A fine balance | Mint

In the last full budget before the 2024 elections, Sitharaman tried to address the expectations of large sections of society, including the middle class, small businesses, farmers, women, and high-net-worth individuals, offering new straws and schemes.

With nine assembly elections in 2023 and general elections in 2024 looming, the Union budget provides an insight into the Bharatiya Janata Party’s ruling volume for the next two years.

“The first budget of the Amrit Kaal lays a strong foundation for the aspirations and intentions of India’s development,” said Prime Minister Narendra Modi, responding to the proposals.

Sitharaman’s budget offered a mix of measures designed to encourage consumption, such as income tax relief for the middle class, high earners, and working professionals, and a record ₹10 trillion was allocated for capital expenditure to implement growth and job creation.

Experts praised the budget for sticking to the fiscal consolidation path and targeting to keep fiscal deficit to 5.9% of GDP in the year beginning April 1 from 6.4% of GDP in FY23.

Sitharaman reiterated the government’s resolve to keep the fiscal deficit below 4.5% of GDP by 2025-26.

“This was a workmanlike budget and it was a pleasant surprise. That’s big stuff. The capex pressure has been the main area of ​​focus for the last few years. What I particularly liked was that there were no high stakes, especially since elections are around the corner,” said Pronab Sen, economist and former chairman of the National Statistics Commission.

However, financing the fiscal deficit could be a challenge for the government, according to NR Bhanumurthy, vice-chancellor of BASE University.

“Continuing the capex strategy by the government, especially increasing the share of capital expenditure in the overall fiscal deficit, will help sustain the economic recovery process. However, funding the ₹17.8 trillion fiscal deficit will be a huge challenge, especially when, at the macro level, the strategy seems to be more towards consumption and less towards savings type policies,” Bhanumurthy said, adding that it could push on the banking sector.

Growth projections for India have been cut by both Indian and global agencies.

According to the IMF’s World Economic Outlook update, growth in India is set to slow from 6.8% in 2022 to 6.1% in 2023 before reversing to 6.8% in 2024.

The World Bank has estimated that India’s economic growth will slow to 6.6% in the financial year (April to March) 2023-24 from 6.9% expected in the current fiscal.

Compared to four priority areas identified in last year’s budget, the Finance Minister outlined seven for 2023-24, calling them “Saptrishi”, including inclusive development, achieving the last mile, infrastructure and investment, financial sector, youth power, green. grow, and free the economy.

To promote self-reliance and encourage domestic manufacturing, Sitharaman corrected the inverted duty structure on major items by reducing import duties on raw materials.

It includes duty reduction on camera lenses for mobile phones and extension of duty concession on lithium-ion cells for batteries for another year.

Sitharaman also extended the exemption from customs duty on the import of capital goods and machinery required to manufacture lithium-ion cells for batteries used in electric vehicles.

The budget introduced steps to reduce compliance and promote ease of doing business to support small businesses.

It included an extra infusion of it ₹9,000 crore in the Credit Guarantee scheme from 1 April 2023, with a 1% reduction in the cost of the guarantee. Giving relief to MSMEs, Sitharaman announced that in cases of failure to execute contracts during the covid period, government and government undertakings would return to them 95% of the forfeited amount of bid or performance security.

Regarding the amount that can increase the disposable income of individuals to support consumption, the Minister of Finance increased the slab, that no income tax is payable so far. ₹7 lakh from ₹5 lakh a year from 2023-24 under the new income tax regime, which will now be the default. The new income tax system introduced in 2020-21 does not allow any deductions related to insurance and investments. She also raised the minimum threshold under the old income tax system to ₹3 lakh from ₹2.5 lakh. As a relief to high earners, the budget also proposed to cut the top surcharge rate from 37% to 25% in the new tax regime, which covers those who are earning. ₹5 crore and above.

“After a long time, there has been a substantial change in personal income tax that will benefit the middle class. The new tax system is “attractive because it gives a bigger rebate and makes compliance easier. It also provides for simplified and smaller slabs,” said the Finance Minister during a post-budget press conference.

She also said that the new tax system needed to be made attractive so that more taxpayers would move to it but she said that the older tax calculation system based on exemptions for those who still prefer it would continue.

Markets reacted positively to the budget, with the Sensex ending 158 points higher on Wednesday, even as insurance stocks ended lower and the finance minister proposed capping tax exemptions on insurance proceeds in the budget .

While the budget aims to further ease systems and improve compliance while pushing investments and lifting consumption, the S&P Global Purchasing Managers’ Index for manufacturing released on Wednesday showed modest numbers to a three-month low January to 55.4 from 57.8 in December as output and sales growth slackened.

The 33% increase in capital expenditure outlay in FY24 to ₹10 trillion attracted the government’s emphasis on growth and job creation, as private spending remained scarce. Government capital expenditure acts as a growth multiplier. The budget was also recommended ₹1.3 trillion in 50-year interest-free infrastructure loans to the states from ₹1 trillion was allocated last year. The capex allocation at 3.3% of GDP is almost three times the outlay in 2019-20.

“Investments in infrastructure and productive capacity have a major multiplier effect on growth and employment. After the turbulent period of the pandemic, private investments are growing again. The budget is again at the forefront of increasing the virtuous cycle of investment and job creation… This significant increase in recent years is central to the government’s efforts to improve the potential for growth and job creation, crowded private investments, and recession provide. global headwinds,” Sitharaman said in the budget speech.

The budget extended the highest ever outlay for the Railways, at ₹2.40 trillion, about nine times the disbursement made in 2013-14. Allocation under PM Awas Yojana has also been increased by 66% more ₹79,000 crore. The Union budget also announced 50 new airports and helipads and focuses on infrastructure development with higher allocations to key sectors.

“Fiscal consolidation has not been kept on the back burner. We have served it. We appreciate the glide path we have given ourselves two budgets ago,” said Sitharaman.

Global rating agencies have praised the balance in the budget. Christian de Guzman, senior vice president of Moody’s Investors Service, said the narrower deficit projected in the Union budget reflects the government’s commitment to longer-term fiscal sustainability and supports the economy amid high inflation and a global environment challenging. “Although changes to the tax system will cancel out some tax revenue, the budget predicts a largely buoyant revenue due to strong nominal GDP growth and gains from the tax administration. This will help alleviate pressures on debt affordability from reducing debt servicing costs associated with rising interest rates,” Guzman said.

The budget also saw a renewed thrust on digitization, including the establishment of a National Financial Registry to improve data availability for robust credit assessment and the rollout of a National Data Governance Policy to encourage R&D using the Aadhaar and Digi Locker platforms to simplify. individual address resolution and verification across all controllers.

The agriculture sector, which is expected to grow by 3.5% in 2022-23, saw a 3.5% increase in the budget with an increase in outlay in the form of an 11% increase in agricultural credit target ₹20 trillion for the next fiscal year with a focus on animal husbandry, dairying and fisheries. New schemes were also announced, including the “Aatmanirbhar Clean Plant Programme” to increase the availability of quality disease-free planting material for high-value horticultural crops for disbursement. ₹2,200 crore and a scheme for fishermen called Pradhan Mantri Matsya Sampada Yojana, with targeted investment of ₹6,000 crore.

The budget has tried to satisfy all the constituencies while trying not to look expansive. However, the real test of the proposals could be seen in the coming months when the ruling concession would taste the power of the voters during elections.

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Updated: 02 February 2023, 01:56 AM IST