’s fiscal deficit is because it is a condition imposed on the Government of India as a part of the World Bank-dictated Structural Adjustment Programme, whose sole aim is to run the economy for the benefit of giant foreign and Indian corporations.[22] And so she says in her budget speech 2024: “We continue on the path of fiscal consolidation, as announced in my Budget Speech for 2021–22, to reduce fiscal deficit below 4.5 per cent by 2025–26. The fiscal deficit in 2024–25 is estimated to be 5.1 per cent of GDP, adhering to that path.”
Budget Outlay Stagnant
All this only means that the Modi Government is not concerned about increasing the budget outlay and public investment. The FM is not willing to raise taxes on the rich and greatly increase the gross tax revenues, and is also not willing to significantly increase the fiscal deficit. Therefore, as we can see from Table 5, the budget outlay is just 6.1% above last year’s revised estimates. In real terms, the increase is negligible.
It only means that the FM and the Modi Government are not at all concerned about the multiple economic crises facing the country and the people. In fact, the FM in her budget speech does not even take cognisance of any of these problems. On the contrary, she brushes all these problems under the carpet. She in fact opens her budget speech with the bombastic claim, “The Indian economy has witnessed profound positive transformation in the last ten years. The people of India are looking ahead to the future with hope and optimism.”
Budget Expenditure as % of GDP in Decline
The regressive nature of the budget is far worse than that suggested by the above figures.
As compared to the absolute figure for budget expenditure, budget expenditure as compared to GDP gives a better picture of how much the government has increased public investment in the economy.
Table 6: Budget Outlays, 2021–22 to 2024–25 (Rs cr)
2021–22 A | 2022–23 A | 2023–24 BE | 2023–24 RE | 2024–25 BE | |
Budget Expenditure | 37,93,801 | 41,93,157 | 45,03,097 | 44,90,486 | 47,65,768 |
Budget Exp as % of GDP | 16.1 | 15.6 | 15.3 | 15.3 | 14.5 |
This ratio had peaked during the corona period when it increased to 17.7% in 2020–21 Actuals, but after that has consistently fallen and has come down to just 14.5% for this year (Table 6).
Both the above comparisons, budget outlay as compared to last year’s outlay, and budget outlay as a percentage of the GDP, only point to one conclusion — that for the FM, the economy is doing very!
Bowing to Imperialist Dictates
The reason why the government is keeping budgetary expenditure at such low levels was outlined by FM Nirmala Sitharaman while speaking at a function organised by the Bangalore Chamber of Industry and Commerce some time ago. She said that the government’s perspective towards the Union Budget was that the government should be a facilitator and the private sector should be the key driver of economic growth.[23]
That is precisely what is desired by international finance capital. It wants the government to keep its expenditures low. The Modi Government is bowing to its dictates because of India’s worsening external debt and external accounts situation, as discussed in an article written in the Janata Weekly last year.[24] Global financial capital wants the Government of India to keep its budgetary expenditure low because it creates the conditions for private capital, particularly international capital, to take control of the economy and mould it according to its desires. For all Modi talk of ‘nationalism’, in reality, the Modi Government is only meekly bowing to imperialist dictates.
Notes
1. Neeraj Jain, “The Economic Situation in 2023–24, Part 1: Is India Becoming a $5 Trillion Economy Soon?”, Janata Weekly, 12 May 2024, https://janataweekly.org.
2. Neeraj Jain, “The Economic Situation in 2023–24, Part 2: India’s Appalling Unemployment Crisis”, Janata Weekly, 19 May 2024, https://janataweekly.org; Neeraj Jain, “The Economic Situation in 2023–24, Part 3: India’s Grim Poverty Situation”, Janata Weekly, 19 May 2024, https://janataweekly.org.
3. GDP figures taken from: Press Note on Second Advance Estimates of National Income 2023–24 …, MoSPI, 29 February 2024, https://mospi.gov.in.
4. Data taken from: Ibid.
5. Calculated from data given in: Ibid.
6. “A Disconcerting Slowdown: Depressing Consumer Demand Dulls the Shine of India’s Post-Covid Domestic Market”, 12 January 2024, https://www.financialexpress.com.
7. This discussed in considerable detail in our article: Neeraj Jain, “The Economic Situation in 2023–24, Part 3: India’s Grim Poverty Situation”, op. cit.
