Union Finance Minister Nirmala Sitharaman addresses a press conference on Union Budget 2023-24, in Jaipur on February 20, 2023.
| Photo Credit: PTI

The measures like increased capex, boosting the green economy and initiatives for strengthening financial markets announced in the Budget 2023-24 are expected to promote job creation and spur economic growth, the Finance Ministry said on Thursday.

In its Monthly Economic Review, the Ministry said during the December 2022 quarter, various High-Frequency Indicators (HFIs) pointed towards a slowdown in general, as monetary tightening appeared to have started weakening global demand.

“This may continue in 2023 as various agencies have forecasted a decline in global growth. Apart from the lagged impact of monetary tightening, the uncertainties emanating from the lingering pandemic and relentless conflict in Europe may further dampen global growth,” it noted.

Even as global output is expected to slow, the IMF and World Bank project India to be the fastest-growing major economy in 2023.

“As in 2022-23, India faces the coming financial year with confidence imparted by underlying and overall macroeconomic stability while being on the alert against geo-political and geo-economic risks,” the monthly review said.

The Economic Survey 2022-23, tabled in Parliament ahead of the Budget, had pencilled in a growth rate of 6.5% for FY24 but with more downside than upside risks, it added.

“Inflation risks are likely to be lower for India in FY24. Still, they will not have vanished as global conditions, such as geopolitical conflicts and consequent supply disruptions that contributed to higher inflation in 2022 are still present,” it said.

Predictions of a return of El Nino conditions in the Pacific could presage a weaker monsoon in India, resulting in lower output and higher prices. Similarly, as with prices, external deficits may be a lesser challenge in FY24 than in FY23, but close attention to trends in international trade and capital flows will be warranted.

The 2023-24 Budget has yet again provided a capex stimulus to growth by increasing the Centre’s capex budget to ₹10 lakh crore — 33% higher than the previous year.

“By doing this, the Government is continuing its push towards investment-driven growth amid global headwinds…The measures announced in the Union Budget FY24, such as a rise in capital expenditure, increased focus on infrastructure development, boost to the green economy, and initiatives for strengthening financial markets etc., are expected to promote job creation and spur economic growth,” it said.

The Budget FY24 has also announced measures to increase spending and consumer demand. These include the rationalisation of tax slabs and an increase in the basic exemption limit from ₹2.5 lakh to ₹3 lakh under the New Personal Income Tax Regime (NPITR).

“The Union Budget has further introduced important process measures, such as the setting up of the National Financial Information Registry, the implementation of a single window system, and reforms in property-tax governance, among others.

“These will improve processes in the financial market and, in turn, enable regulators to create a more effective feedback mechanism to review regulations,” the Ministry’s monthly review report said.

The steps announced in the Union Budget FY24 will sustain the growth momentum that has characterised the Indian economy in the current year while aiding in addressing inflationary pressures. Even though the Consumer Price Index (CPI) inflation rose to 6.5% in January 2023, headline inflation in India has been showing a downward trend in the second half of FY22, it added.

Measures announced for the MSME sector will likely reduce the cost of funds and aid small enterprises. Revision in tax slabs under the New Personal Income Tax Regime is expected to boost consumption, thus providing more impetus to economic growth. Easier KYC norms, expansion of DigiLocker services, and overall impetus on digitisation and last-mile connectivity are predicted to strengthen financial markets, the report said.

“Thanks to the emphasis on macroeconomic stability in the last several years, the Indian economy faces the year ahead with confidence while being mindful of the risks,” it added.

Union Finance Minister Nirmala Sitharaman with Minister of State for Finance Pankaj Chaudhary addresses a press conference in Mumbai on February 4, 2023.
| Photo Credit: PTI

The story so far: In the Union Budget for 2023-24, Finance Minister Nirmala Sitharaman chose the path of relative fiscal prudence and projected a decline in fiscal deficit to 5.9% of gross domestic product (GDP) in FY24, compared with 6.4% in FY23. Ms. Sitharaman said the government planned to continue on the path of fiscal consolidation and reach a fiscal deficit below 4.5% by 2025-26. To finance the fiscal deficit in 2023-24, she said the net market borrowings from dated securities are estimated at ₹11.8 lakh crore, and that the balance financing is expected to come from small savings and other sources. The gross market borrowings are estimated at ₹15.4 lakh crore.

What is the direction on fiscal deficit given in the Budget?

In Union Budget 2023-24, the fiscal deficit to GDP is pegged at 5.9% in FY24. This ratio has declined from 6.4% in 2022-23 (revised estimate) and 6.7% in 2021-22 (actual).

In the revenue budget, the deficit was 4.1% of GDP in 2022-23 (revised estimate). In Union Budget 2023-24, revenue deficit is 2.9% of GDP. If interest payments are deducted from fiscal deficit, which is referred to as primary deficit, it stood at 3% of GDP in 2022-23 (RE).

The primary deficit, which reflects the current fiscal stance devoid of past interest payment liabilities, is pegged at 2.3% of GDP in Union Budget 2023-24.

Are allocations lower for some sectors?

