Budget 2023-24: Industry expectations and state of the economy

Saket Dalmia, President, PHD Chamber of Commerce and Industry

The Union Budget 2023-24 is being presented at an uncertain time of geo-political conflict, high inflation and global recessionary trends. The economic growth of India’s top 10 export destinations and top 10 sources of imports are projected to decelerate in 2023. In this scenario, calibrated steps to enhance domestic sources of growth as well as explore new opportunities for exports will be crucial for maintaining a steady economic growth trajectory.

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The plethora of meaningful economic reforms announced by the government in the last three years has strengthened the drivers of economic growth. However, the sustainability of a higher growth trajectory must be supported with enhanced consumption and a conducive investment environment in the country.

I believe that enhanced consumption activity in the country will increase capacity utilisation in factories and boost sentiments of producers for capacity expansion.

There are two pivotal factors that can leapfrog a developing country into a developed country, namely, exports and increase in per capita income. Focusing on these two factors can boost consumption as well as net exports as a component of gross domestic product (GDP). Budget 2023 comes at a time when India enters Amrit Kaal, and sets the goal of Viksit Bharat (developed economy) by 2047.

Given India’s huge demographic dividend, along with a bullish investment sentiment, India has the opportunity to capitalise on these fronts. In this regard, PHDCCI, as a voice of industry, suggests a three-pronged approach.

First, in order to increase consumption-led demand, it is imperative that the per capita disposable income is increased. In other words, increasing the tax rebate benefits for consumption expenditure and encouraging the consumer to spend more on long-term consumer durables or real assets, such as a shop, or a second house, will create ripple effects in terms of investment and production.

Second, in order to boost exports, India should leverage its strengths. The MSME sector in India is the second-largest employment creator, providing employment to an estimated 11 crore people. It accounts for approximately 30 percent of the gross domestic product (GDP) and around 48 percent of exports. The existing production-linked incentive (PLI) schemes are limited to corporates and big players concentrated in specific sectors.

If the government wants to strive towards Atmanirbharta in manufacturing, it must extend the PLI schemes to MSMEs, which are into manufacturing as well. India runs up a huge import bill, and a dedicated PLI will be an effective option to reduce it, as it would cut imports and also create more jobs.

Third, investment as a percentage of GDP needs to be boosted. Currently, it accounts for around 30 percent of GDP, down from 34 percent of GDP in 2011. Also, in the total investment, private sector investment is yet to take off. This, despite the government having done consistently well in Ease of Doing Business, along with attracting investments via Make in India. However, there is need for more focus on ensuring a conducive business environment, which can spur private investment.

In this regard, PHDCCI suggests decriminalisation of offences under numerous laws and regulations that businesses have to comply with. There are 1,536 laws that govern doing business in India; more than half carry imprisonment clauses. Furthermore, there are more than 60,000 compliances that businesses have to follow, almost two out of every five carry imprisonment clauses. We cannot expect private investment to thrive in an environment where investors and entrepreneurs fear prosecution.

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We also recommend substantial reduction in the Cost of Doing Business, especially at the MSME level, where companies do not have the wherewithal to negotiate their own terms. Currently, even micro enterprises have to spend between Rs 5,000-50,000 in compliances, licenses and regulations. Cost of compliance should not be more than in the top three manufacturing countries, namely, China, United States and Japan.

Budget 2023 will lay down the vision of the Prime Minister for the next 25 years of Amrit Kaal, and therefore, should incorporate the mantra of Sabka Saath, Sabka Vikas, Sabka Vishwas, Sabka Prayas.

Saket Dalmia is President, PHDCCI.