In many ways, the Budget has something for everyone—small enterprises, farmers, and the youth. The focus on green energy is commendable. The stress on the use of digital infrastructure is noteworthy
Finance minister Nirmala Sitharaman has shown extraordinary restraint in not presenting an expansionary Budget for 2023-24. Although general elections are due in 2024 and the economy is expected to decelerate next year to sub-6%, the government plans to spend just 7.4% more than in the current year. Moreover, in an affirmation of the government’s commitment to fiscal consolidation, the fiscal deficit target has been pegged at 5.9%, putting it on course to hit 4.5% in the next two years. This is a credible Budget that brings much-needed relief to middle-class households, benefits to small enterprises and also has a growth impetus. Given India’s high capex multiplier of 4x, the capex outlay of Rs 10 trillion should boost output meaningfully. At the same time, the changes to the new income tax regime make it a winner; it is expected to attract taxpayers to it while leaving more money in the pockets of the consumers.
To be sure, the revenue assumptions are optimistic. Gross tax revenues are estimated to rise by 10.4% following the 12.3% increase in the current year. That implies an assumed tax buoyancy of 1x in a year when the economy is poised to slow down. This is against the estimated buoyancy of 0.8x in the current year. Also, lower inflation will result in the nominal GDP growing at a much slower 10.5% next year compared to the current year’s 15.4%, while tax concessions will cost Rs 35,000 crore. Given the government’s poor track record on disinvestment, it is unlikely the modest target of Rs 51,000 crore would be achieved this time. In fact, even the reduced target for the current year might not be met. Since the dividends from the Reserve Bank of India (RBI) and banks are estimated at just around Rs 48,000 crore for FY24, any slippage in the disinvestment target would hurt the fiscal math.
In a welcome departure from past trends, the FM has chosen to lower customs duties on a host of items but without sacrificing revenues. The government will fork out nearly Rs 1.5 trillion less on food and fertiliser subsidies next year even after spending Rs 2 trillion on the free-food programme. This saving has helped Sitharaman announce a large capex outlay of Rs 10 trillion, a big jump of 37.4% over FY23 and 3.3% of GDP. The outlay comes on the back of an outlay of Rs 7.3 trillion in the current year. In fact, the effective capex next year would be even higher at Rs 13.7 trillion, or 4.5% of GDP with the states continuing to get Rs 1.3 trillion of interest-free loans. The casualties of this capex heavy-lifting are the health and education sectors, neither of which has seen an increase in allocations. At 0.3% and 0.4% of GDP, the health and education budgets are, in fact, flat.
While that is a disappointment, bigger allocations would have pushed up the deficit to beyond Rs 17.86 trillion and the government would have needed to lean heavily on the bond markets. As of now, the gross and net borrowings projected for 2023-24 of Rs 15.43 trillion and Rs 11.8 trillion, respectively, are more or less in keeping with market expectations, and the fall in benchmark yields on Wednesday suggests the markets are not perturbed.
The highlight of the Budget is undoubtedly the revision in the framework of the new income tax regime for which the rebate has been raised to Rs 7 lakh per annum from Rs 5 lakh under section 87A. So far, it has found few takers, but the bigger rebate and the standard deduction for the salaried class and pensioners should encourage many more individuals to switch to it.
Also read: Union Budget 2023 – An inclusive and progressive budget in the ‘Amrit Kaal’
In many ways, the Budget has something for everyone—small enterprises for whom the credit guarantee limit has been enhanced; farmers with the direct lending target for agriculture having been pegged at Rs 20 trillion; and the youth for whom skilling programmes have been announced. The focus on green energy is commendable and efforts should be made to spend Rs 35,000 crore on energy transition projects. The thrust on infrastructure and logistics of the past few years continues and the stress on the use of digital infrastructure is particularly noteworthy.
The start-up ecosystem will welcome the benefit of being allowed to carry forward losses on a change of shareholding from seven to ten years and will cheer the extension of the date of incorporation for income tax benefits by a year. However, there are some stings in the tail—one being the imposition of angel tax on non-residents, which can be termed regressive and could hurt investments. Turning away capital, in these tough times, is not advisable.