The major allocations that have been pared down are food, fertilizer and petroleum subsidies. The food subsidy in 2022-23 (RE) was ₹2,87,194 crore. In 2023-24, it has been reduced to ₹1,97,350 crore. Similarly, the fertilizer subsidy in 2022-23 was ₹2,25,220 crore (RE); it has been reduced to ₹1,75,100 crore for FY24. The petroleum subsidy in 2022-23 was ₹9,171 crore (RE); it has declined to ₹2,257 crore in 2023-24 (Budget estimate/BE). However, the point to be noted is that compared with BE 2022-23, the decline is not that sharp. In BE 2022-23, food subsidy was ₹2,06,831 crore; fertilizer subsidy was ₹1,05,222 crore, which was less than what has been allocated in BE 2023-24. It is a laudable decision to extend food security to the poor for one more year amid rising inflation. However, rationalisation of subsidies is important so that the government can move towards reaching a fiscal deficit target of 4.5% by 2025-26.

What needs to be done for growth?

Inflation hurts the poor. The interest rate management by the RBI through inflation targeting alone cannot effectively control inflation, given the supply side shocks. Therefore, fiscal policy measures are crucial to tackle mounting inflation. Policy coordination between RBI and North Block is crucial for a sustained growth recovery process. The RBI has been increasing policy rates to tackle mounting inflation. But a high interest rate regime can hurt the economic growth process. So, the fiscal policy needs to remain “accommodative” with focus on gross capital formation in the economy with enhanced capital spending, especially infrastructure investment. In Budget 23-24, capital spending is expected to rise to 3.3% of GDP. The interest-free loan of ₹1.3 lakh crore for 50 years provided to States should help them spend and boost growth.

Also read | Fiscal deficit touches almost 60% of full-year target at end-December

Ms. Sitharaman stressed that infrastructure investment has a larger multiplier effect on economic growth and employment.

Can the govt. stick to fiscal consolidation?

The Government has not deviated from the path of fiscal consolidation. In Union Budget 2023, the medium-term fiscal consolidation framework stated that there is a need to reduce fiscal deficit-GDP ratio to 4.5% by 2025-26 from the current 6.4%. There are revenue uncertainties in post-pandemic times and also geopolitical risks, mounting inflation, supply chain disruptions and energy price volatility. At the same time, the Government has kept the fiscal policy “accommodative”, and has undertaken capital spending to support economic growth recovery. The predominant mode of financing fiscal deficit in India is through internal market borrowings. It is also to be financed through securities against small savings, provident funds and an insignificant component of external debt. In Union Budget 2023, India’s external debt is pegged at ₹22,118 crore of the total fiscal deficit of ₹17,86,816 crore in 2023-24 (BE), which is approximately about 1%. In Union Budget 2023, it is also stated that the States will have to maintain a fiscal deficit of 3.5% of GSDP of which 0.5% will be tied to power sector reforms.

What are rating agencies saying?

According to Moody’s, leveraging buoyant revenue, the Government plans to substantially increase spending on infrastructure, while cutting personal income taxes, and providing capital support for the oil sector. The Budget plans are credit positive for renewable energy companies, cement and steel producers, oil marketing companies and automakers in particular, it said.

While continued gradual fiscal consolidation contributes to the stabilisation of the government’s debt burden and supports credit quality, authorities remain unlikely to achieve their ambitious target to narrow the deficit to 4.5% of GDP by FY26, Moody’s added. According to Fitch Ratings, the slow fiscal consolidation process in the wake of the pandemic could leave public finances exposed in the event of further major economic shocks.

What lies ahead?

The Finance Minister is focusing on economic growth recovery through capex. She contends that infrastructure investment will boost private investment. In the fiscal deficit-GDP ratio, if the denominator GDP expands, it will reduce the overall fiscal deficit-GDP ratio. Her focus is on economic growth recovery to strengthen GDP.

Lekha Chakraborty is Professor NIPFP & Member, Board of Management, International Institute of Public Finance (IIPF), Munich

Budgets offer a mixed bag of goodies – so it is with science that has seen both promising and indifferent budgets over the years. As they look at the half-full (or half-empty) tumbler, some see encouraging initiatives, while others crunch the numbers and reveal a disheartening percentage of the GDP allocated for science.

Some top scientists from diverse disciplines shared their views with The Hindu on their takeaways from the 2023-2024 Union Budget, in terms of funding, initiatives, its relevance to their institutions’ areas of work, and what more is left to be done. The basic numbers are available to recap here.

Dr N. Kalaiselvi, Director-General, Council of Scientific and Industrial Research (CSIR)

The first budget of Amrit Kaal is a visionary one. The budget is very favourable to the science and technology ecosystem of the country. It has focused on the crucial areas of energy security, food and nutrition security, health security, environment security, etc. CSIR has an active presence in all these areas.

CSIR plays a pivotal role in green hydrogen R&D under the National Hydrogen Mission, for which Rs. 19,700 crore has been allocated. The budget also takes into account battery energy storage. It provides a boost to research in the area of energy technologies, especially renewables and green energy.

The Hon’ble Finance Minister has assured support to India of becoming a ‘Global Millets Hub’. The announcement coming in the International Year of Millets augurs well not just for India but for the entire world.  It is also heartening to note that Rs 2,200 crore has been budgeted for high-value horticulture.

CSIR has a Sickle Cell Anaemia Mission, and the announcement today of a National Mission to eliminate Sickle Cell Anaemia by 2047 is visionary. Also the application of artificial intelligence [AI] in various sectors, including healthcare applications and focus on futuristic medical devices and technologies, augur well for taking up research and development in key health areas.

CSIR has an ongoing AI programme that will augment the application of AI in several areas including health through Mission Mode Projects in the coming financial year. 

