Budget FY23 to change scale of India’s economy
As factories inch back towards full capacity, cars zoom past on city roads, and footfalls return to malls and haats, there is a distinctive air of optimism and self-confidence in India’s economic air.
Reviving the economy was not as simple as first switching off and then switching on an electric bulb. The climb-back needed to be well-timed, planned and every component of the economy calibrated. It was similar to starting a complex engineering apparatus.
India, under Prime Minister Narendra Modi, chose a carefully crafted and calibrated approach. In May 2020, during the peak of the pandemic’s first wave, the Prime Minister delineated India’s recovery path with a visionary #Atmanirbhar Bharat plan. It was a carefully crafted plan, not overwhelmed by myopic short-termism, but focused on making the pillars of the turnaround stronger.
Union Budget FY23 embodies this vision. From an official digital currency to higher government capital expenditure and higher outlays on infrastructure to lowering taxes for cooperatives and support for small enterprises, the budget has some striking elements that will change the scale of the Indian economy.
One of the most outstanding features of the Budget is the government’s emphasis on capital expenditure. The finance minister has penciled in a 35.4% hike in the central government’s capital expenditure plan to ₹7.5 lakh crore in FY23.
Additionally, the Budget has announced measures to catalyse similar capital expenditure by states. States will now be able to draw up to ₹1 lakh crore in FY23 from the Scheme for Financial Assistance to States for Capital Investment, a nearly sevenfold jump over the current year’s ₹15,000 crore. These interest-free loans are of a 50-year tenure, and are over and above the normal borrowings allowed to the states.
As the finance minister has said, higher capital spending by central and state governments will “crowd-in” private investment. This will trigger fresh investment by companies to add capacities as higher government spending will set off a virtuous cycle of investment, demand and spending.
This demonstrates the Modi government’s determined resolve to do the heavy lifting on investment to usher in sustained growth.
The other big priority area is reducing imports and promoting Atmanirbharta in the defence sector. The capital procurement budget earmarked for domestic industry has been raised to 68% in FY23, up from 58% in FY22. Defence R&D will be opened up for industry, startups and academia. This will encourage private industry to take up design and development of military platforms and equipment in collaboration with DRDO and other organisations through the SPV model.
Ease of doing business has been a continued focus area of this government, in line with the prime minister’s avowed principle of ‘minimum government and maximum governance’. Over the last few years, the government reduced more than 25,000 compliance requirements and repealed 1,486 laws.
The Budget has also proposed to reduce the alternate minimum tax (AMT) for cooperative societies from the current 18.5% to 15%, levelling out the field with private companies. The surcharge on cooperative societies has also been reduced from the present 12% to 7% for those having incomes between ₹1 crore and ₹10 crore. This will benefit millions of members of cooperative societies from rural and farming communities.
Infrastructure has been another priority area for this government. Road and other infrastructure projects can spur economic activity, boost construction and create jobs. The Budget has rightly given adequate stress on this through measures such as PM Gati Shakti National Master Plan, ‘One Station, One Product’, Parvatmala, PM Gati Shakti Cargo Terminals and Vande Bharat trains.
The role of small businesses in India’s economy can never be ignored. For small businesses, as for other sectors, the pandemic acted as a catalyst for modernisation, resulting in accelerated business transition, and spurring businesses to look at any means necessary to adapt and innovate to grow.
The government’s primacy on MSMEs continues, and the Budget has extended the Emergency Credit Line Guarantee Scheme (ECLGS) guarantee cover to March 2023, expanding it by ₹50,000 crore to total cover of ₹5 lakh crore, with the additional amount being earmarked exclusively for the hospitality and related enterprises.
I congratulate finance minister Nirmala Sitharaman for presenting a bigger ₹39.45 lakh crore budget without tinkering with tax slabs and tax rates but maintaining fiscal prudence.
In 2020, most people were discussing slides and recessions in alphabet shapes. In 2022, in the year when the country is celebrating Azadi Ka Amrit Mahotsav, India stands out as a textbook example of a V-shaped recovery, with the country rocketing back as the world’s fastest-growing major economy. Income and output are rising, greater demand is showing up in higher household spending that has triggered investment and capacity addition. All this has been possible because in the last seven years Prime Minister Modi has focused on financial discipline, scale and speed of economy, infrastructure development, manufacturing push with the vision of Aatmanirbhar Bharat.
The prime minister’s model of economic development has a distinct element of Indian-ness focused on exploiting our country’s inner strength. The economic management has been transparent and disciplined, which is reflected by the fact that the number of people filing income tax returns has increased from 33.1 million in 2014 to 64.8 million in 2022. It’s also notable that the government mopped up ₹1.4 lakh crore GST in January 2022, the highest ever.
Driven by the PM’s vision, Budget 2022-23 is guided by four pillars: PM Gati Shakti; inclusive development; productivity enhancement and investment in green energy; and investment financing. They have the potential to change the scale of the Indian economy, placing it next to any developed nation. The Atmanirbhar Bharat growth model is now a template for the world to emulate.
[The Blog was first published in The Economic Times]