Economists always try to balance their view with hits and misses while analyzing the budget. When one looks at the one presented for 2023-24, it literally fits the bill of being a Pareto optimal budget, a situation when nobody is actually worse off but some sections are better off. This budget has pleased the sensibilities of all sections. Let’s see how it’s done.
Economists would be happy that the fiscal deficit is on the path of prudence. The ratio has to be brought down from 6.4% to 5.9% of gross domestic product (GDP), which means that the 4.5% mark is indeed not far away, and can be achieved by 2025-26 if conditions remain stable across the world. May go. , as currently being targeted by the government.
Bankers will be pleased that while the deficit is small 17.86 trillion, the Center plans net market borrowing 11.8 trillion, which is the same as in 2022-23. This means that given some pressure in the current system, there will be no additional pressure on liquidity in the market. This has reassured the bond market, as yields have seen a slight dip since the announcement of these numbers. This number will also provide relief to the Reserve Bank of India (RBI), which will come out with its monetary policy next week. In fact, if the latest Economic Survey findings are combined with the fiscal maths of the Budget, the RBI will be able to take a more nuanced view on the repo rate, as inflation is expected to come down next year.
Companies have always been demanding more capital expenditure from the government. This argument is strong. If the government expands its capital expenditure, it will crowd-in private investment. This theory sounds good, however has not worked in the past as corporates invest when there is a profit to be made, while the government does so because it must because no one else is doing it. capex target of 10 trillion for 2023-24 is substantial, and, as states normally put in a similar amount, this should help move the needle. The focus is on roads and railways, which have the strongest links with other sectors of the economy.
People will also get relief from some provisions made in the budget. The benefit for women and senior citizens is welcome, as it protects them from the high inflation experienced in the past three years. Changes have also been made in different tax slabs, provided a new scheme is adopted. We can’t be sure how many people will pick it up, as the response at first hasn’t been great. But to the extent that people choose it, there will be savings that will either protect against past inflation or increase consumption.
The Union Budget has been a bit conservative when it comes to pro-poor schemes. For example, the outlay of Pradhan Mantri Kisan Samman Nidhi Yojana has been maintained 60,000 crore, and there is clearly no pitch to increase it. Similarly, the food subsidy bill will be reduced by approx. 90,000 crore as the free food scheme has been merged with the public distribution system, while the outlay of the National Rural Employment Guarantee Scheme is less. Therefore, it can be said that the budget has also been in ‘return to accommodation’ mode, as the worst is behind us, as argued by the Economic Survey. This has actually enabled the government to reallocate funds for capital expenditure.
Are there any question marks here? There may be some discussion on the disinvestment plan of the budget. The global climate in 2023 will be uncertain. No one is sure how foreign investors will behave and whether the Indian stock market boom will continue. Under these conditions, it is expected to increase 61,000 crore could be challenged by the sell-off. the government has been optimistic to 60,000 crores in 2022-23 as well, which means some huge sales will have to be made in about two months till the end of March 29,000 crores.
The second question is on tax buoyancy. It is assumed that taxes will increase by 12% this year, compared to about 15.9%. Generally, this growth rate is traced to the GDP. There was an unusual jump in tax collections in 2022-23 due to high inflation and pent-up demand. But can it be repeated, given that GDP growth will be 10.5% and pent-up demand may fade?
Therefore, the revenue side may offer some reason for apprehension. But the budget balances things and optimizes funds by reallocating expenditure in favor of capital expenditure so that development processes can be taken forward. Budget always works on the assumptions of growth which cannot be predicted in advance. Also, there is always the possibility of things derailing like a war or any other disturbance, which requires a re-look at the budget. Here the Supplementary Demands for Grants play a role where additional allocations can be made.
The Budget for 2023-24 scores well on almost all these points, which is commendable. All the more so because there were expectations that in the pre-election year, there might be a tendency to loosen up a bit on expenditure in pursuit of ‘populism’. Instead, the government has gone beyond this orthodoxy, stuck to the path of prudence and has also become development-oriented.
Madan Sabnavis Chief Economist, Bank of Baroda and ‘Lockdown or Economic Destruction?’ is the author of.
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