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In her last full Budget ahead of Lok Sabha elections next year, Union Finance Minister Nirmala Sitharaman kept her focus on two key aspects: one, growth – by setting aside a large outlay for an unprecedented surge in capital spending, and two, fiscal consolidation, by slashing subsidies and spending on the job guarantee scheme.
The big Budget idea came in the form of raising the threshold at which income tax kicks in to Rs 7 lakh a year from Rs 5 lakh a year, plus a solid nudge prodding individuals to shift to a new tax regime by restructuring the tax slabs.
This does key things: pushing people to a clutter-free zero exemption tax regime, to freeing up money in the hands of those earning just under Rs 60,000 a month for spending and also directing money from tax-focused saving instruments to discretionary spending or investment in the markets.
Clearly, Sitharaman knew the new personal tax regime introduced three years back found little or no traction so far, and hence felt the need to incentivise individuals for them to step out from the exemption era.
This is similar to a simplification she attempted on the corporate tax side where the rate was lowered to 22 per cent from 30 per cent for companies not claiming any exemptions.
The Budget has projected a nominal growth rate of 10.5 per cent for 2023-24; only if the average retail inflation for the year is assumed to be 4 per cent, does the real growth rate turn out to 6.5 per cent (nominal growth rate minus inflation) as projected in the Economic Survey.
But the RBI has projected inflation in the first half of this year itself to be 5.2 per cent; even if the average inflation in the second half is 4 per cent, the full year average turns out to be 4.5 per cent. This only suggests that the government may be over-estimating the growth prospects for the next year.
The fisc
How cuts in spending, key schemes helped rein in fiscal deficit (Page no. 12)
(GS Paper 3, Economy)
With the government sticking to the fiscal consolidation path, the move towards a sub-6 per cent fiscal deficit target in the next financial year of 2023-24 from 6.4 per cent of the GDP comes on the back of an effective compression in expenditure, including cuts in MGNREGA scheme, utilising savings on the back of a reduction in subsidies and expectations of high revenue growth.
The government has been able to stick to a fiscal deficit target of 6.4 per cent of the GDP in its revised estimates for 2022-23, despite overshooting food, fertiliser and fuel subsidies, primarily due to a higher nominal GDP.
The nominal GDP has now been estimated to grow 17.6 per cent in 2022-23 as against the assumption of 11.1 per cent, helping the government to stick to its originally fixed fiscal deficit target.
Though the government has not detailed its fiscal deficit targets beyond 2023-24 in the medium-term fiscal policy cum fiscal policy strategy statement, it said it intends to stick to its fiscal glide path to reach the fiscal deficit target of below 4.5 per cent by the financial year 2025-26.
Given continued global uncertainty, this statement does not outline medium-term fiscal projections. Instead, and as announced in the Budget Speech for FY 2021-22, the government would continue on the broad path of fiscal consolidation to reach a fiscal deficit to a GDP level below 4.5 per cent by FY 2025-26.
In line with this commitment, the Central Government attained the lower Fiscal Deficit to GDP projected for FY 2021-22 and FY 2022-23.
Economy on right track; to grow at 7% in FY23: FM (Page no. 12)
(GS Paper 3, Economy)
Despite the global slowdown caused by Covid-19 and Russia-Ukraine war, Indian economy is expected to grow at 7 per cent in fiscal 2022-23 – the highest rate of growth among all major economies, Finance Minister Nirmala Sitharaman said on Wednesday.
She said the country’s economy is on the right track and heading towards a bright future despite all the challenges. However, the Centre’s GDP growth projection for FY23 is slightly higher than the Reserve Bank of India’s (RBI) real GDP growth estimate of 6.8 per cent for the current fiscal.
Our vision for the Amrit Kaal includes technology-driven and knowledge-based economy with strong public finances, and a robust financial sector. To achieve this, Jan Bhagidari through Sabka Saath Sabka Prayas is essential.
The economic agenda for achieving this vision focuses on three things – facilitating ample opportunities for citizens, especially the youth; providing strong impetus to growth and job creation, and strengthening macro-economic stability.
As per the First Advance Estimates of National Income for 2022-23, India’s real GDP and nominal GDP are projected to grow by 7 per cent (y-o-y) and 15.4 per cent (y-o-y), respectively. For 2023-24, the Union Budget has projected nominal GDP growth at 10.5 per cent.
While speaking to reporters in a post-Budget press conference, Finance Secretary TV Somanathan said, “Our number of 10.5 per cent (growth in nominal GDP for FY2024) could come from any combination of inflation and real growth.
We are reasonably confident that we will exceed 10.5 per cent nominal growth for the purposes of estimating our revenue.” To push growth further, the Centre has increased the capital investment outlay steeply for the third year in a row by 33 per cent to Rs 10 lakh crore, or 3.3 per cent of GDP, for fiscal 2023-24.
