Budget 2023 | Sticks to fiscal discipline, avoids being populist, despite a year before elections, Pankaj Murarka

Finance Minister Nirmala Sitharaman has focused on reinvigorating economic growth, yet done that with a long-term sustainable approach, avoiding falling prey to short term impulses, given that it was supposedly an election budget.

Capex increase The government has laid major emphasis on significantly accelerating capital expenditure as the cornerstone for driving growth. As a result, the aggregate central government capital expenditure has been increased 33% to Rs 10.5 trillion. Within infrastructure, the capital outlay on railways is slated to increase by 50 percent to Rs 2.4 trillion and nine times when compared to the outlay for FY14.

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Apart from railways, allocations have increased across sectors such as defence, rural housing, other transportation (roads & ports) and urban infrastructure. The capex now stands at an all-time high of 3.3% of GDP. The budget is focused on increasing productivity and efficiency by ensuring quality spending.

Rural and farm push To drive the rural and agri-economy, the FM made a slew of announcements. Foremost among them is that the food subsidy programme has been continued for another financial year. Importantly, the target for agriculture credit has been raised to Rs 20 trillion (against Rs 18 trillion last year).

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In addition to improved availability of credit, the budget proposes a fund to encourage agri-startups by young entrepreneurs. With a view to improve agri-productivity, there have been plenty of announcements to facilitate better-quality seeds, investments in digital infrastructure and skill development.

Allocations under the Pradhan Mantri Awas Yojana (PMAY) have increased to Rs 790 billlion, which is 66% higher than the Rs 275 billion budget allocation in FY22. This will continue to boost the affordable housing segment.

Digitisation drive After the onset of covid, Digitisation has been at the heart of all new initiatives by the government. India’s Digital Public Infrastructure is the most advanced globally and even superior to the developed world. The budget further emphasises on harnessing the power of technology by initiatives such as (a) use of PAN as the common identifier for all digital systems (b) setting up 100 labs to develop applications for 5G services (c) expanding the scope of documents that can be shared through DigiLocker and many more initiatives so as to make digitisation all pervasive in business and governance.

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The budget builds on the focus on green growth in line with India’s commitment to have net zero carbon emissions by 2070. The recently launched National Green Hydrogen Mission, with an outlay of Rs 19,700 crore, will facilitate transition of the economy to low-carbon intensity, reduce dependence on fossil-fuel imports, and make the country assume technology and market leadership in this sunrise sector.

The finance minister has set an ambitious target to reach an annual production of 5 MMT of green hydrogen by 2030. The Budget provides Rs 350 billion for priority capital investments towards energy transition and net zero objectives.

Tax revenue projections Given the buoyancy in tax collections, GST revenues for FY23 have been revised upwards by 9.5 percent to Rs 8.6 trillion. Similar has been the case for personal and corporate tax collections. In the last budget, the government chose to build conservative and realistic estimates to ensure that its fiscal deficit targets also appear credible.

The same approach continues for FY24 as well. Total tax revenues are budgeted to increase by 11.7% on the back of an expected nominal GDP growth of 10.5%. To delight the middle class and offset the impact of rising inflation, personal tax rebates have been increased and there has been a reduction in effective personal tax rates.

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The government has demonstrated fiscal discipline by adhering to the FY2022-23 BE target of 6.4% fiscal deficit and continuing on the path of fiscal consolidation with a projected fiscal deficit of 5.9% for FY2023-24.

In the absence of any exogenous shocks, the budget math is conservative and credible.

Despite being the last budget before central elections, the government has resisted the temptation to be populist and focused on fiscal prudence.

The budget sets the path for long term sustainable growth of the Indian economy with a pragmatic and prudent approach.