Budget 2023 pushes the pedal on growth and reforms

This piece is part of the essay series, Amrit Kaal 1.0: Budget 2023

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Beyond the numbers, Finance Minister (FM) Nirmala Sitharaman’s fifth budget articulates two core ideas—maintaining growth and pushing reforms. Both intersect with each other and create a virtuous cycle (growth driven by reforms, and reforms delivering more growth). In the process, it hopes to create jobs, end poverty, and increase the momentum towards making India a US $10 trillion economy. Further, Budget 2023 has surprised the sceptics by offering either relief or opportunities to almost all constituents—taxpayers, workers, women. Nothing new here: Sitharaman’s fifth budget is a continuum that takes the government’s long-term policies forward. It powers policy intent with budgetary support. The underlying philosophy behind this budget is to help India transition from entitlements to empowerment.

High growth…

At a time of global economic slowdown, Budget 2023 is keeping the India growth story on an upward incline. Following two debilitating years—one due to the Made in China pandemic, the other because of the Russia-Ukraine conflict—that saw a contraction of GDPs followed by the slowing down of economic growths the world over, private investment in India, as well as across the world, virtually vanished. As companies shifted focus from increasing profits to reducing risk, the investment cycle shut down in the face of extreme uncertainties. In this time, FM Sitharaman pushed for capital spending.

As companies shifted focus from increasing profits to reducing risk, the investment cycle shut down in the face of extreme uncertainties.

In Budget 2023, she pushes this policy stance further, increasing capital investment outlay by 33 percent for the third year in a row. At INR 10 lakh crore (US $122 billion), capital Investment outlay will be triple the outlay in 2019-20, or 3.3 percent of GDP. India’s nominal GDP, in turn, is expected to rise by 15.4 percent, and real GDP by 7 percent. Adding the provisions for capital asset creation, the effective capital expenditure is budgeted at INR 13.7 lakh crore (US $167 billion)—that’s more than the GDP of Algeria and almost half the GDP of Pakistan. What’s even better, FM Sitharaman has done so keeping the fiscal deficit at 5.9 percent. Effectively, she has placed growth over fiscal balance, even as she continues with a fiscal consolidation direction of 4.5 percent by 2025-26. This is crucial for India, as growth delivers jobs and reduces poverty. As the head winds from the pandemic and geopolitical disruptions end, the year ahead will see a new normalisation. Following this public capital investment—the railways alone have been allocated INR 2.40 lakh crore (US $29.3 billion), which is more than the GDP of El Salvador—therefore, we expect private capital investments from domestic as well as foreign investors to follow. All multilateral agencies say India will remain the world’s fastest-growing economy next year as well, and Budget 2023 powers that idea.

…and big reforms

As part of the Budget session of Parliament, but effectively outside the confines of public finances, Budget 2023 pushes what we see as the biggest economic reform after 1991. While stating that more than 39,000 compliances have been reduced and more than 3,400 legal provisions have been decriminalised, Budget 2023 highlights the Jan Vishwas Bill, laid in Parliament in the Winter Session, that amends 42 Acts of Parliament. Following the passage of this Bill, the accompanying ministry-specific Rules should get decriminalised over the next few months. To put this problem and the reform in perspective, the compliance universe that Indian businesses face is 69,233 strong. Of these, 26,134 carry imprisonment clauses. This has resulted in an Inspector Raj, where corruption has become a way of life and rent-seeking a statement of purpose. Once these laws and rules are repealed, Indian entrepreneurs will be able to focus on doing business rather than managing compliances. And while this impacts MSMEs more than big businesses, the general doing business mood of the nation will turn. We expect several small enterprises to expand and become big.

While stating that more than 39,000 compliances have been reduced and more than 3,400 legal provisions have been decriminalised, Budget 2023 highlights the Jan Vishwas Bill, laid in Parliament in the Winter Session, that amends 42 Acts of Parliament.

Currently, of the 69 million enterprises in India, only 1 million are formal employers. Reason: small enterprises choose to remain under the regulatory radar—a small business with 150 employees or more must deal with 500 to 900 compliances a year, on which it can end up spending up to INR 12-18 lakhs by hiring consultants to be compliant with labour laws, taxes, factories, etc. This law will nudge companies and see a greater formalisation of the economy.

Other numbers

At 14.1 percent of GDP, the INR 45.03 lakh crore or US $549 billion (that’s more than the GDP of Thailand) Budget 2023 is 14.1 percent higher than in the previous year and 1.8 times higher than Budget 2018. The budget reflects and supports the world’s fastest-growing economy. At 20 percent, interest payments comprise the largest chunk of expenditure. This is understandable, given the capital expenditure the government has done over the past few years. As private investment takes charge, this number needs to return to 18 percent in Budget 2023-24 and to 15 percent the next year. The fall in subsidies as a percentage of the Budget by 1 percentage point is a step in the right direction. As empowerment takes over from entitlements as the overarching politics of India, subsidies need to end. Despite an increase in absolute terms, all taxes as a percentage of Budget have fallen over the past five years—GST sharply from 23 percent to 17 percent, corporation tax from 19 percent to 15 percent, and income tax marginally from 16 percent to 15 percent. The trend this year will keep income tax contribution stable, while GST and corporate tax contributions will rise.

In the India of tomorrow, digitalisation is empowering the State to deliver the same goods at lower allocations, or more goods in the same budget.

Finally, technology adoption has made every area of governance easier, faster, cheaper, more productive. To continue to analyse these numbers from the vantage point of the percentage of expenditure made to various sectors—notably defence, health and education—is an error. In the India of tomorrow, digitalisation is empowering the State to deliver the same goods at lower allocations, or more goods in the same budget. The virtuous cycle of technology in governance, and its creative use, is shaping outcomes in new ways. Take the outlay to the Ministry of External Affairs (MEA) that carries the India Story to the world and negotiates with it. The budgetary allocation for MEA in 2021-22 was INR 18,153 crore, while the actuals stood at INR 14,146 crore, down 22 percent. The next year, allocation was INR 17,250 crore, while revised estimate stands at INR 16,973 crore, down 1.6 percent. The 2023-24 allocation of INR 18,050 crore is likely to go the same way. During all these years, the India Story has been resounding the world over. India’s negotiations on energy and vaccines have created new conversations. And if just one component, foreign direct investment, is seen—expected to cross INR 100 billion in 2022-23—the India Story has attracted global capital, against all odds such as opinionated narratives by the World Bank’s World Governance Indicators and the resultant negative impact on sovereign ratings. Clearly, the MEA is punching way above its budgetary weight. It is such exponential outcomes that other ministries need to replicate. This is something Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman need to push down the line in future budgets—set goals, seek outcomes, spend monies.

• Indian Economy
• India
• budget
• Economy
• GDP
• GROWTH
• Nirmala Sitharaman
• Reforms

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