An eye on the future

General Studies Paper 3

Context:

• The budget for 2023-24 is an innovative amalgamation. It comes when there are impending state elections and the general election in 2024.

Budget:

• The government’s blueprint on:

• expenditure
• taxes it plans to levy
• other transactions which affect the economy and lives of citizens.

• Article 112 of the Indian Constitution: Union Budget of a year is referred to as the Annual Financial Statement (AFS).
• The Budget Division of the Department of Economic Affairs in the Finance Ministry is the nodal body responsible for preparing the Budget.
• Components of the Budget:

• expenditure
• receipts
• deficit indicators.
• Depending on the manner in which they are defined, there can be many classifications and indicators of expenditure, receipts and deficits.

Why is the budget 2023-24 responsive?

• The priorities articulated in the vision for Amrit Kaal:

• opportunities for citizens with a focus on the youth
• growth and job creation
• strong and stable macroeconomic environment

• Saptarishi(seven priorities)
• infrastructure and development
• green growth
• financial sector
• inclusive development
• reaching the last mile, to mention a few.

Why is the budget 2023-24 responsible?

• It achieves the stipulated fiscal deficit of 6.4(six point four)percent of GDP
• It seeks a half percentage point correction — primarily from an unwinding of subsidies (food and fertilizer of 6(zero point six)pp of GDP;likely reflecting both withdrawal of Covid-related relief and global commodity tailwinds)
• Continued decline in the ratio of revenue to capital spending.
• A modest nominal GDP and tax buoyancy

Aims in budget:

• The budget aims for restraint on borrowings of CPSEs (2(one point two)percent of GDP).

• Excluding state PSEs for which we do not have reliable estimates
• Allowing for some buffer in states’ estimates

Positives from fiscal and debt consolidation for the sovereign:

• It enhances resources available for countercyclical fiscal policies in the event of negative shocks such as Covid
• It envisages social spending in critical areas such as health and education where India’s public spending remains markedly low.

Does the budget address issues in the health and education sectors?

• With a hike of 2.7(two point seven) percent relative to what was originally budgeted in FY23.

• Health expenditure is now assumed at Rs 88,956 crore.
• The 157 new nursing colleges will improve human resource capability and primary health centers.
• Education: The enhanced allocation in school and higher education of Rs 68,804 and Rs 44,094 crore respectively, represents an increase of 8 percent in both.
• Improved outcomes through the National Digital Library,and revamp of teacher training, in line with the overall vision for a digital economy.

What does the budget do for India’s commitment for an orderly transition to a Green Economy?

The announcements included:

• Rs 35,000 crore  allocation for energy transition and net-zero carbon emission targets
• An annual production target of 5 MMT by 2030for Green Hydrogen Mission
• Green Credit Programme under the Environment (Protection) Act to incentivise sustainable actions.

Agriculture and railways:

• Both sectors crucial for employment and for the low- and middle-income population
• A massive increase in targeted credit for high-growth, high-value agriculture
• Increase in the capital outlay for railways, highest in a decade.

What steps need to be taken?

• Continued reforms on tax policies and administration would be needed to close the potential revenue gap.
• Unfinished agenda of GST reforms by way of slab rationalization and moving towards a revenue neutral rate needs upward recalibration of 3 to 4 percentage points.
• Preference should be to revisit allocations in the areas of health, education, and green economy.

Way Forward

• The rationalization of direct taxes in reducing one slab is an effort in the right direction.

• Over a period, the slabs need further rationalization as also the elimination of wide-ranging exemptions.

• The encouragement to states through:

• Rs 3(one point three)lakh crore for capex as a 50-year loan
• tantamount to a grant
• Extra headroom for borrowing

• It should enable state governments to utilize these resources to improve growth and development outcomes, including in critical areas like health and education.

• Issues of innovative financing, risk mitigation for crowding in private investments and securing participation of multilateral institutions would need continuing engagement.
• This budget has the stamp of this wisdom: It has been said, “We must not promise what we ought not, lest we be called on to perform what we cannot.”