Union Budget 2023-24: A Populist Or Pragmatic Budget
India is currently the fifth-largest economy in the world and is on track to surpass Japan in the next five years. India will have the largest population by next year that will need the best financial intermediation services and also a wide range of goods and services. The reach and network of banking networks in the country have improved the flow of funds and given a boost to the number of bank accounts, which has increased from 43 per 1000 in 1972 to about 1600 per 1000 now. For manufacturing and FDI, opportunities are numerous. The new Production Linked Incentives (PLI) to improve the productivity of the industrial sector and Gati Shakti – the national master plans for multi-modal transport to boost exports are important initiatives of the government. Despite global headwinds, India has bucked the trend as a destination for FII. The rise in sales of homes, automobiles and credit card spending in small and large towns and cities across the country point towards growth. India has all the conditions for an economic take-off driven by offshoring, manufacturing, investment, the next generation of energy sources and an improved digital network. So India has high hope amid ongoing global economic turmoil. The country provides strong growth prospects, a large and growing market and a favourable investment climate. India’s GDP will more than double to $7.5 trillion by 2031 resulting in a surge in discretionary consumption. The country is on the verge of transitioning from being a global office to a global factory.
The Union Budget 2023-24 will continue to lay the foundation and provide a blueprint to steer the economy over the ‘Amrit Kaal’ of next 25 years. Some of the key focus areas and expectations included – decarbonise to align towards India’s climate commitment of COP26 and COP27, increasing generation and use of renewable energy and energy transition, adoption of fast-track technology and digitalization, production linked incentive (PLI) scheme, tax slabs revision, green energy and green growth, financing and energy conversation (amendment) bill, the mandate on green hydrogen consumption, enhancement of home loan interest deduction limits and increasing private consumption and saving due to rise in the percentage of the middle-class population.
Our expectation was to extend the PLI scheme given the fact that it reaped great results across the 14 sectors, helping boost ‘Atmanirbar Bharat’. The scheme has received an excellent response and an extension will give an impetus to domestic manufacturing and growth. Rationalisation of the GST structure was also expected amendments to the law revolving around GST may be considered based on the recommendations of the GST council. As a next step towards strengthening the ‘Make in India’ and ‘Atmanirbhar Bharat’ vision, the budget has to consider customs concessions to boost domestic manufacturing. A new Foreign Trade Policy is also under consideration. On the direct tax front, tax concessions for partnership firms, Limited Liability Partnerships and foreign companies were expected. Considering solid tax collections in the current fiscal, there was also an expectation that relief for individuals, through an enhancement of the basic exemption limit to Rs 5 lakh. The rationalisation of the TDS regime and an overhaul of the dispute resolution framework is too anticipated.
The Economic Survey outlook is economic growth of 6 per cent to 6.8 per cent next fiscal year. The upsides of the economy mentioned in the survey – the limited impact of Covid spread in China and recess in interest rate hikes by Central Banks in the US and Europe may help foreign funds to flow in India. If China’s re-opening does not cause inflation elsewhere, India will gain. It is also surveyed that the inflation rate will be stable at around 6 per cent. There are also positive signs of improving private sector investments and lower chances of a recession in the US and Europe could boost our exports. The downside of the Indian economy as per the economic survey is – exports will slow down if global growth does not recover. If commodity prices remain high, it will affect India’s current account deficit. A high deficit may lead to rupee depreciation, making imports expensive and fuelling inflation. Also if interest rates remain sticky globally, interest rates in India could stay high too. High-interest rates will also imply a squeeze on fund flows as a lower investment.
Against the backdrop of the above expectations and highlights of the economic survey, it is imperative to evaluate how far the expectations are fulfilled from the Union Budget 2023-24 announcements by our Finance Minister. If we look into the important macro-economic indicators of inflation, employment and aggregate demand, the capital investment outlay increased three times to 33 per cent of the GDP an amount of 310 lakhs crores compared to 2020, this will spur economic growth through the multiplier effect and by generating demand. Growth will also be positively impacted by a 28 per cent cut in subsidy on food, fertiliser and energy thereby putting more money into the productive purpose. Capital outlay for 100 critical infrastructure projects and fifty new airports will also generate domestic demand and employment thereby creating sustainable cities for tomorrow. Infrastructure spending is earmarked at 3.5 per cent of GDP as per the budget announcement. MSME sector, agricultural sector and rural and tribal development got a boost which may generate rural employment and income.
