India's Union Budget Analysis

 Key highlights:

A Union Budget is primarily the estimates of expenditure vs receipts of the Govt. In public financing the spending is first decided, then the receipts are taken into account.

Total expenditure for BE FY23 INR 39.4 lakh crore compared to INR 37.7 lakh crore in the RE FY23.

GDP growth of 9.2% estimated in FY22 and 8-8.5% in FY23. This is after a negative growth of -7.5% in FY21.

Supply side measures with a push for Infrastructure. Capex increased from INR 6 lakh crore to INR 7.5 lakh crore.

PM GatiShakti –Project for growth to be driven by 7 engines: Roads, Railways, Airports, Ports, Mass transport, Waterways, Logistics infrastructure.

Education sees increased budget.

External borrowing reduced on the back of increased forex reserves.

Fiscal deficit target to come down to 6.5% and goal of  4.5% by 2025-2026

National Tele Mental Health Program announced.

MSMEs get raise in Emergency Credit Line Guarantee Scheme (ECLGS) cover and INR 6000 crore outlay for MSME performance improvement over a period of 5 years.

However, some concerns as well:

No tax structure changes, leaving the middle class disappointed.

Crypto investors dejected due to 30% flat tax in the transactions along with 1% TDS.

Health de-prioritized assuming end of pandemic with 0.8% increase in allocation over last year’s revised estimates

Subsidies reduced(food, petroleum, fertilizer)

No demand side measures like fiscal stimulus or UBI(Universal Basic Income)

Inflation cpi and wpi high. Rising input costs and soaring crude oil prices affecting the economy

Rural development sees decrease in expenditure. Surprising given the brunt of the pandemic faced by the poor.

Fiscal deficit INR 1,661,196 = 6.4& of GDP. Will be covered by borrowings.

Disinvestment receipts lowered.

Increase in tax revenue, decrease in non tax revenue –

Increase in Debt receipts, decrease in non-debt receipts

GST could have been reformed by proposal to simplify tax rates. Record collection of GST could be partly due to high inflation.

High input costs affecting investment along with weakened demand.

Comments:

Instead of farm income which was supposed to be double this year as compared to that in 2016, the total expenditure has doubled in the FY23 budget(INR 39.4 lakh crore) viz-a viz FY17 budget(INR 19.7 lakh crore)

Much could have been done for MSMEs and poor. Guaranteed cover in Emergency Credit Line Guarantee Scheme (ECLGS) has been raised to INR 5 lakh crore till March,2023, but with the banks not willing to lend much to large corporates also, raises concerns about their attitude towards MSMEs.  MSMEs don’t get relief in the form of stimulus or any proposals for GST changes. Also no lowering of cost of capital, no change in assessment of working capital, supply chain disruptions in manufacturing MSMEs not addressed.

Demand side measures shouldn’t have been sidelined.

Crypto tax by itself not counterintuitive, but the rate could have been lower.

Health should not have been de-prioritized irrespective of whether the pandemic will be over this year or not.

Capex growth of 25% from INR 6 lakh crore in RE FY22 to  INR 7.5 lakh crore in BE FY23. Good for the infra but weak demand might discourage investors. Also 90% of business  is by MSMEs which might not get immediate relief from the capex which will be largely beneficial to the large corporates.

Focus on Mental Health a good step.

Rural development expenditure should have alleast remained the same .It is decreased by INR 653 cr as compared to RE FY22.

Budget structure aligned more towards growth with some fiscal consolidation. But supply side measures may not be effective in the short term as short term relief is the need of the hour post the pandemic. It was a mixed budget. Hope the next one is better.