It is heartening to note that a new programme to promote research and innovation in pharmaceuticals will be taken up through centres of excellence. The budget announcement to encourage industry to invest in research and development in specific priority areas is laudable.

CSIR also has a Waste-to-Wealth Mission that addresses environmental issues. Several important announcements have been made, on the environment front. Be it the preservation of mangroves and wetlands, promoting natural farming, biomass, bio-manure and biogas, scientific management of dry and wet waste, the 2023 Union Budget, through programmes such as PM-PRANAM, MISHTI and Amrit Darohar, is a truly green budget.

Dr C.P. Rajendran, National Institute for Advanced Studies

India’s 2023-2024 Union Budget unveiled today indicates an allocation of Rs 2,000 crore more than what the Ministry of Science and Technology received in the previous budget. But considering the growth in expenditure on account of inflation, etc., this cannot be termed as a big jump.

Although I would say this as a welcome step, India’s science expenditure still hovers around 0.7% of GDP – way below the other developed and developing countries, including China.  The increased fund infusion of Rs 2,000 crore is probably required to meet the allocation shown against the National Science Foundation (NSF), a new funding scheme shown under the Department of Science and Technology.

Although the idea of the NSF was initially stated in the 2020 National Education Policy, it is only now that the government has made the actual fund allocation for this new entity. This again is a welcome step for developing a culture of research in the country, purportedly for undertaking major initiatives in the state universities and public institutions, but it is not clear how this is going to be different in its financial management from the existing funding agencies, which are stifled by rigid bureaucracy.

What are the guarantees that this agency will remain academically independent to help basic research to flourish? Another issue is how this budgetary allocation will be translated from mere numbers to actual allocation at the ground level. There have been cases where grandiose schemes like ‘Scheme for Transformational and Advanced Research In Science’ (STARS) are announced, but individual researchers many times are frustrated because they don’t receive the required amount in time.

Such bungling is also apparent in the recently announced cost-cutting measures in schemes to support women researchers. It is widely felt that it is often less difficult to have a project approved than to have funds periodically released. We need more infusion of funds and, equally importantly, India must choose to break the bureaucratic barriers that exist in government departments.

Dr Rajesh Gokhale, Secretary, Department of Biotechnology (DBT)

The positive takeaway from the budget is that the vision of new modern India is very clear and this should promote research and innovation in all scientific areas. The guiding principle of “Green Growth” in this emerging innovation ecosystem mandates the biotechnology sector to play a major role in finding sustainable and recyclable solutions in almost all domains, including health, agriculture, and clean energy. The Department of Biotechnology is bringing out a BioE3 (Biotechnology for Economy, Environment and Employment) Policy for green, clean and prosperous India that will be enabled through “high performance biomanufacturing”.

The Department will take forward the successes of the COVID-19 vaccine mission by developing new safe and effective vaccines for existing and emerging diseases. The focus would be on taking forward genomics-based programmes and integrated solutions for both health and non-health sectors.

The Department will continue the development of sustainable aviation fuels, zero waste biorefinery, biobased alternatives to single use plastics and synthetic biology tools for carbon capture and utilisation for a clean environment. In the animal sector, renewed focus would be given to the ‘One Health’ consortium established by the DBT to make us ready for future pandemics. 

The Indian Tuberculosis Genomic Surveillance consortium would be operationalised for prediction of drug resistance & strain lineage to support the Government of India’s goal of ‘TB Mukt Bharat’. For mainstreaming of millets, a programme on genomic characterisation of minor millets is being developed. Agri-based gene editing platform would be established for fast tracking of leads available in Indian institutions.

A strong industry-academic partnership should be in place to cater to the growing needs of bio-based industries. Linkages between research and commercialisation should be strengthened, through enhanced industry participation and feedback across all technology readiness levels. Private sector should enhance its investment in R&D and Venture capitalists encouraged to fund high risk Startup science success stories. Quality assurance of Indian products and services should be augmented as per international standards. 

The department has subsumed its 14 autonomous institutions to create one Apex autonomous body, Biotechnology Research and Innovation Council (BRIC), towards achieving “minimum government, maximum governance”. This is expected to transform the biotech research and innovation ecosystem and science governance, maximising impact.

On the other hand, the Biological Research Regulatory Approval Portal (BioRRAP) was launched by the DBT as a whole-of-government approach in tune with our Hon’ble Prime Minister’s vision to strengthen inter-departmental synergies in functioning of agencies regulating various aspects of biological research. The portal serves as a gateway and helps researchers to follow approval of their applications for regulatory clearances.

Dr Soumitro Banerjee, Professor, Department of Physical Sciences, Indian Institute of Science Education and Research, Kolkata

What does the scientific community expect to see in a Union Budget? The current level of expenditure in S&T is hopelessly inadequate if India is to compete at the international level in knowledge generation. So the scientific community expects to see a significant increase in the outlay for research. But out of a total budget of Rs. 45,03,097 crore, only Rs. 16,361 crore – i.e. 0.36% of the central budget – has been allocated to the Ministry of Science & Technology.

Out of that amount, the Department of Science & Technology (DST) has been allocated Rs 7,931.05 crore; the Department of Biotechnology (DBT) Rs 2,683.86 crore; and the Department of Scientific & Industrial Research (DSIR) Rs 5,746.51 crore. These are the agencies that fund scientific research, so appropriate funding of these agencies is crucial. The corresponding figures last year were: Rs 6,000 crore, Rs 2,581 crore, and Rs 5,636 crore, respectively. Considering the inflation of 5.13%, the outlay in DBT and DSIR has actually reduced: these had to be Rs 2,713 crore and Rs 5,925 crore, respectively, to maintain the same level of support.

