Given that this is the election year, the wish list will be long and trimming it rationally will be a challenge.
By B Yerram Raju
Hyderabad: Budget, be it union or State, always excites people. Finance Ministers with their loud whispers, and policymakers and economists with their wild expectations add to the excitement. Pretty well, everyone knows that a Budget is at best an expectation. All expectations need not result in achievements. With gas prices going through the roof, and inflation pushing all the prices of consumables of the household, it is the housewife who eagerly watches more than others what is in store for her.
Nirmala Sitharaman knows that this year even her party is looking up to her since this is an election year. The branded capitalist party, Bharatiya Janata Party, is awaiting a budget with a socialist agenda. Latest estimates of growth from the World Bank put India’s GDP growth for 2023-24 at 6.6% with the following year slowing further to 6.1%. If reports thus far are any indication, the union Budget would be growth-oriented and would likely give a push to the manufacturing sector and exports.
The non-BJP States are restive. Party discipline silences the BJP-ruled States. States’ rightful share in taxes has been swallowed by the unaccounted cess levied by the Centre in several sectors. There has been tardiness in sharing revenues with the States in accordance with the 15th Finance Commission.
Good, and the Bad
Some of the good things that happened on the policy front that will certainly be leveraged by Sitharaman include the PM Gati Shakti, National Logistics Policy, National Education Policy, achievements in the health sector, rebound of the economy post-Covid, G-20 presidency, CoP commitments close to the timelines.
The failures are also stunning: failure of the national agriculture policy and laws, dwindling service sector growth, inter-State water disputes, unachieved drinking water mission, rising inequalities, unhappy cooperative federalism, etc. Impending elections are bound to put pressure on any logical approach to the Budget.
Ahead of the Budget, the Centre cleared the National Green Hydrogen Mission Project, which is expected to bring in Rs 8 lakh crore investments, with an eye on the global market. PLI trumpeted in 14 sectors is yet to show up in the growth of manufacturing. The front-ending micro and small enterprises are yet to pick up growth momentum while the government is making every effort to transform these enterprises into organised through a massive digitalisation effort.
The years 2020-21 and 2021-22 had been the pandemic years of agony and stress. With India among the countable few nations breathing fresh air of growth, albeit, less than the anticipated 7% in this fiscal, investors look to India as a desirable destination. The World Bank said India used its international reserves (at $550 billion in November, or 16% of GDP) to curb excess exchange rate volatility helping limit the rupee depreciation, and its sovereign spread remained broadly stable at 1.4% in December, similar to average levels in the five years before the pandemic.
Despite the global slowdown, severe supply chain disruptions and the Russia-Ukraine war stirring uncertainties in oil and commodity markets, India saw a jump in domestic consumption, festive market rush, and GST collection in December 2022 crossing Rs 1,49,507 crore. The contribution of inflation to this increase should not be underestimated.
Challenging Times
The aluminium industry has urged the government to assist it appropriately to face the challenging foreign imports in the wake of rising costs and declining market share. It expects the demand for aluminium to rise exponentially in India from the current 4 million tonne per annum (MTPA) to 10 MTPA by 2030, requiring around Rs 4 lakh crore to scale up production capacities to cater to the rise in demand.
Export-sensitive sectors that are already in receipt of 74% of the incentives could see special dispensation in the Budget. These include gems & jewellery, ceramics and glassware, leather and leather products, pharmaceuticals, engineering and electrical goods, drones, wearable, speciality steel, textiles and textile components, auto components. These sectors will be adversely affected due to the global slowdown. There will be no open-arm imports even by those that are in dire need as their priorities have shifted to survival. Resilience and sustainability demand very careful assessment from the Finance Minister.
TransUnion CIBIL in its December report mentions that the micro, small and medium enterprises (MSMEs) saw a lending push to an extent of Rs 7.3 lakh crore in FY22. But according to the Ministry of MSME, only one-third of the 6.3 crore units are paying the GST. The Trend and Progress of Banking Report of the RBI mentioned that Covid-19 fuelled the NPAs and they saw a jump of 12.59% in the last quarter of FY22. While there is an 18% growth in credit, 17% of ECLGS (Emergency Credit Line Guarantee Scheme) accounts amounting to Rs 1.04 crore turned NPAs.
To provide a sense of achievement of the Atmanirbhar Bharat Scheme for the MSMEs, the Minister included several services sectors like travel and hospitality eligible for additional credit. The entire scheme, in particular the subordinate debt scheme for the micro and small enterprises and the credit guarantee scheme, needs a thorough overhaul to ensure that these front-enders in the supply chain of the manufacturing sector get a real boost.
The rising inequality is a cause for worry. Money Life, a year ago, based on the Oxfam Report, stated that indicated 98 richest Indians own the same wealth as the bottom 55.2 crore persons, and a tax of 4% on the rich could fetch enough revenue for the nation to push PM Gati Shakti, infrastructure, and logistics.
Rich agriculturists with an annual income of more than Rs 50 lakh per annum could be taxed at 5% while those above Rs 1 crore farm income could be taxed at 10%, and no agricultural product should be levied GST. Fertilizer and food subsidies have been axed by the Centre thus far and they need better targeting, particularly because of adequate surplus stocks with the FCI. All agricultural exports should be also incentivised and this could be welcomed with a cheer.
More Share
The cess on all sectors should be abolished as it is a devious means of depriving the States of their legitimate share in the revenues. A percentage increase in share transaction tax with no change in the corporate tax rate could rake in revenues instantaneously as all share transactions are demat.
Public debt is a serious concern the world over and India is no exception. While the showmanship of statisticians can cloud the impact to a degree, any future debt would burden the next generation for a decade. There is a need to view debt as a poor substitute for bridging the revenues. In this year of elections, it is difficult to contain the social freebies but needs high calibration. One way could be to place the impact of such freebies on the intended population through evaluation studies. For 75 years, they are being doled out and yet inequality is rising. Hence, the delivery system has to be overhauled. Direct payments to the intended disadvantaged through Jan Dhan accounts, pension payments etc have bridged the gap to a large degree. This needs to be strengthened.
Carbon credits can be a good additional resource if properly calculated and monetising them could take care of infrastructure and defence projects. Defence is a sensitive area where allocations could go under the carpet. The budget for space sciences and related technologies deserves sufficient attention. Health and education should take a slice of at least 6% each in the allocation.
Budget announcements are a platform for ushering in new policies. Against the backdrop of disharmony among States and continuing demand for better governance, the wish list would be long but trimming it rationally is the art of budget-making.