Construction of Coastal Road Project in Mumbai. , Photo Credit: PTI
TeaThe budget comes at a time when the government faces a delicate balancing act between expenditure priorities and the need for fiscal prudence as it Last full budget before general elections, From a macroeconomic perspective, two areas were of concern: the fiscal deficit target for 2023-24 (FY24) and the allocation for capital expenditure (capex). In both cases, the budget rests on the trajectory of previous years.
There are five issues that need to be analyzed in this budget – three from a growth and fiscal stability perspective and two from a welfare perspective.
development approach
The first is the consistency in the path of fiscal consolidation, which the Finance Minister is sticking to. The fiscal deficit ratio is to come down from 6.4% in FY23 to 5.9% in FY24, which means we are moving towards the fiscal deficit target of 4.5% of GDP by 2025-26. Here, the finance minister is guided by the argument that the economy has recovered from the shock of the pandemic and is on a growth path, which means there is no need for continued affirmative action. The fiscal deficit target assumes that the economy is in a relatively strong position with another year of healthy tax collections.
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However, the impact of global headwinds will remain. According to the International Monetary Fund, one-third of the global economy is expected to fall into recession in the calendar year 2023. This could hit manufacturing and other related sectors and impact revenue collection.
On the expenditure front, the budget rested on spending commitments for infrastructure and key welfare and subsidy schemes. The fiscal deficit of ₹17.8 lakh crore will be financed using short-term borrowings and the National Social Security Fund. Given the tight liquidity position of the banking system, this will not put pressure on the flow of funds.
The second is the question of infrastructure and capex. The government believes that the best way to sustain India’s growth, create more jobs and boost consumption is through high multiplier capex. An increase of ₹10 lakh crore in capex is substantial and will be 3.3% of GDP as compared to 2.7% last year. This is also complemented by Rs 79,000 crore on affordable housing on the revenue expenditure side. States can continue to avail long-term, interest-free loans for their capex requirements, but within select broad sectors. As in earlier years, the Center has been heavy-handed here and trying to pass the baton to the private sector with its share of the ‘mob’. How much of this comes is important for medium-term growth prospects.
Third, on the revenue front, the government has laid down its ambition for an increase in direct taxes for FY24, following a boom in tax receipts in FY23 and FY22. Direct tax exemptions have been provided for individuals and MSMEs in the budget. However, this may not translate into higher consumption as it is an indexation of lower tax brackets with inflation, which has been high in the recent past. In terms of tackling inflation, the Budget is silent on two possible possibilities: GST-related issues, which are outside its purview; and to modify the rate of excise duty on fuel. In terms of revenue, the figures related to disinvestment and non-tax revenue are interesting. The budget for disinvestment is Rs 51,000 crore and the target for FY23 has been reduced to only Rs 50,000 crore. This means that we can expect some big-ticket items in the next two months. With regard to non-tax revenue, dividends from the banking sector, including the Reserve Bank of India (RBI), have been pegged at ₹48,000 crore, meaning transfers from the RBI could be lower in the coming year.
welfare approach
Fourth, for the social sector, there is a comprehensive approach to provide last-mile connectivity. The budget takes the route of empowering women through self-help groups, which are mostly in rural areas. Ambitious programs have been set for this and for the cooperative sector. But spending on the social sector has not registered a jump, although both education and health have increased in absolute terms with some new initiatives towards skill development.
Fifth, the budget promotes the transition from the old tax regime to the new, from traditional to digital agriculture, from fossil fuels to hydrogen, from natural to lab-grown diamonds. These require long-term commitments and clear transition paths.
The budget will be examined on two grounds. First, there are signs of improvement in the balance sheets of both companies and banks, as we come out of twin balance sheet problems. This should translate into a spurt in the private investment cycle to create more jobs. But the bottleneck is demand, as reflected in capacity utilisation, which is still around 75%. Therefore, capex needs to drive higher disposable income and increase in demand.
Second, although we aspire for a lot of change, one important change has to be made. As noted in the Economic Survey, 16.4% of the population is multidimensionally poor and an additional 18.7% is classified as multidimensional poverty. We need to change these two groups. finally he is Everyone’s development.
M. Suresh Babu is Professor of Economics at IIT Madras and currently an advisor to the Prime Minister’s Economic Advisory Council. views are personal