Last week was filled with Budget talk. The Union Budget has become more than an Annual Statement of the estimated Receipts and Expenditure of the central government for a financial year. It is now the principle vehicle to convey to the people the policies and programmes of the government. People look to the Budget for specific proposals as well as signals.
The voiceless, however, remain voiceless. They have no access to the decision-makers in the government and rely upon the political parties and the MPs to act as a bridge. A dominant government with a majority in the Lok Sabha is usually self-obsessed and does not consult the political parties or the MPs.
CEA reveals context
People and experts look to the Economic Survey (ES) that is presented on the eve of the Budget for an update on the economic situation. As usual, the ES for 2022-23 in Chapter 1 contains the ‘outlook’ for the next year. This year, the Chief Economic Adviser (CEA), after wandering without direction, summed up the crux of the ‘outlook‘ for 2023-04 in two paragraphs that are reproduced below (emphasis mine).
1.30. Even as India’s outlook remains bright, global economic prospects for the next year have been weighed down by the combination of a unique set of challenges expected to impart a few downside risks. Multi-decadal high inflation numbers have compelled central banks across the globe to tighten financial conditions. The impact of monetary tightening is beginning to show in slowing economic activity, especially in Advanced Economies. Besides this, adverse spillovers from the prolonged strains in supply chains and heightened uncertainty due to geo-political conflict have further deteriorated the global outlook. Hence, global growth is forecasted to slow from 3.2 per cent in 2022 to 2.7 per cent in 2023 as per IMF’s World Economic Outlook, October 2022. A slower growth in economic output coupled with increased uncertainty will dampen trade growth. This is seen in the lower forecast for growth in global trade by the World Trade Organisation, from 3.5 per cent in 2022 to 1.0 per cent in 2023.
1.31 On the external front, risks to the current account balance stem from multiple sources. While commodity prices have retreated from record highs, they are still above pre-conflict levels. Strong domestic demand amidst high commodity prices will raise India’s total import bill and contribute to unfavourable developments in the current account balance. These may be exacerbated by plateauing export growth on account of slackening global demand. Should the current account deficit widen further, the currency may come under depreciation pressure.
If the CEA thought he had done his job, he was wrong. He should have subjected the ‘outlook’ to rigorous analysis in the Indian context and laid out the options before the government to take preemptive or corrective measures. At the same time, the Hon’ble Finance Minister (FM), after reading Chapter 1 of the ES, was obliged to share her assessment with Parliament and spell out the measures she would take. Both failed. As a result, the text of the Budget speech has no relevance to the context in which the Budget was presented. The 90-minute speech was a long whistle in the dark.
Three doubtful highlights
Three things stand out in the Budget: (1) Having failed to spend the money allocated to capital expenditure in 2022-23, the FM has bumped the Budget Estimates for capital expenditure in 2023-24 upwards by a whopping 33 per cent. (2) Having made cruel cuts in expenditure on social welfare programmes, the FM has sought to assure the poor and the disadvantaged that their welfare is paramount. 3) Having failed to motivate people to migrate to the New (no-exemption) Tax Regime (NTR) that she introduced in 2020, the FM has put out questionable calculations of how the NTR is a boon for the middle-class tax-payer.
None of the three highlighted points will strand close scrutiny. First, government capital expenditure. The FM has tacitly admitted that the other three engines of growth are sputtering. Exports are down; private investment, despite the FM scolding industrialists, is sluggish; and consumption is stagnant and may fall. The FM had no option but to enhance government capital expenditure. In 2022-23, against a BE of Rs 7,50,246 crore the RE will fall to Rs 7,28,274 exposing the entrenched weaknesses in execution of government projects. Ignoring the constraints and the absorptive capacity of the ministries (e.g., railways and roads), the FM has allocated Rs 10,00,961 crore! Even the votaries of capital expenditure are flummoxed.
Second, the promise to enhance expenditure on welfare. In 2022-23, under multiple heads — Agriculture, Education, Health, Social Welfare, Urban Development, Umbrella Schemes for Development of SC, ST, Minorities and Vulnerable Groups, etc. — the government has short-changed the target groups, making budget allocations false promises. Subsidies on Fertilizer and Food for next year have been cut by Rs 1,40,000 crore against the RE of the current year. Allocation for MGNREGA has been cut by Rs 29,400. What is left are only soothing words.
Cracking the whodunnit
Finally, the mystery of the New Tax Regime. It is already unraveling. The subject requires a separate treatment next week. One thing is clear: government intends to abolish all exemptions from personal income tax.
Brace yourself for a rollercoaster ride in an uncertain year.
Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.