6 min readFeb 3, 2023 12:52 PM IST
First published on: Feb 3, 2023 at 12:52 PM IST
The major contours of the 2023-24 Union Budget have already been analysed. To recap, the government proposes to reduce the fiscal deficit substantially from 6.4 per cent of GDP to 5.9 per cent, while continuing to shift the composition of expenditures away from revenue towards capital. An increase in the share of capital expenditure in total expenditures (from 19 per cent to 22 per cent) while reducing the fiscal deficit is being achieved by reducing or freezing expenditures on key social sector programmes such as NFSA, ICDS, MGNREGA, and other areas.
On the revenue side, raising the income tax rebate limit to Rs 7 lakh per year will be popular but it should be noted that if the rationale is to help with Covid-related hardship, survey data shows that this bracket seems to have recovered quite well from the shock as compared to lower income groups. It is also worth noting that it does nothing to expand the already excessively narrow direct tax base. Only those earning more than roughly Rs 60,000 a month will effectively pay any tax. Such individuals constitute the richest 5 per cent of Indian workers. Contrary to popular belief, India is not much of an outlier when it comes to the direct tax to GDP ratio but certainly stands out when we look at the proportion of workers who pay direct income taxes. The large informal economy is of course a well-understood part of this story. But the wider social implications of such a narrow tax base are worrisome. It perpetuates the failure to build a public consciousness of a shared direct stake in funding public goods.
The economic vision being articulated is clear; economic growth driven by public investment, alongside more directed supply-side measures such as improved skilling, ease of doing business, and easing of credit. Whether these measures are working as the government intends is less clear. Some, such as improvements in the ease of doing business may take years to take effect since they involve deeper changes in business culture and business-government relations including inculcation of trust (“vivaad se vishwaas”). One step in this direction in the present budget is a large reduction in the number of compliances and decriminalisation of certain actions as part of the new Jan Vishwas Bill. The details will be important and are yet to be revealed.
Other supply-side measures such as skilling depend critically on both the quality of instructions provided and the demand for those skills in the private economy. On the former, several concerns have been raised about the 1.0 and 2.0 versions of Pradhan Mantri Kaushal Vikas Yojana (PMKVY). One hopes that the 4.0 version announced this time will take some of these into account. On the latter front, private investment remains weak despite historically high corporate profits, acting as a major constraint on new job creation.
Coming to a less commented aspect, over the years, through modification of existing programmes and introduction of new ones, the present government has signaled its interest in the economic dimensions of India’s culture and heritage. The latest budget has its share of such signals, via the ongoing SFURTI scheme to new ones such as PM-VIKAS, Unity Malls, and so on. The promotion of MSMEs, particularly in traditional industries which are labour-intensive as well as possess cultural value, is of course not an invention of the Modi government. If anything, it was the defining feature of the Gandhian vision. But it has found consistent expression in this government’s vision, even if the regime’s notions of what constitutes Indian culture leaves a lot to be desired.
Is the money going where the mouth is? Here the signals are more mixed. On the one hand, SFURTI saw an expenditure of a mere Rs 1.95 crores this year as opposed to the budgeted amount last year of Rs 334 crores. In the coming year, the budget has been reduced to Rs 280 crores. Similarly, another scheme, ASPIRE (Promotion of Innovation, Rural Industry and Entrepreneurship) had been allocated Rs 20 crores last year of which only 4 crores were spent. On the other hand, an interesting new scheme under the Minority Affairs ministry, PM-VIKAS (Virasat Ka Samvardhan) that aims to provide skilling, entrepreneurship, and leadership training to Muslim artisanal communities has quite a significant allocation of Rs 540 crores in its first year. And PM-MITRA (integrated textile and apparel parks) has seen a large increase from Rs 15 crores to Rs 200 crores. Continuing with the penchant for creative acronyms there is also a new Pilgrimage Rejuvenation and Spiritual, Heritage Augmentation Drive (PRASHAD).
Overall, these amounts are small (some could even be called tokenism) compared to the big ticket items such as infrastructure spending on highways or railways, or even airports and ports. While no one can deny the importance of large infrastructure in promoting growth, there is another dimension to consider. If the government is serious about decentralised industrialisation in villages and small towns, then serious resources need to be devoted to the development of local infrastructure. The large increase in Awas Yojana allocation for Tier 2 and 3 towns is welcome in this respect, but there is also the matter of productive asset generation of direct use to farms and firms.
Here programmes such as MGNREGA and its state-level urban counterparts, which are usually seen in elite circles as “dole”, can be strong assets (pun intended) rather than liabilities. Spending on such programmes creates useful local community assets that increase the productivity of small enterprises. As the migrant worker crisis during Covid-19 harshly demonstrated, India’s urban future must consist of thousands of vibrant small towns, not a handful of unmanageable cities. Perhaps an optimistic way to view the Budget is that it gestures in some promising directions without paying for the fare to get to the destination.
The writer is a Professor of Economics and Head, Centre for Sustainable Employment, Azim Premji University
Union Finance Minister Nirmala Sitharaman presents the Union Budget 2023-24 in the Lok Sabha, in New Delhi, Wednesday, Feb. 1, 2023. (PTI Photo) 
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