5 key aspects of Budget 2023-24
It goes beyond populism; is conservative on nominal growth; makes a big push for the new tax regime; focuses on capital expenditure; and places emphasis on climate and macro-trends
The Union Budget presented by finance minister Nirmala Sitharaman on Wednesday was the second Narendra Modi government’s last full-fledged Budget before the 2024 national elections — the government will present a vote on account next year, and the new government will present a full-fledged Budget for nine months in June — and was expected to be completely populist. That it isn’t, although there are some elements of populism in the Budget. This is likely a combination of the government’s desire to ensure macroeconomic stability (the projected fiscal deficit for 2023-24 is 5.9% of the Gross Domestic Product, or GDP, down from 6.4% this year) and its confidence in its ability to win elections. This is the first of the five most significant aspects of the Union Budget 2022-23.
The second is the extremely conservative assumption of 10.5% nominal growth, on the basis of which the Budget estimates tax revenue for 2023-24 to increase by 10.4% (over the revised estimates for 2022-23). It is clear even now that nominal growth of the Indian economy will exceed that number, even if only by a bit. That will result in tax revenue too exceeding the projection (Budget estimate) for next year, which will help the cause of the fiscal deficit, and perhaps give the government a talking point ahead of next year’s election. This government has made a habit of this in recent years in an approach that is strongly reminiscent of Infosys Technologies’ strategy through the 2000s of under-promising and over-delivering.
The third significant aspect is the push to taxpayers at the lowest end of the taxable income spectrum, and those at the highest, to move to the new tax regime (one that does not provide any exemptions), which could put more money in the hands of most of the people from the two segments (other than, for instance, the most-savvy among those at the lowest end who have availed all possible exemptions by investing in a clutch of instruments). This is a consumption-friendly measure, although its actual magnitude and impact will only become clear with time.
If that takes care of the consumption pillar of the economy to some extent — the surge in pent-up demand seen in 2022 has already waned and private consumption is still not at a level where it can power the economy — then the continued emphasis on capital expenditure will take care of the investment pillar. India plans to spend ₹10 lakh crore on capital expenditure next year, up from a budgeted ₹7.5 lakh crore in 2022-23. Interestingly, the revised estimates for 2022-23 show that ₹7.3 lakh crore of that has indeed been spent (a utilisation of 97%). This is the money that has powered economic growth in 2022-23 in the absence of private investment. Whether the enhanced capex, the highest ever in India, and amounting to 3.3% of GDP, crowds in private investment as the government hopes, or fails to stimulate it (as has been the case so far) remains to be seen, but it is an indicator of two things. One, India’s excess spending (in the context of its fiscal deficit) is going towards productive assets. And two, it guarantees a baseline level of growth even against the backdrop of external shocks (should there be any; there was no shortage of these in 2022-23), and even if private investment does not materialise, at least not in the magnitude and time frame in which it is expected to.
And the fifth significant aspect is Union Budget 2023-24’s nod to the most pressing concern of our times and to emerging macro-trends that could reshape every aspect of the economy. The first is the climate crisis, and the Budget has made an allocation of ₹35,000 crore for capital investment focused on energy transition, achieving the country’s net-zero objectives, and energy security. This number is a reflection of India’s commitment to achieving its nationally determined contributions for reducing emissions. It is also a reflection of the country’s understanding of the very real threat posed by the climate crisis, as well as the business opportunities inherent in this transition. The Budget has also mentioned measures (some backed by money) that India is putting in place to ensure it reaps the benefits, across sectors, of emerging technologies such as Artificial Intelligence and by empowering people (and businesses) with data.
Together, these five aspects have resulted in a Budget that makes for interesting reading, and which is a significant departure from the purely populist document many analysts and commentators expected. We may have to wait until next year’s vote on account for that.