Union Budget 2023-24: Visions of sense and sensibility

After five consecutive Budgets, Union Finance Minister Nirmala Sitharaman has graduated from a stumbling neophyte to becoming a thoroughly competent chief of the exchequer. Her speech was shorter than before. The Budget is carefully designed and calibrated. The estimates are not over-optimistic and, hence, achievable; there is a focus on what the government must do and why; and there is an overall coherence in the entire exercise that used to earlier escape her. So, kudos for her best Budget by far. Let me explain why.

In a very difficult global scenario, India needs to grow by 6-6.5 per cent in real terms in 2023-24; and at least the same over the next five years. Without that, we have no hopes of reducing poverty and creating necessary employment opportunities. Unfortunately, for the last five years, private investment hasn’t grown sufficiently. So, perforce the fillip must come from public investments, at least over the next few years. It is not surprising.

Therefore, Sitharaman has opted for a 37 per cent rise in capital expenditure versus the Revised Estimate (RE) of 2022-23, plus another 13.6 per cent hike in grants-in-aid to create capital assets. These together have raised effective capital expenditure for 2023-24 by 30 per cent to Rs 13.70 trillion — a massive amount that has never been allocated before. Can she afford it?

She can. Based on a nominal GDP growth of 10.5 per cent, the Budget estimates the Centre’s revenue receipt to increase by 12.1 per cent to Rs 26.32 trillion. A revenue buoyancy of 1.7 percentage points above nominal GDP growth is perfectly attainable. Capital receipts are targeted to rise very marginally, thanks to a more realistic view of disinvestments. Consequently, total receipts of the Centre are budgeted to increase by a very feasible 7.5 per cent to Rs 45.03 trillion.

To put things in perspective, Sitharaman proposes to allocate over 30 per cent of the Centre’s total budgeted receipts — and a hitherto unheard of 52 per cent of the Centre’s revenue — in favour of capital expenditure. This is based on her conviction that future growth accompanied by a significant realignment of the spokes of such growth needs major dollops of investments; that the amounts cannot be sufficiently provided by the private sector; and, therefore, the government must carry this cross, at least for the next few years.

Let me just focus on energy initiatives and national highway building. The National Green Hydrogen Mission has an outlay of Rs 19,700 crore. This will use powerful electrolytic converters to split water between hydrogen and oxygen; and use the hydrogen to produce ammonia for manufacturing urea-based fertilisers at costs significantly lower than that of using imported petroleum dependent naphtha. Another Rs 35,000 crore has been allocated for high priority capital investments towards energy transition, energy security and net zero emissions.

As much as Rs 1.62 trillion has been kept aside from the National Highways Authority of India — which is 14.5 per cent higher than 2022-23 RE. These are significant capital outlays. Of course, things could go wrong. The global situation can deteriorate, forcing a slump to 5 per cent or even 4 per cent growth. Buoyant revenue receipts can suddenly peter out. The Ukraine-Russia conflict can escalate so violently that the price of imported crude can go through the roof, taking the Mickey out of urea subsidies. The list of imponderables can go on. However, as things stand, the Union Budget is well framed. I believe that we have enough fuel in the tank to achieve the goals and still reduce the Centre’s fiscal deficit for 2023-24 to 5.9 per cent of GDP — maybe even a tad lower.

Even so, I remain disappointed at perennial tinkering, especially with indirect taxes. When will we stop fiddling around with Customs duties on things like compounded rubber, imitation jewellery, bicycles, electric kitchen chimneys, toys and parts of toys, automobiles, and the like? These only confer temporary protection to industries that make successful entreaties at the right places. With a Budget as well designed as this, can we not finally claim that such trifling will come to an end? Probably that is a bridge too far.

The writer is an economist and chairman, CERG Advisory