8. “Household Consumption Still Weak, But Private Sector Capex Shows Revival”, 31 May 2023, https://www.business-standard.com; “India’s K-Shaped Consumption Pattern Continues Post Pandemic””, 8 May 2024, https://www.fortuneindia.com.
9. Annual Report 2023–24, Reserve Bank of India, May 2024, p. 17, https://rbidocs.rbi.org.in.
10. “Household Savings at Five-Decade Low: A Look at Key Numbers”, 10 May 2024, https://economictimes.indiatimes.com.
11. Neeraj Jain, “Modi’s Only Guarantee Which Is Not a Jumla: Allow Adani–Ambani to Loot the Country”, Janata Weekly, 26 May 2024, https://janataweekly.org.
12. An annual ranking by documented net worth of the world’s wealthiest billionaires by the American business magazine, Forbes.
13. “Indian Billionaires 2014:Big Winners, Big Losers”, Forbes Staff, 3 March 2014, https://www.forbes.com.
14. “Indian Billionaires Soar To Record Highs”, 3 April 2024, https://www.forbes.com.
15. Nitin Kumar Bharti, Lucas Chancel, Thomas Piketty, and Anmol Somanchi, “Towards Tax Justice & Wealth Redistribution in India: Proposals Based on Latest Inequality Estimates”,
World Inequality Lab, May 2024, https://wid.world. See also: Nitin Kumar Bharti et al., “Towards Tax Justice and Wealth Redistribution in India”, 21 May 2024, https://www.theindiaforum.in.
16. Ibid.
17. Ibid.
18. Neeraj Jain, “Modi’s Only Guarantee Which Is Not a Jumla: Allow Adani–Ambani to Loot the Country”, op. cit.
19. Our calculation. Based on data for total tax revenues of Centre and States given in ‘Table 106: Direct and Indirect Tax Revenues of Central and State Governments’, in the RBI publication, Handbook of Statistics on Indian Economy (2022–23), available at https://m.rbi.org.in, we calculate the tax-to-GDP ratio for 2022–23 to be 16.9%. So, we can assume the tax-to-GDP ratio for 2024–25 to be 17%. Budget 2024 estimates nominal GDP for 2024–25 to be Rs 3,27,71,808 crore. Based on these data, the total tax revenues of the Centre and States works out to Rs 55,71,207 crore. Gross tax revenue in Union Budget 2024 is Rs 38,30,796 crore. Total tax revenues of States therefore works out to Rs 17,40,411 crore. For tax-to-GDP ratio to go up to 25%, total tax revenues of Centre + States needs to go up to Rs 81,92,952 crore, which will require the Gross Tax Revenue to increase to Rs 64,52,541 crore, an increase of Rs 26,21,745 crore.
20. The authors of the above mentioned paper on inequality in India estimate that imposition of a modest:
- 3% wealth tax on those with net wealth exceeding Rs 10 crore in 2022–23 (only the top 0.04% of adults fall above this threshold), and a 5% wealth tax on those with wealth exceeding Rs 100 crores
- 33% inheritance tax on estates between Rs 10 and 100 crore and a 45% tax on estates exceeding Rs 100 crores.
would yield 5.82% of GDP in annual tax revenues. For 2022-23, this works out to Rs 15.7 lakh crore.
21. We have discussed this in greater detail in our booklet: Is the Government Really Poor, Lokayat publication, Pune, 2018, http://lokayat.org.in.
22. These conditionalities are given in several articles available on the internet. See for instance: Eric Toussaint, “ABC of Debt System”, 6 March 2023, https://www.cadtm.org; “Independent Peoples Tribunal Report”, 9 October 2007, https://www.cadtm.org; These conditionalities are also discussed in several of our publications, such as: Neeraj Jain, “Globalisation or Recolonisation?”, Lokayat publication, Pune.
23. “To Be World Leader, Private Sector Must Be Key Driver of Growth: Sitharaman”, 21 February 2021, https://www.business-standard.com.
24. Neeraj Jain, “Budget 2023–24: What Is in it for the People? Part 1: The External Sector”, 9 April 2023, https://janataweekly.org.
(Neeraj Jain is a social-political activist with an activist group called Lokayat in Pune, and is also the Associate Editor of ‘Janata Weekly’, a weekly print magazine and blog published from Mumbai. He is the author of several books, including ‘Globalisation or Recolonisation?’ and ‘Education Under Globalisation: Burial of the Constitutional Dream’.)
