Dr. Badri Narayanan Gopalakrishnan,
Union Budget 2023: As our finance minister rose today to present the budget speech, expectations were ripe from every section of the society and economy. In a nutshell, the tough part of this job was the tradeoff between what does the economy need now and what do the people at large demand, aka populist. While it may appear to many that the two are the same, it is far from the reality. Almost as a rule of thumb, what is mostly perceived as good for people at large is typically not necessarily so good for the economic fundamentals. Now, this is where this budget speech really scores well by balancing both of these meticulously. Middle class and vulnerable sections of the society have got their pieces of good news while fiscal prudence has been kept intact, while also crafting a positive roadmap for capital accumulation and a pragmatic trade policy to boost exports while substituting imports.
To begin with, an assumption of 10% nominal growth in GDP is relatively conservative, and hence the overall approach is quite cautious, stable and hence, we may expect more positive outcomes in reality, broadly. Given this, several welfare and infrastructure schemes have received huge impetus. Expansion of funds allocated to PM Awas Yojna by more than half it was last year and increased emphasis on urban infrastructure among others are good examples of this aspect. A renewed focus on millets, including renaming them as “Sree Anna” is a noteworthy aspect of the budget, which can serve multiple objectives of sustainability, nutritional and trade. Building a digital public infrastructure for the farmers is another welcome move, and so is the impetus on cooperative sector. A comprehensive policy expected on our artisans is yet another massive step to empower the vulnerable sections of the economy to rise to the forefront of global trade. Skill development schemes in many areas, for example in terms of nursing colleges, can pay huge dividends both socially and economically.
Furthermore, substantial impetus has been given to research and development as well as data governance, Artificial Intelligence (centers of excellence) and digital transformation. Researchers may sincerely hope that the sharing of anonymized data for research, as mentioned in the speech, could probably include the wide range of digital transactions datasets. This may ensure that several aspects of oft-delayed sample surveys may be captured in an automated real-time basis more on a population basis rather than sample basis. With such a development, India can lead the world on how data collected on a real-time basis can help develop policies and strategies.
Substantial increase in capital expenditure, reduction capital gains taxes and reduced fiscal deficit targets going forward while sticking to the past targets for now, are other attractive highlights of the budget that suggest a positive approach to capital while being fiscally prudent. Reduction of the highest income tax rate from 42% to 39% is an important step that can boost consumption among the richer people. Middle class consumption may witness a boost insofar as they take up the new regime of income taxation, due to the tax-free limit of Rs 7 Lakhs. An overall consumption boost of about 25 basis points of GDP may be a direct effect of these changes.
Tariff changes in this budget are quite pragmatic and positive, with quite directed moves downwards and upwards. Amidst the economic theories oscillating between complete free trade and complete protectionism, a practical policymaker would choose the middle path of pragmatism. Lowered tariffs on intermediate inputs and raw materials in general help fix the long-held bothersome inverted duty structure issue. Examples include some inputs into textiles, capital equipment for electric vehicles and lithium battery production, parts of TV equipment, electric heat coils, inputs for ethanol blending, acid grade fluorspar, crude glycerine, inputs to marine products like shrimp feed, natural diamonds, etc. Tariffs have been increased for competing imports that may affect domestic industry, such as artificial rubber.
Investments may receive a boost mainly from the crowding in driven by public capital expenditure as well as the efforts to improve ease of doing business, such as reductions in compliance burdens and legal incriminations. This is quite important to capture the global geopolitical changes that throw India open to many new opportunities in the context of the efforts by the rest of the world to foster supply chain resilience. No budget can be complete without tracking global changes, and this one is no exception. In addition to the resilience aspect, it has also effectively taken into account the uncertainties from the Russia-Ukraine war, possibilities of a global recession and inflation fears.
Furthermore, there is a clear focus on “green” sectors and investments, in a miniature response to the US Inflation Reduction Act and the EU’s proposed Carbon Border Adjustment Mechanism, to equip our industry to help us achieve net zero targets while also facing the competition and breaking the barriers erected by the West for our sectors that are not able to green up. Much more is needed in this direction to prepare our industry better, as well as in terms of other efforts to boost both investment and consumption, and other sectors that merit more attention like healthcare. While many reforms have still not happened, this is not the time for radical changes for a variety of reasons and the stability component of this budget may be much appreciated by many.
Dr. Badri Narayanan Gopalakrishnan is a Fellow and Former Head, Trade and Commerce, NITI Aayog. Views are personal.