Union Finance Minister Nirmala Sitharaman’s latest budget, the last full-fledged one before next year’s general elections, can be commended on three counts. First, for staying the course on fiscal consolidation. The finance minister has targeted the Centre’s fiscal deficit for 2023-24 at 5.9 per cent of GDP, down from 6.4 per cent in the current fiscal and 6.7 per cent in 2021-22. She has done this by not announcing new grandiose schemes having significant fiscal implications — on the scale of, say, PM-Kisan or MGNREGA. Besides, the spending on food, fertiliser and petroleum subsidy will be Rs 1.47 lakh crore lower compared to the revised estimates for 2022-23. Sitharaman has also budgeted a lower outlay on MGNREGA (Rs 60,000 crore versus Rs 89,400 crore), while maintaining it at the same level for PM-Kisan. There is no increase, for now, in direct income support to farm households under the scheme from the current Rs 6,000 per annum. These savings in expenditure have created the space to bring down the revenue deficit even more appreciably, from 4.1 per cent to 2.9 per cent of GDP.
The second positive feature is the emphasis on changing the composition of government expenditure in favour of capital, as against revenue, spending. The Centre’s budgeted capital expenditure for 2023-24, at over Rs 10 lakh crore, will be almost twice the Rs 5.9 lakh crore that was spent in 2021-22. That’s a huge step up and necessary in the present context of slowing global trade and tightening of financial conditions. It is obvious that the stimulus for growth in the coming year has to come from domestic, not external sources. The Narendra Modi government will be hoping that the government’s capex push will help crowd-in private sector investments.
The finance ministry’s Economic Survey presented on Tuesday has highlighted the fact that the balance sheets of both corporates and banks have been sufficiently cleaned up to enable the former to invest and the latter to lend. But whether India Inc would respond to the government’s exhortations remains to be seen. The Modi government can, on its part, claim to have done its best — right from cutting the basic corporation tax rate from 30 per cent to 22 per cent in September 2019, to increasing allocations for building infrastructure. For roads and highways alone, it has gone up from Rs 1.13 lakh crore in 2021-22 to a budgeted Rs 2.59 lakh crore for 2023-24. State governments have been provided an interest-free loan of Rs 1.3 lakh crore for undertaking capital investments, which is itself a 30 per cent increase over the current year.
The third welcome move has been on personal income taxation. The budget has made annual incomes up to Rs 7 lakh free from taxation. This should provide relief to new entrants in the job market, many of whose salaries would be well within this limit. The savings will allow them to increase discretionary spending, including loan-financed consumer durable purchases. By linking the lower rates to non-availing of exemptions — even individuals with annual income of Rs 15 lakh will only have to pay Rs 1.5 lakh, as against Rs 1.87 lakh under the existing regime — the budget has signaled a simplification of the tax system. There is merit in eventually moving towards a low tax regime with fewer and targeted exemptions such as those for pension and health insurance plans.
Politically, this is a budget with few giveaways. The revenues foregone from the direct tax cuts mainly benefiting the salaried middle class are pegged at hardly Rs 37,000 crore. For all the rhetoric on Sabka Saath Sabka Vikas and new welfare schemes in the budget speech, the actual allocations have not risen by that much. For instance, the outlay for PM Vikas, a scheme aimed at traditional artisans and craftspeople, is a mere Rs 540 crore. It is possible that the Modi government is conserving the gunpowder for a later day as elections draw nearer. One may recall that the PM-Kisan scheme was launched outside the budget with effect from December 2018, barely four months before the last Lok Sabha elections. Any similar move could upset the budget maths.
The yield on the benchmark 10-year government bond fell marginally and the markets ended more or less flat on Wednesday as the budget did not really rock the boat. But there are at least three sources of uncertainty ahead. One, the deepening of the global slowdown, which can adversely impact India’s exports and jobs, including in sectors such as IT, that were shining beacons during the pandemic. Both the budget and the Economic Survey are strikingly silent on this aspect. Two, the Russia-Ukraine war and the developments in China, for better or worse. And finally, the electoral cycle at home. This calendar year will see assembly polls in nine states. These will be before the big election early next year. In a matter of months, politics could trump economics. Whether or not that happens, it is clear that Budget 2023 steers clear of the most politically contentious reforms – be it on farm and land acquisition or big-bang privatisation – even though it has the numbers to take the plunge.