Infra
Renewed thrust on capex: Outlay hiked 33% to Rs 10 lakh crore (Page no. 14)
(GS Paper 3, Economy)
adiThe Union government has again chosen capital expenditure as a key focus area in the 2023-24 Union Budget. Finance Minister Nirmala Sitharaman said that the Centre will continue its 50-year interest-free loans to state governments for an additional 12 months in order to aid infrastructure investment with an outlay of Rs 1.3 lakh crore.
The Centre’s capital expenditure outlay will be Rs 10 lakh crore for FY24, an increase of 33 per cent year-on-year. The government, however, has fallen short of exhausting its Budget estimate for capital expenditure for this financial year.
The revised estimate for 2022-23 for effective capital expenditure stands at Rs 10.53 lakh crore, which is 98.7 per cent of the Budget estimate of Rs 10.67 lakh crore. Finance Secretary TV Somanathan said the slight downward revision in capital spending estimate happened as states did not undertake capex at the rate as was expected, even as Centre exceeded its capex targets.
The increase in capex is in areas such as railways, highways, which have adequate capacity to absorb higher capex. States are gearing up now…we are seeing it in the second half of this fiscal year in the capital expenditure by states. We are reasonably confident states will absorb the 1.3 lakh crore (of interest free loans) which they have been provided.
An amount of Rs 2.40 lakh crore has also been provided for the Indian Railways — the highest ever outlay, and nine times the outlay made in 2013-14.
Roads and railways have been two sectors that have seen higher additional capital outlays over the last few budgets and have been central to the government’s capex push.
Sitharaman also said that 50 additional airports, water aerodromes and advanced landing grounds will be revived for regional air connectivity. This should offer an additional push to the regional connectivity scheme, which started with the UDAAN scheme.
Rural
High rural housing outlay to spur asset creation (Page no. 15)
(GS Paper 3, Economy)
In a big push to rural infrastructure, the government has allocated Rs 54,487 crore for its flagship rural housing scheme—Pradhan Mantri Awaas Yojana-Gramin—for financial year 2023-24, which is the highest ever allocation since the inception of the scheme in 2016.
Besides, an allocation of Rs 70,000 crore has been made for Jal Jeevan Mission, a scheme aimed at providing tap water connections to rural households.
The outlay for PM Awaas Yojana is being enhanced by 66 per cent to over Rs 79,000 crore. The details available in the budget documents shows that out of Rs 79,000 crore allocated for the PMAY (Rural & Urban both), an amount of Rs 54,487 crore has been earmarked for the PMAY-Gramin.
The allocation of Rs 54,487 crore for the PMAY-Gramin is 172 per cent higher as compared to the allocation of Rs 20,000 crore in 2022-23. It is even higher than the Revised Estimates of Rs 48,422 crore for the year 2022-23.
Of the allocation of Rs 54,487 crore, an amount of Rs 50,486.99 crore has been allocated for the programme component, while an amount of Rs 4,000 crore has been provided for interest payment to NABARD for EBR [Extra Budgetary Resources] loans.
The PMAY-Gramin is one of the schemes that plays a crucial role in asset creation in rural areas. It also gives a boost to the construction activities in villages and creates demand for building materials like cement and steel.
The government had set a target of construction of 2.95 crore houses till 2024, out of which, 2.15 crore have been constructed till date.
The figure is expected to reach 2.35 crore by the end of the current financial year (2022-23). In the next financial year, the Centre aims to construct 58 lakh houses under the scheme.
Apart from being one of the drivers of capital expenditure in rural areas, the scheme has yielded political dividends to the ruling BJP-led National Democratic Alliance in polls across states in recent years.
This is the reason the government has not hesitated in allocating a big amount to the scheme. In 2022-23 fiscal, the government had used its emergency funds to top up the scheme allocation, as about 84 per cent of budgetary allocation was used in just seven months (April-October).
Govt & Politics
India, US agree to deepen tech, defence ties (Page no. 18)
(GS Paper 2, International Relations)
In what is being perceived as the new frontier for cooperation with an eye on China, India and the US have decided to deepen cooperation on defence, artificial intelligence, quantum technologies, high performance computing, co-production of jet engines, semiconductor supply chain, human spaceflight, commercial space launches and telecom, including 6G.
These are the major takeaways after the meeting between National Security Advisor Ajit Doval and US NSA Jake Sullivan in Washington DC over the last two days.
The two NSAs met for the first meeting of the US-India initiative on Critical and Emerging Technology (iCET), which was decided between Prime Minister Narendra Modi and US President Joe Biden in May 2022 on the sidelines of the Quad meeting in Tokyo.
The list of new initiatives include:
A White House statement said “the US and India affirm that the ways in which technology is designed, developed, governed and used should be shaped by our shared democratic values and respect for universal human rights.
We are committed to fostering an open, accessible and secure technology ecosystem, based on mutual trust and confidence, that will reinforce our democratic values.”