Budget offers bounty, but with subtly placed caveats

Finance Minister Nirmala Sitharaman’s first ‘Amrit-kaal’ budget and the last one before the 2024 General Elections has no big surprises, but several messages aimed at various sections of the society are packaged with subtle caveats. The big thrust, however, is a continuation of Prime Minister Narendra Modi’s vision of spending big on capex and infrastructure projects, hoping it would bring in private investment and spur growth and employment in the coming years. 

Of course, being an election year, the Budget has some carefully crafted announcements to please the middle-class, the rural voters and those on the margins while not leaving any slack on the fiscal situation. Keeping in mind the difficult geo-political situation, the Finance Minister has tweaked customs duties with the hope that it would spur exports. But she has refrained from mentioning this anywhere in the budget. 

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Whether these decisions would address two big questions — unemployment and pick-up in domestic consumption, which fuels 60% of India’s GDP —  is yet to be seen. Sitharaman realises that the revenue growth this year has been good because of what is called ‘low base effect’ caused by underperformance of the economy during Covid. But the same situation may not continue in 2023-24, this being a normal year, as the Economic Survey 2023 has declared the effects of pandemic as ‘over’.

Tax relief with terms & conditions

The FM has given relief to the middle class by raising the exemption limits but with a condition. She is encouraging everyone to move to the new tax regime which has no exemptions. She has made no change in the old tax regime except  mentioning that those with income up to ₹5 lakh need not pay income tax. But for the new tax regime she has hiked the level to ₹7 lakh. 

She has reworked the tax slabs for the new tax regime, reducing them from seven to five. The standard deduction for government servants has been tweaked. This, combined with the introduction of a new small saving scheme for women, should please some sections of the middle class. The old tax scheme, however, remains as it is. The tax foregone because of this announcement is likely to cost the exchequer ₹35,000 crore. 

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The Gujarat model of Modi continues, where spending on big projects is done with the expectation of an overall economic revival. Modi has so far refrained from a ‘please all’ kind of budget. Even in 2018 (which was another pre-election year budget) he focused on revival of industry and economy. The 2022 Budget despite Covid hardships gave the biggest tax break to private business by slashing corporate tax and allowing a 40 per cent jump in capex spending. 

Capex cheer

He has continued the trend with his Finance Minister announcing a 33 per cent hike in capital expenditure which is 3.3 per cent of the GDP. With this the Modi government has taken the capital expenditure from ₹7.5 lakh crore to ₹10 lakh-crore, which was the expectation of the business community. This is a big allocation for the sector three years in a row. The stock market cheered the move and it remained in the green territory throughout the FM’s budget speech. 

The grants in aid for creation of capital assets given to the states too have been hiked by another 16%. But these grants are tied to states agreeing to several schemes that include scrapping old vehicles (especially government owned) urban planning, municipal works, housing projects and setting up libraries etc. With this the total capex goes up to ₹13.7 lakh-crore.

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The FM did make several announcements for the MSME or the medium and small industries sector as they have taken the brunt of the Covid onslaught. They have been given credit guarantee facility with an infusion of ₹9,000 crore in the corpus. This should enable additional collateral free guaranteed credit of ₹2 lakh-crore. Besides, she has promised to reduce the cost of credit by 1 per cent. 

Macro numbers

Sitharaman promises to bring down the fiscal deficit to a moderate 5.9 per cent of the GDP in 2023-24. She has managed to contain the fiscal deficit at 6.4 per cent of GDP in the current year thanks to good revenue realisation both on the direct and indirect tax front. This has given her a cushion and she hopes to maintain the glide path and achieve the targeted 4.5 per cent of GDP by 2024-26. 

The FM, however, did not mention the issue of price rise in her budget as she had long ago declared it as a non issue. But the very fact that she decided to accommodate the middle class in her budget is a tacit admission of the issue. 

The FM has kept the GDP growth estimates at 7 per cent of GDP. Thanks to political hype, Indians have begun to understand GDP as the only indicator of overall well-being of the economy as GDP growth determines the sum total of the growth of the economy. India is the 5th biggest economy in global rankings as of now and has ambitions of becoming  number 3 within Amrit Kaal — the next 25 years. FM did take credit saying that in the nine years since the Modi regime came to power India’s place in the global economy has improved from 10th to 5th position now. 

Health, education allocation  

The allocations for health and education have been meagre in the budget. The school education has got only 8.4 per cent and higher education 7.9 per cent. The allocation for the Health Ministry is a meagre 3.8 per cent. There has actually been a cut for health research. If India has dreams of becoming a superpower it should fix its education.

The FM does understand that the tax buoyancy may not be kept up this year. Therefore the revenue target has been brought down from 25.5 per cent in the last year’s budget to a more moderate 19.5 per cent this year. As far as the non tax revenues are concerned the disinvestment has been given almost a go by. The target has marginally been increased from ₹60,000 crore in 2022-23 to ₹61,000 crore in 2023-24. 

Besides the macro economic factors in the part A of the speech the Finance Minister has focussed on a number of rural schemes. The PM-Kisan scheme would continue and so would MGNREGA. Agriculture is being brought into the digital information system. This is to get farmers more information about crop patterns, produce etc. This might help them to get more market intelligence, the minister said in her speech. If the farmers are given price information that would really help them in a big way. 

The Budget has also taken into account the importance of the green economy, focused on urban development and plans to expand the India Stack which has been a great success. The government thinks besides the formalisation of the economy it would bring a certain ease of governance. 

Now, since the Budget has been presented, the Prime Minister and his team will hard-sell the document in the run up to the elections as it is peppered with welfare announcements for the scheduled caste, scheduled tribe, those on the margins, women etc. The Budget is certain to please the industry. As far as the masses are concerned, they can certainly expect more flashy announcements in the coming days based on the Budget.