More than 90% of the funds of these organisations is spent on salaries, leaving very little for conducting scientific research.

Other ministries also support scientific research, including the Department of Atomic Energy (DAE, allocation Rs 25,078 crore), Department of Space (allocation Rs 12,543 crore), etc. But only a small fraction of their budget is spent on R&D. For example, in the DAE, a major chunk of the fund is allocated to projects like building new reactors, enhancing and augmenting facilities, etc., and a much smaller amount goes into DAE-funded institutions like the Tata Institute of Fundamental Research, the Saha Institute of Nuclear Physics, the National Institute of Science Education and Research, and the Harish Chandra Research Institute. The allocation to the Dept. of Space has actually been reduced from Rs 13,700 crore last year to Rs 12,543.9 crore this year.

The scientific manpower in any country comes from the education sector, and a robust health of education is crucial for its scientific prowess. The National Education Policy (NEP) 2020 document says (Article 26.1), “Unfortunately, public expenditure on education in India has not come close to the recommended level of 6% of GDP, as envisaged by the 1968 Policy, reiterated in the Policy of 1986, and which was further reaffirmed in the 1992 review of the Policy.” It goes on to commit that “the Centre and the States will work together to increase the public investment in Education sector to reach 6% of GDP at the earliest.”

Education being in the concurrent list, the country’s expenditure on education cannot be estimated from the Union budget alone. But it is generally believed that the Union government’s commitment has to be at least 10% of the Union Budget in order for the total spending on education to reach a level of 6% of the country’s GDP.

The scientific community, from platforms like the Breakthrough Science Society and the India March for Science, have been demanding this for many years. Ever since the introduction of the 2020 NEP, successive budgets have not reflected the necessary financial commitment. This year also, the outlay on education is Rs 1,12,899 crore, which is only 2.5% of the Union Budget.

Tapasya Srivastava, Professor, Department of Genetics, University of Delhi South Campus

A total outlay of Rs 16361.42 crore has been allocated to the Ministry of Science & Technology and Rs 2,980 crore to the Department of Health Research, an increase of 15% and a decrease of 7%, respectively, from last year.

As always, all well-thought-out plans need even better implementation, so the real benefit of the increased allocation in science and technology will lie in how the funds are allocated and the vision implemented.

Moving hand in hand with the agritech push, millet research will have tremendous nutritional benefits in the long run.

Opening up select Indian Council of Medical Research (ICMR) labs for research to both public and private sector is much required. The push for biomedical devices education and research, pharmaceutical research, as well as the focus on interdisciplinary research in AI are much needed steps. Together, these can transform health research in India, if implemented cohesively.

For education, the Hon’ble Finance Minister in her speech gave two important indicators that I feel will be game changers if implemented well: one, the stress laid on reading books and the digital library; and two, the emphasis on teacher training.

In a fast-paced world focused on information capture from the internet, moving back to a library-based reading for students will have far-reaching learning benefits.

For teacher training, the innovative pedagogy that has found a mention will require going beyond just being a buzzword. Identifying trainers for teachers is key to successful implementation.

Union Finance Minister Nirmala Sitharaman presents the Union Budget 2023-24 on the second day of Budget Session of Parliament, in New Delhi on Wednesday. Prime Minister Narendra Modi, Defence Minister Rajnath Singh and Union Home Minister Amit Shah and other MPs are seen.
| Photo Credit: ANI

Finance Minister Nirmala Sitharman will brief BJP MPs on the important points of the Union Budget on Friday, February 3, 2023, morning, after which the party will undertake an all-India outreach programme.

Sources confirmed that the briefing will be held ahead of the Parliament sitting on Friday. BJP president J. P. Nadda had earlier set up an eight member committee for a “Budget par charcha” programme, to be headed by former Finance Minister of Bihar and Rajya Sabha MP Sushil Modi.

The outreach programme will be rolled out over the weekend (February 4 and 5) across India to bring to the fore what the budget means for each and every citizen. “During this programme, Union Ministers will hold a press conference on the Budget and at the same time interact with people across strata, including prominent citizens and intellectuals,” sources said.

As per the sources, Information and Broadcasting Minister Anurag Thakur will go to Jammu, Tourism Minister G. Kishan Reddy to Kochi, Minister of State for Entrepreneurship, Skill Development, Electronics & Technology Rajeev B. Chandrashekar will go to Coimbatore, Minister of State for Parliamentary Affairs and Culture Arjun Ram Meghwal will travel to Raipur, Union Jal Shakti Minister Gajendra Singh Shekhawat will travel to Bhopal and Commerce Minister Piyush Goyal will go to Bengaluru. The programmes for other Ministers are also being firmed up. Meetings and press conferences will be held in all State capitals and 50 other spots.

The Budget presented on Wednesday is the last by the BJP-led NDA government before the 2024 general elections next year, and thus has significant political and economic ramifications.

As per the latest economic survey, the Indian economy is set to attain a real GDP growth of 7% in 2022-23, with both the retail and wholesale inflation rates falling below 6% in the months ahead. The Union Budget presented in this backdrop assumes a nominal GDP growth of 10.5% in 2023-24, which implies a projected inflation rate of just 4%, given the economic survey’s baseline real GDP growth projection of 6.5%. This reflects official optimism regarding the Indian economy remaining in a macroeconomic sweet-spot of declining inflation and high growth, even as the rest of the world experiences a growth slowdown alongside sticky inflation.

