Union Budget 2023-24: Growth pragmatism over populism

The infrastructure sector got the lion's share of the capex bazooka, which will have a significant multiplier effect on economic growth

Budget 2023 struck the perfect balance between maintaining fiscal prudence and enhancing growth capex, while simultaneously rolling out tax benefits for the salaried class and introducing processes to simplify conducting business activities. The slew of announcements will have a direct impact on boosting job creation, supporting start-ups, sunrise and core industries, MSMEs and rural development along with a thrust towards greater financial inclusion and digitisation.

The infrastructure sector got the lion’s share of the capex bazooka, with a 33 per cent increase as compared to last year, which will have a significant multiplier effect on economic growth. This, combined with an increased allocation towards the PMAY and hike in Railway capex, indicates that the government has clearly targeted pragmatism via job creation and infra development over populism. Additionally, the sops given to the tourism sector are welcome, as this labour-intensive industry was badly hit during the pandemic. A thrust on creating 50 domestic tourist destinations through the PPP mode should spur a revival in several allied sectors such as aviation, food & beverage and hospitality.

The credit guarantee scheme, which was extended to MSMEs in 2020, had a choppy start. However, in the last two years, banks stepped up lending, albeit reluctantly, and helped alleviate stress in the sector. The additional infusion of Rs 9,000 crore as part of the revamped credit guarantee scheme for MSMEs will enable an additional collateral free credit guarantee of Rs 2 lakh crore, thereby lowering cost of credit by about 1 per cent. This brings more stability to the scheme and gives comfort to banks and last-mile lenders, who were earlier reluctant to offer unsecured finance to MSMEs.

Another welcome move was the revision in personal income tax slabs. The salaried middle class, which had been severely impacted due to the pandemic, rising inflation and a series of interest rate hikes, got a much needed relief with a reduction in tax rates under the new regime. This, along with an outlay of Rs 79,000 crore towards the PM Awas Yojana, gives middle class home buyers an additional interest subvention relief on their new homes. Both measures effectively put more money in the hands of the consumer, which will have positive ripple effects across consumption derived sectors and personal investments.

Some misses: A key aspect that was missing in the Budget was an update on the public sector bank (PSB) privatisations proposed earlier. With NPAs well under control and a significant improvement in the CRARs of several PSBs, it probably was an opportune time for the government to unlock value and attract investments.

To sum up, contrary to practice in a pre-election year, the government did not opt for a short-term boost and instead chose to remain on the path of long-term prudence.

The writer is Executive Chairman, Centrum Group