Union Finance Minister Nirmala Sitharaman leaves after briefing the Bharatiya Janata Party (BJP) MPs on the Union Budget 2023-24, at Parliament House, in New Delhi on Friday.
| Photo Credit: ANI

BJP MPs on Friday interacted with Union Finance Minister Nirmala Sitharaman on the merits and demerits of the new and old income tax regimes at a briefing here on the Union Budget, which was tabled in Parliament on Wednesday.

Members from both the Lok Sabha and the Rajya Sabha were present at the briefing on the Budget, the last full one before the 2024 Lok Sabha elections, and for which the BJP has drawn up a massive outreach programme explaining the main highlights.

“There was a power point presentation on the Budget and its highlights, but the Finance Minister went into great detail about the new and old income tax schemes, and the changed slabs. Tax issues always require this kind of explanations, they are never easy, and many MPs had queries on the relative merits and demerits,” said a BJP MP present at the meeting.

There were also questions on the slashing of allocation for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) compared with the past few years. The Budget allocated ₹60,000 crore for the MGNREGS, which is 18% lower than the Budget Estimates of ₹73,000 crore for the current year, and 33% lower than the Revised Estimates of ₹89,000 crore for the scheme.

“On this, the Finance Minister said that the the hiked allocations for the Pradhan Mantri Awas Yojana, up 66% in this Budget, especially for tier two and three cities will make up for creation of similar employment. She said that during COVID-19 there were situations for increasing the allocations, and that the scheme is largely demand-driven,” the source said.

The capital expenditure detailed in the Budget was also gone into in detail, and flagged as something that the BJP MPs should speak about when talking about the Budget. The Mahila Samman Patra, a small savings instrument for women with interest rate up to 7.5% for deposits of up to ₹2 lakhs was also talked about.

The BJP kicked off its outreach programme on the Budget on Friday, with Chief Ministers of the States ruled by the party holding press conferences. As part of the programme, Union Ministers will also fan out to the State capitals to talk about the highlights of the Budget.

Union Finance Minister Nirmala Sitharaman during the post-budget FICCI national executive committee meeting in New Delhi on February 2, 2023.
| Photo Credit: PTI

Finance Minister Nirmala Sitharaman on Thursday exuded confidence that States will sign up as early as April to avail the ₹1.3 lakh crore of interest-free loans offered to them in Budget 2023-24 for capital expenditure, much faster than they did in the current financial year.  

This 50-year interest-free loan window for States constitutes a critical part of the government’s ambitious ₹10 lakh crore capex push for the coming year, and the Finance Minister asserted that the scheme’s outlay was raised from ₹1 lakh crore allocated this year only because States had shown interest.  

Data relating to the scheme released in the Economic Survey tabled in Parliament this week appeared to suggest those funds had not been fully tapped by States. But Ms. Sitharaman stressed that States’ use of these funds is “not all all that disheartening as you would have inferred from the Survey.”  

“It was delayed in its launch a bit because States had to come up with proposals and then set it rolling… This year, it has been increased for two reasons . One we felt there was a good appetite for more funds and continuation of the scheme. That’s not possible if they [States] didn’t absorb it last year,” she said at a post-Budget interaction hosted by FICCI.  

Preferred projects

Moreover, she pointed out that a ‘good chunk’ of the ₹1.3 lakh crore loans on offer can be used by States on projects they prefer, while a portion of it will be conditional and linked to projects that encourage for instance, municipal bond issuances and building of Unity Malls in States’ capitals.  

Editorial |Credit challenges: On credit flow and all-round capital spending

“Actually, this year, we have been talking through officials with the Chief Secretaries of State governments to see that this moves fast and early. My strong belief is that in the month of April itself, there should be a substantial number of proposals coming from many States so the release can happen straightaway, unlike last year,” she noted.   

“A lot of discussions have already happened with States on the contours of the scheme, the different features from the current year and if is it going to be very onerous to implement and so on. So all the differences have been ironed out,” the Minister said, adding that the Centre was pushing schemes that speed up capital expenditure while carrying forward critical reforms such as building accommodation for police personnel in the States. 

Also read |States may undershoot planned borrowings for Jan.-March: analysts

Interest-free loans for States with a tenure of 50 years to implement capital expenditure were first introduced by the government following the onset of the COVID-19 pandemic in 2020-21, starting with an outlay of ₹12,000 crore, which was raised to ₹15,000 crore next year. 

