Indian Budget 2023-24 - Introduction and Reactions

Fiscal Responsibility and Budget Management (FRBM) Act, 2003 provides a legal framework to stabilize the budgeting process in India.  However, the act is not complied with by any of the governments and the act has been amended to relax its requirements for specific years as well as in general terms.  A committee is formed in 2016 which provided a report in 2017 with specific recommendations to amend the act.  The act is not amended further. The discussion on FRBM amendments is an ongoing discussion. The philosophy of the FRBM is to limit the debt, fiscal deficits and the revenue deficits. There are many suggestions and specific targets to be reached on these parameters.  There are also roadmaps for achieving these targets in steps over a period of a few years.   Roughly speaking, a target of 40% of GDP of debt is provided for central government. A target of 60% of GDP as debt for General Government is provided.  The fiscal deficit is expected to be on a reducing trend with at least 0.5% reduction per year and optionally about 0.2% reduction in revenue deficit.  A fiscal deficit of 3% of GDP and a revenue deficit of anything less than 2% of GDP may be considered as a good economic condition.

Economy is on growth path with about 6.5% real growth in GDP and over 10.5% growth in Nominal GDP. While the Government size is about 15% of the GDP, Fiscal Deficit is about 5.9% and Primary deficit is about 2.4%.  The revenue receipts amount to 58.5% of Government size, Capital receipts are at 41.5%.  Interest servicing is 24% of the total revenue of the Government.

India’s debt would be 16.9trillion Rupees and India is giving the interest for this debt at a rate of 7%.  Total debt of India is about 375% of the total governmental revenue and about 56% of the GDP.  Compared to the previous year, the debt is increased by over 5% of the GDP estimates.

The fiscal deficit is still higher from the spirit of the FRBM act although the government is able to reduce the fiscal deficit in 2023-24 to 5.9 percent of GDP from 6.4% budgeted for 2022-23, 2021-22 was 6.7%.  Even the opposition appears to be satisfied with the declining trend of the fiscal deficit even though the actual deficit is way above the desired level of 3% or less.  The Debt is also not within the limits of the FRBM spirit. It may be noted that it is not in the declining trend too.

Major share of the economic activity is taken by services sector with more than 50% of the share (55%). Industry has a share of 31% of the GDP and the agriculture sector has the remaining share of 14%.  Growth wise, Industry is in the forefront with 11.8%, next is services with 7% and the agriculture is growing at the rate of 4%.

 Indian workforce is about 50Crores. Just above 50% of the workforce is self employed.   12.1 crores are employed in industry.  Agriculture workforce 40%, industry 25% and Services 35%. Inflation is running at 4%-5% and the unemployment is at 7%.

The government size of 15% of the GDP appears to be decent.    There is a perception that the cost of living  is not decreasing.  Modern facilities are available but at a higher cost.  Public infrastructure is boosted with higher capital expenditure. However, optimal spending may not be there.  Further, the operating efficiency and financial discipline during execution are not visible. Speed of execution is not seen in many occasions.  The question that whether government is balancing the social good v/s good economic practices is answered by referring to reduction in funds on MGNREGA and subsidies. Opposition point to the reduction in MNGREGA funds to argue that social good is neglected where as supporters of the Government point to the reduction in subsidies to say that budget is economically sound.

Tax rates are reduced in the Budget and for a person getting an annual revenue of 15lakhs the difference between the old and the new tax structure without considering any deductions is about 37500 Rupees.  Allocation for the Ministry of Education for the next financial year is ₹1,12,898.97 crore. Over 8% increase in the allocation compared to the previous year.  This is the highest allocation for the education sector so far.

 

“the actual expenditure was substantially lower than budgeted last year, and alleged that this was Prime Minister Narendra Modi's strategy of headline management -- "over promise, under deliver". - Congress general secretary in-charge communications Jairam Ramesh

 

“changes in the income tax slabs will not help anyone. This Budget does not address India’s unemployment issue” - Mamatha Banjerjee

“Delhi had been meted out “step-motherly” treatment in the Union Budget “yet again”. “The people of Delhi paid Rs 1.75 lakh crore in income tax last year. Out of that, only Rs 325 crore has been given to Delhi for development work. This is completely unjustified,” – Delhi CM Arvind Kejriwal

“There are some good things in Union Budget 2023 but there was no mention of MNREGA, poor rural labour, employment and inflation,” – Congress Leader Shashi Tharoor

“There has been little change in the Union Budget over the last 8-9 years. Taxes increased, money is not being spent on welfare schemes and subsidies.  Taxes are being collected for some crony capitalists and big businessmen.” - Former Jammu and Kashmir Chief Minister Mehbooba Mufti.

“pro-corporate” budget that was only in the interest of  Adani, Ambani and Gujarat. This is a pro-corporate budget. All interests of Adani are fulfilled in this budget, but the common man has been ignored,” - Congress leader K Suresh 

“it would be better if the budget is for the country rather than for the party.  whenever the Centre talks about the figures of beneficiaries of schemes, it must remember that India is a vast country of about 130 crore poor, labourers, deprived, farmers who are yearning for their Amrit Kaal. This year’s budget is also not much different. No government points out the shortcomings of last year and makes new promises again, while in reality the lives of more than 100 crore people are at stake as it was before. People live by hope, but why false hope?,” Bahujan Samaj Party supremo Mayawati.

"This budget will be called 'Naam Bade Aur Darshan Chhote Budget' (big on announcements and short on delivery). No effort has been made in this budget to find a solution to massive unemployment. Inflation is hurting every household and the common man is in trouble. There is nothing in the budget that would reduce prices of items of daily use. Overall, the Modi government has made life difficult for the people. The country's economy has been deeply hurt," Congress chief Mallikarjun Kharge.

 

“increasing people’s purchasing power with job generation and boosting the growth of domestic demand. This budget fails to meet this situation. On the contrary, it squeezes the government expenditures to reduce the fiscal deficit while giving further tax concession to the rich. …mere 7 per cent when the increase in nominal (with inflation) GDP over the same period is estimated to be 10.5 per cent. Thus, as a percentage of GDP there is a reduction in government expenditure. If interest payments are excluded then this expenditure is only 5.4 per cent more than last year. Once the implicit inflation rate of 4 per cent and increase in population of around 1 per cent are accounted for, this so called “people-centric” budget only mounts further attacks on the livelihoods of the vast majority of our population” – Budget analysis by CPI,Marxist