The economic survey has predicted a fresh cycle of investment-led growth led by the private corporate sector, supported by increasing credit from the banks, coming out of the bad loans overhang following the apparent clean-up of their balance sheets. Rather than relying upon such rosy predictions, however, the Finance Minister has announced a sharp increase in capital expenditure in the Union Budget, seeking to “crowd-in” private investment especially in infrastructure sectors like railways, roads and power plants. On the other hand, subsidies on food, fertiliser, petroleum and interest subsidies, along with outlays on welfare schemes like the MGNREGA have been reduced quite significantly, indicating higher prices of cereals, LPG cylinders and fertilisers like urea in the days to come. The overall impact of such expenditure switching may turn out to be inflationary.

Total expenditure decreases

A longer-term assessment of the Union Budgets is presented in Table 1, which enables us to compare the present government’s fiscal strategy in the post-pandemic period with the fiscal record of the UPA-II and NDA-I governments. As can be seen from Table 1, while the total central government expenditure (annual average) fell from 15% of the GDP during the UPA-II era to below 13% during the NDA-I government’s tenure, the recession precipitated by the COVID-19 pandemic forced a substantial increase in total expenditure to 17.7% and 16% of the GDP, in 2020-21 and 2021-22, respectively. Total expenditure has reduced moderately since then, to around 15% of GDP.

While capital expenditure has been enhanced significantly since 2020-21, beyond the levels attained by the UPA-II and NDA-I regimes, subsidies on food, fertiliser and petroleum have been reduced from 2021-22. Defence expenditure, which was 2% of the GDP on average under the UPA-II government Budgets and 1.6% of GDP under the NDA-I, has fallen to 1.5% of GDP in 2022-23. As a proportion of the GDP, while expenditure on agriculture seems to have increased during the NDA-II government’s tenure, mainly on account of the PM-Kisan cash transfer scheme, expenditure on education has reduced quite significantly compared to the UPA-II era. Expenditure on rural development and health seems to have remained at the same level. The increase in capital expenditure is mainly focussed in transport and energy sectors.

Tax situation

The reason why the government has to cut subsidies and welfare expenditures to increase capex on infrastructure is because of inadequate revenues, which have remained to be the principal constraint on public expenditure. Table 1 shows that gross tax revenues as a share of GDP barely rose from 10.2% under the UPA-II period to 10.8% under NDA-I and then fell to around 10% during the first two years of the NDA-II government. It is only in the post-pandemic period, since 2021-22, that gross tax revenues have crossed 11% of GDP.

It can be noted further that the corporate tax collection as a share of GDP fell from 3.7% of the GDP under the UPA-II to 3.3% of the GDP under the NDA-I, and came down further to 2.3% of the GDP in 2020-21 following the sharp corporate tax cuts introduced in 2019. The post-pandemic recovery has led to enhanced tax collections, but corporate tax collections remained at 3.1% of the GDP in 2022-23.

While corporate taxes in the GDP have declined under the NDA rule, the share of income taxes in the GDP has risen progressively to reach 3% of the GDP in 2022-23. Revenues from personal income taxes becoming almost equal to corporate tax revenues point towards a regressive taxation regime, which perhaps compelled the Finance Minister to provide a few concessions to income tax payers in this year’s Budget. However, going by the Finance Minister’s speech, revenue foregone due to those concessions is projected at only ₹35,000 crore, in the backdrop of income tax collections of ₹8,15,000 crore (RE) in 2022-23. Moreover, the dual income tax regime with a multiplicity of slabs has unnecessarily complicated the income tax structure.

Another regressive shift that has come under the taxation system under the NDA rule is the significant increase in indirect taxes. While the share of customs duties in the GDP has fallen from 1.6% during the UPA-II to 0.8% in 2022-23, the share of excise duties in the GDP rose from 1.7% under the UPA-II (when GST was yet to be introduced) to 2% in 2020-21 and remained above 1.2% in 2022-23, over and above the GST collections by the central government at over 3% of the GDP. High excise duties continue to be levied on petroleum-products, which keep fuel prices high. The increasing share of income taxes in direct taxes and the rising share of indirect taxes in GDP have contributed to the observed increase in income and consumption inequalities.

The States’ share in central taxes had increased from 2.8% of the GDP under the UPA-II to 3.7% of the GDP under the NDA-I, owing to the enhanced devolution formula recommended by the fourteenth finance commission. Under the NDA-II government, however, the States’ share in central taxes has declined to an annual average of 3.4% of the GDP. This is mainly due to the increasing incidence of cesses and surcharges imposed by the central government, which have shrunk the divisible pool, denying more tax revenues to the States.

The fiscal deficit had come down from 5.4% of the GDP under the UPA-II government to 3.7% under the NDA-I, mainly on account of expenditure compression. Under the NDA-II government, however, the deflationary fiscal stance was reversed in 2019-20. Fiscal deficit peaked at 9.2% of the GDP in 2020-21 in the backdrop of the pandemic. While the Finance Minister has set a “path of fiscal consolidation” with a target to bring down the deficit below 4.5% by 2025-26, the fiscal deficit targeted for 2023-24 in the present Budget is 5.9%. The NDA-II government is unlikely to achieve the deficit target two years from now, without recourse to drastic expenditure compression or sharp increase in revenue mobilisation. Meanwhile, the interest and debt-repayment outgo of the central government, which had reduced from 3.2% of the GDP under the UPA-II to 3.1% under the NDA-I, is set to increase to 3.6% of GDP in 2023-24 (BE).