Construction of the Coastal Road Project in Mumbai.
| Photo Credit: PTI

The Budget comes at a time when the government faces a delicate balancing act between expenditure priorities and the need for fiscal prudence as it is the last full Budget before the general elections. From a macroeconomic standpoint, two areas were of concern: the fiscal deficit target for 2023-24 (FY24) and the allocation for capital expenditure (capex). On both counts, the Budget has stuck to the trajectory of previous years.

There are five issues that need to be analysed in this Budget — three from a growth and fiscal stability perspective and two from a welfare perspective.

Growth perspective

The first is continuity in the path of fiscal consolidation, which the Finance Minister has stuck to. The fiscal deficit ratio is to come down from 6.4% in FY23 to 5.9% in FY24, which means we’re on the path towards a fiscal deficit target of 4.5% of GDP by 2025-26. Here, the Finance Minister is guided by the logic that the economy has recouped from the pandemic shock and is on the path of growth, which means there is no further need for continued affirmative action. The fiscal deficit target assumes that the economy is on a relatively strong footing, with another year of healthy tax collections.

Editorial | A raft of concessions amid consolidation

However, global headwinds will continue to weigh in. A third of the global economy is expected to slip into recession in calendar year 2023, as per the International Monetary Fund. This may affect manufacturing and other related sectors and impact revenue collections.

On the expenditure front, the Budget has stuck to spending commitments for infrastructure and flagship welfare and subsidy schemes. The fiscal deficit of ₹17.8 lakh crore will be financed using short-term borrowings and the National Social Security Fund. Given the tight liquidity condition of the banking system, this will not exert pressures on the flow of funds.

The second is the question of infrastructure and capex. The government believes that the best way to sustain India’s growth, create more jobs and boost consumption is through high-multiplier capex. The increase in capex to ₹10 lakh crore is substantial and will be 3.3% of GDP as against 2.7% last year. This is also supplemented by the ₹79,000 crore on affordable housing on the revenue expenditure side. The States can continue to avail of long-term, interest-free loans for their capex needs, but within selected broad sectors. As in earlier years, the Centre has been doing the heavy-lifting here and has been trying to pass the baton to the private sector, to ‘crowd in’ with their share. How much of it comes is crucial for medium-term growth prospects.

Third, on the revenue front, the government has kept its ambition for growth in direct taxes moderate for FY24, after buoyant tax receipts in FY23 and FY22. The Budget has provided direct tax sops for individuals and MSMEs. However, this may not translate into higher consumption as it is an indexation of the lower tax brackets with inflation, which has been high in the recent past. In terms of combating inflation, the Budget is silent on two potential possibilities: issues related to GST, which are outside its purview; and tinkering the excise rate on fuel. On the revenue side, numbers pertaining to disinvestment and non-tax revenue are interesting. The Budget is persevering ₹51,000 crore for disinvestment and the target for FY23 has been lowered only to ₹50,000 crore. This means that we can expect some big tickets in the next two months. Regarding non-tax revenues, dividends from the banking sector, including the Reserve Bank of India (RBI), have been placed at ₹48,000 crore, that is, the transfers from the RBI may be lower in the coming year.

Welfare perspective

Fourth, for the social sector, the push for providing last-mile connectivity is the broad approach. The Budget takes the route of empowering women through self-help groups, which are mostly in rural areas. Ambitious programmes have been spelt out for this and the co-operative sector. But expenditure on the social sector does not register a quantum jump, though there is an increase in absolute terms with some new initiatives towards skilling in both education and health.

Fifth, the Budget nudges transitions from the old tax regime to the new, from conventional to digital agriculture, from fossil fuels to hydrogen, from natural to laboratory diamonds. These need long-term commitments and clear transition paths.

The test of the Budget would be on two counts. First, there are signs of improved balance sheets of both companies and banks, as we have come out of the twin balance sheet problems. This should translate into an upturn in the private investment cycle to generate more jobs. But the constraint is demand, as reflected in capacity utilisation, which is still around 75%. Hence, capex needs to percolate down to higher disposable incomes and increase demand.

Second, though we aspire for a lot of transitions, there is one important transition to make. As noted in the Economic Survey, 16.4% of the population is multidimensionally poor and an additional 18.7% is classified as vulnerable to multidimensional poverty. We need to transition out these two groups. Ultimately, that is sabka vikaas.

M. Suresh Babu is Professor of Economics at IIT Madras and is currently Advisor to the Prime Minister’s Economic Advisory Council. Views are personal