The seven pillars of the Union Budget as stated by Nirmala Sitharaman are:
(i) inclusive development
(ii) last mile linkage
(iii) infrastructure and investment
(iv) harnessing the potential of our economy
(iv) green growth
(v) exploit the potential of youth power
(vi) Financial inclusion.
For financial inclusion credit guarantee to MSMEs and Rs. 90,000 crores of collateral-free credits to MSMEs to be provided. Reviewing existing regulation of the financial sector and the RBI Act is also proposed. Moreover, fiscal support to digital infrastructure is to the tune of Rs. 90 crores. To exploit the potential of youth, the focus is on market demand-based skills training and also boost to entrepreneurship. Fifty destinations to connect physically and virtually along with tourist guides and food availability to boost tourism for domestic and foreign tourists. Thus, there is a thrust on sector-specific skilling and entrepreneurial development. Towards green growth and sustainability, energy storage in batteries through Viability Gap Funding (VGF), renewable energy evacuation, inter-state transfer of renewable energy through grid, targeting an amount of 13 lakhs MW from Ladhak. Balanced use of fertiliser under PM Pranam scheme. Waste use and waste management under the Govardhan scheme focus on the circular economy model of the macroeconomy. Bio-gas plat of Rs. 10000 crores also announced focussing on bio-gas, bio–manures and bio-inputs research centres. The education policy has to focus on skilling and job creation through PM Kaushal Vikash Yojana under which independent training to 3 lakhs youths, allocation of courses such as Internet of Things, Artificial Intelligence (AI), Mechatronics and Robotics etc. are announced by Finance Minister. Thus, educational institutions and training intuitions have to align them towards this objective of skilling and job creation for youths. Three AI centres in the top three institutions will be set up for an effective AI system. This is the highest budget allocation to the ministry of education after independence an amount of Rs.1,12,886 crores. To boost inclusive development, Data Governance and KYC will be simplified, PAN for all digital systems through legal mandate, Digi services (Digi locker) and 5 G services are also announced. Towards green growth objectives, environmentally conscious lifestyles need to be adopted. Panchamrit scheme to achieve net zero carbon emission. National Green Hydrogen Mission and this sector are identified as a sunrise sector to generate 5 MMT of hydrogen by 2030. Rs.35 crores provisioned for energy transition, energy security and net zero emission. Hope this will give a fillip to the green growth achievement of India in near future.
Towards inclusive growth, agricultural start-ups, modern technology to upgrade agriculture, agricultural credits and aspirational block programme under which provision for health services, education and basic infrastructure are to be provisioned. 66 per cent increase in allocation in PM Awas Yojana and financial support to the poorer, free food for another year to the most marginal groups under PM Gorib Kalyan Antodaya Yojana. 11.7 crores of toilets constructed, 9.6 crores LPG connections provided under Ujjala scheme. 222 crores of ree Covid vaccines to 120 crores people as highlighted by the Finance Minister are the achievements of the government towards inclusion. Insurance cover t4.6 crores of people under PM Suraksha, Jeevan Jyoti Yojana and PM Kishan Sammn Nidhi. For rural women 1.8 lakhs SHGs are to be set up for the economic empowerment of the woman under the National Rural Livelihood Mission. Schemes and packages are also announced to integrate the handicraft sector with the MSME value chain.
However, there are certain expectations that were missed in the budget are ease of the financial pains of the middle class. Though the new personal income tax structure gave marginal relief, however, if we compare the tax sops with price rise and inflation, the absolute benefits of tax relief to the middle-income group taxpayers will be negligible. There was no announcement of the production-linked incentives (PLI) and no details of financial reforms were discussed to spur financial inclusion. So the Union Budget 2023-24 is not able to soothe the pain of the middle class. We can say this is a budget of expenditure and hope as huge allocations for capital expenditure is allocated. The finance minister did the marvellous task of balancing the budget keeping in mind the trinity – increasing capital expenditure by 33 per cent, slashing income tax and yet reducing the fiscal deficit. The budget has drawn praise from economists like Jean Dreze who remarked that the Finance minister has maintained too much austerity which is opposite to populism and adjusted for inflation. To answer this question whether it is a populist or pragmatic budget, it is more pragmatic than populist which may stimulate economic growth and usher in job creation.
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 C. Raj Kumar, the Founding Vice Chancellor of O.P. Jindal Global University at the announcement of the launch of India’s First Constitution Museum (1)_20241122101146_original_image_20.webp)
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