Stack-up against G-20

A comparison of India’s public debt situation and fiscal balance (Centre and States combined) with the G-20 emerging market average, is provided in Table 2, based on the estimates and projections made by the IMF. The estimates show India’s public debt to have peaked at 89% of the GDP in 2020, while that of the G-20 emerging market economies continuing to deteriorate and surpass India’s gross public debt-to-GDP ratio by 2026. Despite India’s government revenue-to-GDP ratio being significantly lower than the G-20 emerging market average, India’s public debt-to-GDP is projected to perform better than the G-20 emerging economies’ average on account of a higher projected GDP growth. It is such an expectation which underlies the vision of “Amrit Kaal’’ contained in the Union Budget — an utopia of a perpetual macroeconomic sweet-spot. If the projected GDP growth fails to materialise, the macroeconomic situation can turn dystopic pretty fast, like the debt-equity ratio of the Adani conglomerate.

Prasenjit Bose is an independent economist based in Kolkata. Indranil Chowdhury teaches economics at PGDAV College, Delhi University

Union Finance Minister Nirmala Sitharaman during the post-budget FICCI national executive committee meeting in New Delhi on February 2, 2023.
| Photo Credit: PTI

Finance Minister Nirmala Sitharaman on Thursday exuded confidence that States will sign up as early as April to avail the ₹1.3 lakh crore of interest-free loans offered to them in Budget 2023-24 for capital expenditure, much faster than they did in the current financial year.  

This 50-year interest-free loan window for States constitutes a critical part of the government’s ambitious ₹10 lakh crore capex push for the coming year, and the Finance Minister asserted that the scheme’s outlay was raised from ₹1 lakh crore allocated this year only because States had shown interest.  

Data relating to the scheme released in the Economic Survey tabled in Parliament this week appeared to suggest those funds had not been fully tapped by States. But Ms. Sitharaman stressed that States’ use of these funds is “not all all that disheartening as you would have inferred from the Survey.”  

“It was delayed in its launch a bit because States had to come up with proposals and then set it rolling… This year, it has been increased for two reasons . One we felt there was a good appetite for more funds and continuation of the scheme. That’s not possible if they [States] didn’t absorb it last year,” she said at a post-Budget interaction hosted by FICCI.  

Preferred projects

Moreover, she pointed out that a ‘good chunk’ of the ₹1.3 lakh crore loans on offer can be used by States on projects they prefer, while a portion of it will be conditional and linked to projects that encourage for instance, municipal bond issuances and building of Unity Malls in States’ capitals.  

Editorial |Credit challenges: On credit flow and all-round capital spending

“Actually, this year, we have been talking through officials with the Chief Secretaries of State governments to see that this moves fast and early. My strong belief is that in the month of April itself, there should be a substantial number of proposals coming from many States so the release can happen straightaway, unlike last year,” she noted.   

“A lot of discussions have already happened with States on the contours of the scheme, the different features from the current year and if is it going to be very onerous to implement and so on. So all the differences have been ironed out,” the Minister said, adding that the Centre was pushing schemes that speed up capital expenditure while carrying forward critical reforms such as building accommodation for police personnel in the States. 

Also read |States may undershoot planned borrowings for Jan.-March: analysts

Interest-free loans for States with a tenure of 50 years to implement capital expenditure were first introduced by the government following the onset of the COVID-19 pandemic in 2020-21, starting with an outlay of ₹12,000 crore, which was raised to ₹15,000 crore next year. 

Midday Meal workers burn copies of Union Budget 2023-24 during their protest, in Kolkata, Thursday, Feb. 2, 2023.
| Photo Credit: PTI

The Samyukt Kisan Morcha (SKM), the umbrella organisation of more than 300 farmers’ outfits and the Right to Food Campaign, a platform for activists working on food and nutritional security, termed the Budget as an attack on farmers and the poor. They said in separate statements that the allocations for the agriculture sector and food subsidy had been reduced considerably in the Budget, presented in the Parliament on Wednesday.

The SKM, expressing shock and bewilderment at the Union Budget, said it had expected the Centre to appreciate the importance of the farm sector with the need to secure income and future of the rural farming community. “Instead, the Union Budget 2023 is the most anti-farmer Budget in the history of the nation,” they said.

The Budget was silent on doubling farmers’ income, the SKM said adding that the Centre “dishonestly stopped” giving data on the income of farmers and out of the targeted increase in the income of ₹13,000, only ₹4,400 had been achieved, that is only one-third of the target, the SKM said.

The grant for PM Kisan Samman Nidhi had been reduced, they said and alleged that the number of beneficiaries had been steadily declining and now the portal had stopped displaying real-time beneficiary data. “At a time of deep economic distress, this scheme gave some relief to farmers but now even that is being constricted,” the SKM said.

Social spending reduced

The Right to Food Campaign said it was shocked to see that the Budget reduced the government spending on the social sector to a huge extent. “The negative impact of the economic crisis that began even before the pandemic, has fallen disproportionately on those at the bottom of the pyramid,” the platform noted. The activists said with the discontinuation of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) from January 1, 2023, the ration entitlement of the people was halved.

