Union Budgets are always hits and misses for all Finance Ministers. On February 1, 2023, as FM Nirmala Sitharaman presented her 5th and last Budget for PM Modi’s 2nd tenure Government, it is important to note that the budget holds extremely high significance in wake of multiple factors and constraints. These includes pre-election Budget, critical in time when there are no signs of Russia-Ukraine war ending, and concerns of growth in wake of economic crisis in the West. Any untoward volatility in crude price or exchange rates holds the potential to hurt the economy. Amid such compulsions, the Government is also sitting on benefits arising from tailwinds like higher than projected tax collections and higher tax buoyancy along with an encouraging economic growth outlook.
Tax buoyancy has helped the Government in augmenting higher than budgeted tax revenues. This was backed by a better than expected economic recovery, backed by strong surge in industrial production and exports. Success of Productivity Linked Incentives (PLI) schemes in reducing imports and making Make In India and atmanirbhar Bharat possible along with promoting exports of products like Mobile Phones that India was importing has increased confidence of the Government in pushing PLI schemes in more sectors.
While lot of dissection of the Budget is done, this article endeavours to evaluate it from the prism of three major forward looking themes and its likely impact on the economy.
Capital formation driven economic growth
In the first Budget after Modi 2.0 Government got reelected in 2019 elections, the outlay for infrastructure stood at Rs. 3.4 lakh crores. Since then the Government has increasingly focused on increasing the budgetary allocation for infrastructure to touch Rs 7.5 lakh crores in Union Budget 2022 and this year it further increased by 33 per cent to touch Rs 10 lakh crores. If we look at the full tenure of this Government, this is nearly a threefold jump in budgetary allocation. This has an impact on the economic growth. Capital formation led growth has been Bharatiya Janata Party (BJP) led–NDA Government’s ever since the Vajpayee years. This results in trickledown effect with increased demand in downstream sectors like steel, cement, construction materials, equipments, achinery, transportation industry, and most importantly employment of unskilled and semiskilled labour. Modi Government has continued this path. This in turn has a further trickledown effect on sectors like FMCG, white goods, and automobiles.
Rural growth
Modi Government’s multiple initiatives like Agribusiness Incubation Centres and Unity Malls are path breaking and revolutionary ideas. After withdrawal of Farm Bills, this is the first positive step forward in the right direction to help farmers to augment their income. By setting up Agribusiness Incubation Centres that will focus on startups in the agri sector, farmers will be able to find customers in the vicinity to sell their produce at a relatively better price compared to adatiyas. Similarly setting up Unity Malls in every State capital wherein products with GI, products made under ‘One District One Product’ scheme, and other handicraft products will be a big move to expand the market of these products by setting up distribution network across the country.
This will also help in creating employment opportunities in rural areas, which is currently dependent on agriculture or MGNREGA for employment. Rural India faces challenges of unemployment and overdependence on agriculture to create employment.
Promoting green economy
In 2021, speaking at Glasgow COP-26, PM Modi made an ambitious target of India becoming carbon neutral by 2070. If PM Modi’s track record ever since his term as CM of Gujarat has to be examined, it is visible that he had a special attraction towards green energy. During his term as CM of Gujarat, he focused on solar and wind energy. That was the period when solar panels were quite costly, and then too the then CM Modi focused on installing solar panels in many areas, including covering the Narmada Canal with solar panels to generate green energy and saving water by stopping evaporation. It is quite possible that PM Modi’s love for environment–friendly energy made him set aggressive and ambitious targets for India.
Modi Government’s multiple initiatives like Agribusiness Incubation Centres and Unity Malls are path breaking and revolutionary ideas. After withdrawal of Farm Bills, this is the first positive step forward in the right direction to help farmers to Augment their income
However, looking at recent developments be it promoting electric vehicles to developing railways operating on green hydrogen to many other small initiatives like “battery as a service” proposal in Union Budget 2022, it is evident that Central Government is extremely committed to achieving targets set by PM Modi. The FM has announced an outlay of Rs. 19,700 crores for National Green Hydrogen Mission to facilitate the transition of the economy to low carbon intensity, reduce dependence on fossil fuel imports, and make the country assume technology and market leadership in this sunrise sector.
Winning middle class approval
Middle class was miffed for a long time watching lot of schemes for poor. Being the lost Budget before the election year, there were high expectations from the middle class on getting some sops. FM Nirmala Sitharaman has very smartly offered sops to the middle class by tweaking tax slabs and making income upto Rs. 7 lakhs tax free for middle class. This is done without making the same tax benefits available for people with an income above Rs. 7 lakhs. The FM has also focused on making the new tax regime more attractive for the middle class. Till last year, the new tax regime was not really very attractive for middle class and they continued to opt for the old tax regime. This year, we can expect the scenario to change.
To sum up, the Budget is a forward looking budget that balances electoral populism with economic pragmatism.
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