(Mahesh Y Reddy)
In a couple of hours, Union Budget 2023-24 will be unfolding before us. There is an ongoing debate in the media as to what would be the broad contours of the Budget. Different stakeholders have expressed their opinions as to what they are looking forward to from the Budget. Going by the present trend that most of the decisions relating to indirect taxes can be taken outside the purview of the budget exercise and in successive years there have been attempts to take major policy decisions also outside the scope of the annual budget, one can assume that policy prescriptions are continuous and not a yearly affair.
Yet, in the Indian situation, the Budget has its role cut out. That way, one can expect the coming Budget will have a clear political message, particularly because of the spate of state elections this year. Also, the general election to be held in 2024 is only a year ahead. Should the finance minister take this opportunity to announce a volley of people-centric measures in the Budget? The government has been following a linear path in phasing out the subsidies, be it in fuel or other avenues like fertilizer. Therefore, it is unlikely that there will be fiscal interventions to reverse that trend, despite the time from now being marked with elections. On the other hand, the government is likely to up the expenditure in two major sectors that affect the common man viz. education and health on the ground that India’s spending under these two heads as a ratio to GDP is much below the world average. Significantly, that will be the strong political message that the government will intend to give, besides more expenditure on farmer-related matters and infrastructure. Regarding infrastructure development, the government is on a very strong wicket because of its heightened spending coupled with the results on the ground. Farmers also across the country are getting largesse in terms of annual payouts and deliberate interventions in making available farm credit easier and more convenient.
Having said, there will be specific measures to boost private-public sector partnerships, in all sectors including health, education, infrastructure, and manufacturing.
Social sectors like education and health require mind-boggling expenditures to make them accessible to all. This is where the private sector has to be roped in to lighten the burden of the government. There is a possibility that the Budget may come out with some added incentives for the private sector to enter these segments, particularly the higher education sector. There is already a talk to open up Indian education space to foreign universities, a subject that was contemplated long ago but has not been implemented so far.
The manufacturing sector which has responded well to some of the schemes like production-linked incentives (PLIs) is expected to get a boost. The government is expected to commit a large quantum of funds to various sectors including food processing, pharmaceuticals, electronic hardware, etc taking a cue from the positive impact of the earlier schemes announced by the government at various points in time. The small sector is another segment that requires careful nursing against the backdrop of growing sickness and fund crunch. The government has taken several steps to boost the sector. But the pandemic rode roughshod over them. New initiatives have to be launched to deliver them from the morass that they have slipped into.
The finance minister has to do a tightrope walk while announcing various people-centric programs mainly because of higher expenditure on the price front and fiscal deficit, which can become a sensitive issue in an election year. The fine balancing that the government could do is to reduce the revenue expenditure and focus more on capital expenditure. Any compromise on capital expenditure like roads, ports, logistics, etc will have a long-term impact, particularly in building productive assets and employment generation. Attracting FDI in these sectors is the ideal route. But there are hiccups caused by post-pandemic issues which have considerably reduced the cross-border flow of investments. For meeting the heavy expenditure needed under these heads India has to tap into increasing portfolio investments and accelerate the use of sovereign funds.
The finance minister also has to look at not only the central expenditure matrix but also the funds needed by the states for their development works. She has limitations to using taxes to mobilize the funds since decisions regarding indirect taxes can be taken only by the GST Council and bringing all of them in the consensus mode is difficult. The low-lying fruit before her is to create an ecosystem for channelizing such funds from abroad n adequate amount, mostly in the form of equity. Yet that is another great challenge before her.
(The author is the Director General, Confederation of Indian Small and Medium Enterprises (CISME) & ILFI, New Delhi)