“Women and children of the country have once again been ignored even when they have been most affected by the pandemic and the continued economic severity. The allocations for Samarthya (including maternity entitlements), and PM POSHAN (mid-day meals) have reduced considerably this year as well,” they said.

Union Finance Minister Nirmala Sitharaman speaks during a post-budget press conference, in New Delhi, Wednesday, Feb. 1, 2023.
| Photo Credit: PTI

The government will focus on economic growth and job creation and cut down the fiscal deficit, Union Finance Minister Nirmala Sitharaman said on Wednesday, presenting its last full budget in Parliament before the 2024 election.

Here are the charts that show major aspects of Union Budget 2023:

Budget at a glance

The Narendra Modi government focused on a slew of measures that expanded Capital Expenditure spending and tied in various priorities including Green Growth, Youth Power, and Inclusive Development.

Fiscal deficit would be brought down to below 4.5% by 2025-26, Finance Minister Nirmala Sitharaman said. She also said that tax receipts for the next fiscal are budgeted at ₹23.3 lakh crore and States would be allowed 3.5% of GDP as fiscal deficit.

What funds the deficit

The government plans to borrow a record ₹15.4 lakh crore from dated securities in FY24 to meet its expenditure requirement to prop up the economy. This is higher than the total borrowing of ₹14.21 lakh crore for the current financial year ending March 31, 2023.

Rupee come from

Borrowings and other liabilities account for the largest avenue from where the Budget money comes.

Rupee goes to

With 20% of its budget going into interest payments, the State’s share of taxes and duties and the Central sector scheme assume two major areas of spending for the government.

State-wise allocation of central taxes and duties

Here is the state-wise distribution of net proceeds of Union Taxes and Duties for Budget Estimates 2023-24. The distribution was conducted according to the recommendation of the 15th Finance Commission which fixed the share of states at 41% of the net proceeds of sharable Central Taxes and Income Tax.

Transfer to states/UTs

Allocation to Ministries

The Union Budget allocated a massive ₹5.94 lakh crore for the Defence Ministry, a 13% increase year-on-year from last year’s budget estimates.

Outlay for Major Schemes

The Union Budget 2023-24 document listed the new allocations for core welfare schemes that drive socio-economic development.

Finance Minister Nirmala Sitharaman announced a number of measures for the agriculture sector, including an increase in the credit target to ₹20 lakh crore, with focus on animal husbandry, dairy and fisheries.

% change for major schemes

Here’s a roundup of how the budgetary allocations for some of the key schemes have changed. While the MGNREGS budget saw a 32% decrease from the revised estimates of 2022-23, the outlay for PM-Kisan remained the same.

Railway Budget in a Glance

With an outlay of ₹2.40 lakh crore for the financial year 2023-24 compared to ₹1.40 lakh crore in the FY22-23, Finance Minister Nirmala Sitharaman said that the outlay for the railways is nine times the amount provided in 2013-2014.

Cheaper vs Dearer

With an eye on promoting exports, boosting domestic manufacturing and enhancing value addition, Union Budget 2023-24 has proposed number of changes to Customs Duty regime that is likely to make mobile phones and televisions cheaper and certain class of automobiles, including EVs, as well as toys and bicycles dearer.

The attention and allocation to building a green infrastructure and a decarbonised energy regime is the core of the Union Budget which puts india on the path of being future proof, said Prashant Ruia, Director, Essar Capital.

“The ₹35,000 crore allocation for energy transition along with an ambitious target of 5 MMT of hydrogen will unleash new demand impulses across the length and breadth of the country thereby fielding green growth. This has been complemented by a custom duty and tax reliefs for green mobility” he added.

Yogesh Mudras, Managing Director, Informa Markets in India said, “Sustainable growth in each sector is the Government’s top priority in this year’s budget. With an emphasis on shifting to green fuels, green hydrogen is another paramount of budget 2023; therefore, the ₹30,000 crore for energy transition investment will help the nation to touch green hydrogen production of 5 million tonnes by 2030,” he said. 

“In times of unprecedented volatility and uncertainty, the Government has maintained a consistent stance across five definitive themes – follow a path to fiscal prudence, continue to press on the capex accelerator to support growth and give a boost to private sector investment, provide adequate support to the most vulnerable sections and those who have been impacted the most by the pandemic, follow conservative & pragmatic budget maths and move further towards simplification and reform,” said Sanjiv Chadha, Managing Director & CEO, Bank of Baroda.

Bhargav Dasgupta, MD & CEO – ICICI Lombard on the Union Budget said, “The Union Budget FY23-24 is an extremely progressive and inclusive one with a huge focus on infrastructure and capex growth while maintaining the fiscal consolidation path. With fiscal deficit being reduced to 5.9% whilst providing an extremely bullish capex investment of ₹10 lakh crore (highest ever); will in effect convert revenue expenditure to capital expenditure which has a higher multiplier effect.”

Agnishwar Jayaprakash, Founder CEO, Garuda Aerospace said, “The Union Budget announced will certainly prove to be beneficial. Finance Minister Nirmala Sitharaman’s announcement has highlighted many points for the scope and development of the start-up economy.”

“Garuda Areospace’s virtual skilling and training universities will aim to empower 1 lakh youth by providing them with training and skilling for becoming drone pilots. Alongside this, Garuda will also provide them with job opportunities,” he said.

