Budget 2023 delivers on all counts; pushes hard on capex, growth

From an economist standpoint, two areas were of concern in the content of the Union Budget. One is the fiscal deficit target for fiscal 2023-24 (FY24) and the other was the allocation for capex. On both counts, there is satisfaction as the Budget has delivered well.

The fiscal deficit ratio is to come down from 6.4 per cent in FY23 to 5.9 per cent in FY24, which is well on the path of fiscal prudence. If combined with the takeaways from the Economic Survey which argued that the economy has recouped all losses and is on the right path of growth, there is no further need for aggressive affirmative action.

On the investment front, the increase in capex to Rs 10 trillion is quite substantial and will be 3.3 per cent of gross domestic product (GDP) as against 2.7 per cent last year. This is supplemented by the Rs 79,000 crore on affordable housing on revenue expenditure, which should spur construction. The baton has been passed to the private sector to crowd in its share in investment, which has been missing so far. If the states, too, are able to be crowded in on this score, it will be significant for our future story.

Budget 2023 has more or less maintained the ratio of size of the budget to GDP to around 15 per cent. With the deficit kept at 5.9 per cent, it has ensured that the net borrowing size is at Rs 11.8 trillion. This should have a neutral impact on the market, and hence is a big comfort.

While the fiscal deficit would be at Rs 17.8 trillion, the budget would be using other sources like short-term borrowings and NSSF to finance the same. As the liquidity situation is quite tight presently for the banking system, this should come as a relief as there will be no untoward pressure on the flow of funds.

The government has provided direct tax sops which were expected, especially for individuals and MSMEs. This can be seen more as an indexation of tax brackets with inflation which has been sharp in the last few years. These may not be substantial to move the needle when it comes to consumption, but can be interpreted more as a partial cover for inflation.

The major issues are on the indirect tax front, which involves goods and service tax (GST) rates that have contributed to inflation that are outside the purview of the Budget. Interestingly, the government has not spoken of touching the excise rate on fuel, which could have helped to bring down inflation.

Two significant numbers on the revenue side pertain to disinvestment and non-tax revenue. The government is persevering with a number of Rs 61,000 crore for disinvestment. Interestingly, the target for FY23 has been lowered only to Rs 60,000 crore, which means that we can expect some big tickets in the next two months. The other is on dividends from the banking sector, including the Reserve Bank of India (RBI), which has been placed at Rs 48,000 crore. Here, it can be assumed that the transfers from the RBI may be lower in the coming year.

On the whole, Budget 2023 has been well drafted providing relief to various sections, while pushing hard on capex and hence growth. As the fiscal deficit has been put on the right path, there can be no complaints.

Madan Sabnavis is the chief economist at Bank of Baroda. Views are personal