Tax rationalisation, higher capex, the idea of green growth, and agricultural markets — highlights of Budget 2023
The budget seems to be grounded in reality, the present global backdrop, the Indian ethos and ambitions, and state-of-the-art development thinking.Over the last three decades, the Indian growth story was organically consumption-driven: This creates an avenue for the government to play with the consumption variable to spur growth through reduced taxes or increased transfers. While the slide in growth as a result of the pandemic was also largely attributed to a decline in consumption expenditure, the present revival of the growth numbers is also attributable to that, as rightly noted by the Economic Survey 2022-23. Therefore, while this is the positive side of things, the other aspect that the FM and the policy-making machinery need to keep in mind is that the widening wealth inequality in India is symptomatic of a counterproductive force leading to future economic slowdown. This is because the marginal propensity to consume (defined as the extent of increase in consumption due to increase in incomes) of the lower and the middle classes are higher than those of the richer classes. Therefore, while a unit increase in disposable income in the hands of the lower or middle income groups are likely to find the consumption avenue and spur growth, increase in incomes of the richer classes will go into the savings stream and get converted to assets or wealth, thereby, further increasing wealth inequality. Therefore, the idea of a wealth tax and using that for either capital expenditures or transfers or fiscal consolidation would not have been a bad idea.
The idea of a wealth tax and using that for either capital expenditures or transfers or fiscal consolidation would not have been a bad idea.On a similar note, the budget acknowledges the role of infrastructure and capital expenditure for creation of physical capital. Therefore, quite expectedly, as is needed for a growing nation that aspires to grow further, capital investment outlay has been increased steeply for the third year in a row by 33 per cent to INR 10 lakh crore, that is tantamount to 3.3 per cent of GDP. On this note, one particular aspect needs to be clarified: The simplistic linear Keynesian perception that such capital expenditure (capex) might result in crowding out of private investments is wrong. Rather, governmental capex is needed for those domains where private investors hardly venture into due to high gestation periods and imperceptible returns in the short-run. On the contrary, such capex will only ameliorate business conditions, reduce transaction costs of doing business, enable business competitiveness and promote private investments. At the same time, various estimates including those by NIPFP and the RBI have concluded that both the short and long-term multiplier effects of such capital expenditure are many times higher than those of revenue expenditure. It is indeed heartening to find the mention of the term “green growth” in this budget. However, the flip side to this also needs to be considered. The “green growth” notion is largely based on “green transition”, where the concern of biodiversity has hardly featured so far. Rather, the creation of large-scale infrastructure can definitely entail land-use change thereby shrinking green spaces and carbon sinks. This can go against climate action. The budget however has not really thought about this aspect. But what is interesting is the FM’s acknowledgment of the roles of local communities in conservation efforts while talking about the important ecosystem services of the wetlands. There remains an opportunity here to incentivise local communities in their important roles in conservation and to play such roles more actively. There have been global experiments with ecosystem markets through creation of PES (Payment for Ecosystem Services). While this budget has not gone to that extent, in future budgetary allocations, a leaf can be taken from those learnings. This serves triple objectives if supported by governmental initiatives: a> help the conservation goals, b> help the community’s economic conditions through income generation, and c> helps in sustainable development financing. The other noteworthy aspect of the budget is the enormous thrust on inclusivity through the connectivity, water, and social sector programmes.
By talking of youth and women, as also increasing budgetary allocation for health and health education, skilling and education, the budget has attempted to address the critical concern of human capital.
While budgetary allocations to achieve the avowed goals of promoting millets is definitely in the right direction, the need for the right price signal cannot be underestimated.
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Dr. Nilanjan Ghosh is a Director at the Observer Research Foundation (ORF), India. In that capacity, he heads two centres at the Foundation, namely, the ...Read More +