Finance Minister Nirmala Sitharaman’s fifth budget faces global challenges. She should leverage them and meet them head-on
After an initial spike to almost US $130 per barrel in March 2022, a jump of 85 percent in just one month, the price of oil has fallen to the eighties (US $81.45). This volatility is riding the conflict between energy producer Russian Federation on the one side, and Ukraine— backed by Europe and the US—with sanctions that are hurting Europe more than Russia on the other. In between stands India, with stakes in both adversaries. The US and Europe are partnerships of values—democracies, rule of law, and a common adversary China. Likewise, the Russian Federation has been and remains a valued supplier of arms to India, particularly when the US and the West chose to support the terrorist state of Pakistan against India. It is this balance between the values and the valued that India needs to tread with care. Buying oil from Russia and making it India’s biggest energy supplier in the short term, even while strongly advocating peace, is one step of that balance. Energy shaming India has not worked so far; it will not work going forward. It is for Budget 2023 to ensure that supply side inflationary pressures remain under control. It needs to prevent the trickle up of rising prices into areas other than fuel. And even here, it is tasked with balancing tax collections, including from fuel sales, while ensuring that prices don’t get so out of control that it affects households. The job of Budget 2023 will be to keep domestic economic threats under control, even as the government does what it can to keep oil and gas supply lines going. On the food inflation side, India is comfortable. But it needs to ensure what’s produced is not wasted. Budget 2023 should demand efficiencies in food storage and, if needed, allocate funds to build new warehouses. Food prices today are no longer just an economic indicator; they equally feed into strategic stability indicators.
Buying oil from Russia and making it India’s biggest energy supplier in the short term, even while strongly advocating peace, is one step of that balance.
The Russian Federation has been and remains a valued supplier of arms to India, particularly when the US and the West chose to support the terrorist state of Pakistan against India.
In this macroeconomic climate, the only way to protect India would be to push the pedal of growth even harder. Already the world’s fastest-growing economy, India will need to sustain the growth, if not increase it. Budget 2023 can help by clearing the pathways to growth. Other than tax reductions or incentives, it can demolish the red tape of Indian bureaucracy and turn it into a green carpet that welcomes not just hot money but long-term investment of companies, particularly the corporate refugees escaping China and seeking democratic and rule-of-law based geographies of scale.
Taxes need to be powered by policy design that welcomes money, offers jobs, builds enterprises and creates wealth—and doesn’t distort the system through retrospective laws.
Four, Budget 2023 should push hard on the disinvestment pedal. Despite the gloom and doom the world over, India’s markets are doing very well. With the Nifty and the Sensex at their all-time highs and the budget just two months away, disinvestments announcements of the past can be fructified now, at higher prices, in this financial year itself. Five, Budget 2023 should seed an Aadhaar-like identity infrastructure for companies. As Rishi Agrawal argues, every business should be given a unique enterprise number that will serve as its identity for all—repeat, all the 69,233—compliances, of which 26,134 carry imprisonment clauses. This number should be accepted by and applicable to all laws, rules and regulations at the Union level or in states. Such a system of doing business will increase the velocity and efficiency of G2C (government to company) communications, be it around setting up a plant, getting a bar licence or paying taxes—one number, one company, one nation. Finally, Budget 2023 must avoid the temptation to be populist. Unless they lead to more jobs or infrastructure, the budget must not reduce taxes. An economy on an upswing, an outlier across the world and expected to do only better, need not cut taxes as an incentive—those can be revisited if the economy falters. Of course, as far as household taxes are concerned, reverting to the three-slab structure from the current 11 slabs must be considered. For taxpayers, simplicity is better than complexity—three is greater than 11.
With the Nifty and the Sensex at their all-time highs and the budget just two months away, disinvestments announcements of the past can be fructified now, at higher prices, in this financial year itself.
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Gautam Chikermane is a Vice President at ORF. His areas of research are economics, politics and foreign policy. A Jefferson Fellow (Fall 2001) at the East-West ...Read More +