Why a populist Budget won’t be bad, after all

A populist budget helps the incumbent government to gain back the reduced confidence and ensure continuity with stronger confidence.

Populist budgets don’t necessarily need to be bad, nor do they need to please everyone. The budget back in February was nothing close to being populist, but now we might see some populist measures as the government tries to gain public confidence and support.

Let’s look at things from a couple of different perspectives. First off, consumption. A populist budget can really help improve consumption spending, particularly in rural areas. We have seen FMCG staying muted during most of FY24. So, a populist budget can be beneficial as it would help in the revival of demand from the rural side in FMCG which has been laggard due to erratic rainfalls impacting the farming industry hence lower consumption from that side. We have already started seeing some green shots here and there in rural consumption, and a good budget would further aid in that growth.

Also read: Economic Survey pegs FY25 GDP growth at 6.5-7%

It’s all about consumption, we can talk about different sectors but it comes down to consumption for all. The country has been trying to become an electronic hub, and consumption growth can aid in domestic demand for electronics as well. For the auto industry, a subsidy in EVs (electric vehicles) for 2-wheelers and 3-wheelers would push the demand aid in government EV targets and also please consumers.

A populist budget can also be really beneficial for the broader economy too. We often talk about the trickle-down effect and GDP multiplier, a populist budget ensures that the money goes down to the masses. These are the ones who spend the money they receive and this in turn ensures a higher GDP multiplier for the economy. These kinds of budgets are focused more on improving the infra and healthcare sectors so that the economy would benefit from the same better roads, bridges, and better healthcare facilities for lower-income populations. We can also expect an increased focus on education, higher education in particular as a measure to focus on the youth of the country which could lead to increased productivity and better quality of talent down the line.

Also read: Expenditure on education grew at CAGR 9.4%: Economic Survey 2024

It’s a cycle. Populist budget basically unleashes the animal spirits in consumption. This would help in ensuring good economic momentum in times when there are uncertainties all over the globe. In the case of India, we have seen domestic demand driving the economy when the global economy was under pressure. Higher domestic consumption opportunity drives higher capital in terms of FDI, FII, DII, and retail to markets. Higher amounts of money in hand would lead to more savings and that could aid in the growth of the financial industry and better allocation of funds. Increased consumption and better inflows help expand the overall size of the economy.