Sudhir Mehta, Founder & Chairman, Pinnacle Industries & EKA Mobility said, “The focus on capital expenditure with promising prospects for the commercial vehicle, green mobility, and railway sector is indeed encouraging. One of the most progressive announcements is the custom duty removal on capital goods imported for manufacturing Li-ion batteries, for electric vehicles built locally in India, which will ensure the cost rationalization for electric vehicles substantially.”

“This will not only help us achieve our sustainability goals but also promote ‘Made in India’ products & technology. The government is consistent in its focus on green mobility, and budget allocation toward the National Hydrogen Mission will bring new opportunities for growth & innovation,” he said.

K.V. Hariharan, Sr. Vice President-FP&A, Data Analytics & Strategic Planning, Amway India said, “The Government’s emphasis on upskilling, job creation, infrastructure development, and strengthening digital capabilities with inclusive growth at the core of the announcements has laid the blueprint for India’s road to a $5 trillion economy.”

File picture of Union Finance Minister Nirmala Sitharaman with Nitin Gupta, Chairman, Central Board of Direct Taxes
| Photo Credit: Vedhan M

The new income tax regime for filing returns has been “sweetened” in the Budget 2023-24 and it will be beneficial for maximum number of taxpayers as they can enjoy a “reduced” tax rate, CBDT Chairman Nitin Gupta said.

Speaking to PTI during a post-Budget interview, Gupta said the intent of the government while announcing the new slabs and rates under the new tax regime is to gradually “do away with deductions and exemptions” so that the “long-standing demand of reduction of taxes for individual taxpayers and entities can be met.”

Finance Minister Nirmala Sitharaman, while presenting the Budget 2023-24 in the Parliament on Wednesday, said the government has made the new income tax regime more attractive for taxpayers and has thus brought about ‘substantial changes’ in its structure for the benefit of the middle class.

“This new regime for individuals was laid down two years ago (Budget of 2020-21) but probably the benefits were not percolating and now the government has re-tweaked the slabs, re-tweaked the number of slabs and rates and the benefit is now clearly visible, be it any taxpayer…,” the CBDT Chairman told the news agency.

He said a similar measure taken for the corporate category of taxpayers sometime back has been found to be beneficial for them. He did not say the number of individual taxpayers who opted for the new regime over the last two years.

EDITORIAL | A raft of concessions amid consolidation: On Budget 2023-24

“The new regime is really sweetened… the section of taxpayers who will not be benefitting will be a very miniscule section which is taking all sorts of benefits in terms of the interest in house property, the deductions under section VIA among others and only those type of taxpayers could be impacted in terms of they would be better off in the old regime.”

“Barring that, the new regime would be beneficial to everyone,” Mr. Gupta said.

The Central Board of Direct Taxes (CBDT) is the administrative body for the Income-tax department.

The CBDT chief said that the government went into various aspects of the new tax regime, bettered it and therefore in the latest Budget, a “parity” of sorts has been achieved between the two schemes.

“There are about 3.5 crore salaried taxpayers in India and every salaried taxpayer will be at par with the old regime if they opt for the new regime because standard deduction has been made available in the new regime… so in terms of parity it has been established.”

“With the reduced number of slabs and wider slabs, the benefit will be percolating to everyone now and the long-standing demand of reduction of taxes will be met,” he said.

Taxpayers have independence to choose

Asked if the Finance Minister’s declaration that the new tax regime will be a “default” tax option will affect the users of old regime in any way, the CBDT Chairman said the taxpayers will have full independence to choose any one of the tax filing systems and none of them will be at any loss including the facility to reverting to the old scheme.

“The new regime is the default scheme in the sense that what will come up on the screen (on the e-filing portal) will be the new regime but the option is intact and the taxpayer can shift between the regimes…”

“There is no disincentive for any section of taxpayers and they can opt for the regime which they want to,” he said.

Mr. Gupta said an ‘online calculator’ will also be provided to the taxpayers, like before over the e-filing portal, to compare their tax liabilities under the two regimes.

Tax slabs

As per the changes proposed in the Budget, no tax would be levied on people with annual income of up to ₹7 lakh under the new tax regime but it made no changes for those who continue in the old regime that provides for tax exemptions and deductions on investments and expenses such as HRA.

Under the revamped new tax regime, no tax would be levied for income up to ₹3 lakh. Income between ₹3-6 lakh would be taxed at 5%; ₹6-9 lakh at 10%, ₹9-12 lakh at 15%, ₹12-15 lakh at 20% and income of ₹15 lakh and above will be taxed at 30%.

“This will provide major relief to all taxpayers in the new regime,” Sitharaman said in her Budget speech.

An individual with an annual income of Rs 9 lakh will be required to pay only ₹45,000. This is only 5% of his or her income. It is a reduction of 25% on what he or she is required to pay now (in the old regime) — ₹60,000, she said.

Also read |Union Budget 2022 | Income tax slabs unchanged, tax payers can file returns in two years

“Similarly, an individual with an income of ₹15 lakh would be required to pay only ₹1.5 lakh or 10% of his or her income, a reduction of 20% from the existing liability of ₹1,87,500,” Sitharaman said.

The minister later told reporters during a press conference on Wednesday that the government wants to make the new tax regime attractive enough and compliance should not be burdensome on taxpayers. However, if someone feels the old regime is more beneficial, he/she can continue in it.

“The ultimate interest is to make the simpler (new) regime more attractive,” she said.