Looking Beyond Budget 2023-24

To say that the Budget 2023-24 was on expected lines is too simplistic. As the last full Budget of the government before seeking another mandate any time next year, analysts expected the finance minister to strike a populist pathway. But what guided the Budget was more prudence and less populist overtones. Even while granting largesse to the middle class in terms of tax concessions, the finance minister was more circumspect. She has modulated the concessions and exemptions rationally, keeping a tight watch on fiscal prudence.
Even while raising the rebate limit for Income Tax to Rs 7 lakh, reducing the slabs, and bringing down the effective tax rate from 42.74 percent to 39 percent, she diligently took care to come out of the old exemptions- heavy tax regime to a more organized structure with the introduction of a standard deduction into the new tax scheme. The entire exercise did go well with the assessments. How far the new tax structure can broaden base tax, only time will be able to tell.
Increasing the Capex outlay for the third year in a row by 33 percent to Rs 10 lakh crore, which would be 3.3 percent of GDP, is another welcoming feature of the Budget. The government seems to have relied on the concept of reducing the revenue expenditure to maximize the capital expenditure, which can lead to the creation of capital assets, besides acting as an employment multiplier. However, the excessive money supply in the economy due to heightened expenditure can lead to inflationary pressure, if adequate measures are not taken at the right time. It only means that policy oversight on the macroeconomic variables like fiscal deficit, money supply, etc should receive the active attention of the policymakers including the RBI. To have the desired effect on the capital expenditure, timely execution of the projects should get priority.
Time and cost runs, which the government has vowed to eliminate, should get primacy. The good news is that in a sector like roads and highways, where the execution of new projects involves a gestation period, the government has demonstrated its capabilities to implement the projects in time. That should be a role model for other sectors as well.
The finance minister’s continued focus on infrastructure spending was visible in particular when it came to spending on the transport sector. In 2023-24, a budget allocation of Rs 5.13 trillion has been made as against Rs 3.9 trillion in the Revised Estimates for 2022-23. This means that the finance minister has rightly targeted the infra sector, whose growth should be much ahead of the other sectors because of its gravitas to push other sectors forward.
Even while elections to nine states are around the corner, the government did not move away from the objective of phasing out the subsidies. Fertiliser subsidy accounted for a whopping Rs 2.25 trillion in the Revised Estimates. Budget papers proposed it to be reduced to Rs 1.75 trillion in the coming year on the back of the promotion of alternative fertilizers. Food subsidies are also budgeted to decline sharply, even allowing for free grains under PDS (public distribution system) to be extended yet again to 2024.
One thing the government could have addressed is the likely constricted flow of foreign investments into the country. While prevailing sound macroeconomic variables can catalyze the flow of FDI and portfolio investments, one has to bear in mind, the global economy is staring at a recession. This can trigger hurdles in the flow of investments. Also, the likely firming up of oil prices in the coming days, because of the determination of the European Union to cut itself off from the Russian supply of fuel, has led to an increase in oil prices. Coupled with disruptions in foreign investments, higher oil prices can widen the trade deficit of the country. It is important, therefore, to take proactive steps for increasing the inflows of foreign investments and exports from the country.
India is committed to building a $5 trillion economy in the foreseeable future and to moving up in the ladder to a covetable third position in the global ranking of GDP. That also calls for domestic industry to pick up at an accelerated pace to make good almost three years lost on account of the Covid-1 pandemic. Sectors, which were badly thrashed include tourism, aviation, and hospitality. It may take a little longer for these sectors to pick up since the onslaught was very heavy. It could have been ideal to have some specific fiscal incentives and larger allocations for revamping the sector.
(The author is Director General, Confederation of Indian Small and Medium Enterprises (CISME) & ILFI, New Delhi)