Budget 2023 targets inclusive growth

The Finance Minister has given a push to growth through a judicious

blend of encouraging investment and consumption

Uttam Gupta


Guided by the overriding objective of laying the foundation of putting on a rapid and sustainable growth trajectory, for three years in a row, the Narendra Modi government has presented an investment-led Budget. Most of the budgetary allocations are going into building infrastructure, while the government has taken measures to promote investment by the private sector.

The Budget for 2023-24 continues with this overarching strategy. In her maiden Budget for 2019-20, Finance Minister Nirmala Sitharaman had laid a roadmap for catapulting the Indian to $5 trillion by 2024-25. In sync with this target, she had projected an investment requirement of over Rs 10 lakh crore to build the infrastructure over five years.

Out of this, 39 per cent or Rs 39,00,000 crore was to come from the Centre and an equal amount from states and the balance Rs 22,00,000 crore from the private sector.

The outlay for capital expenditure (capex) in the Budget was Rs 439,000 crore during 2020-21 (revised estimate or RE), Rs 554,000 crore during 2021-22 (RE) and Rs 750,000 crore during 2022-23 (as per budget estimate or BE). This adds up to around Rs 1,700,000 crore. For 2023-24, Sitharaman has provided for capex of Rs 1 lakh crore up by 37 per cent over the RE for 2022-23. If Rs 1,200,000 crore could be added during 2024-25, the Centre would have fully achieved its target for the five year period.

It is also helping the states to boost their capital spend. During 2022-23, the Centre provided them 50 year Rs 100,000 crore interest-free loans.

For 2023-24, Sitharaman has hiked such transfers by 30 per cent to Rs 130,000 crore. As for promoting investment in the private sector, the Centre had given a plethora of incentives—the mother of all being the steep reduction in the corporate tax rate to 15 per cent for new manufacturing enterprises (22 per cent for existing enterprises down from 30 per cent) which get incorporated before March 31, 2023; that was in September 2019.

It also unveiled the PLI (production linked incentive) scheme covering over a dozen sectors besides tax incentives for ‘start-ups'. In the Budget for 2020-21, FM extended the benefit of 15 per cent rate to “new” power companies also. Besides, “cooperatives” were made eligible for the 22 per cent rate sans exemptions and deductions. The FM also abolished dividend distribution tax (DDT). From April 1, 2020, the dividend is taxed in the hands of shareholders.

In the 2022-23 Budget, the eligibility of 15 per cent corporate tax was extended to new manufacturing entities which get incorporated before March 31, 2024, against the threshold of March 31, 2023. The start-ups got one more year (those set up before March 31, 2023) to avail of tax holiday. The surcharge on profits of cooperatives was lowered from 12 per cent to seven per cent besides reducing MAT (minimum alternate tax) from existing 18.5 per cent to 15 per cent.

In -24, the finance minister has given one more year for new manufacturing enterprises to avail of the 15 per cent corporate tax benefit. Henceforth, this special rate will also be applicable to new enterprises set up in the cooperative sector. The tax holiday for start-ups gets extended by one more year. Additionally, they get 10 years to set off accumulated losses against future profits in case of change in ownership.

Initially, the private sector didn't respond to the above special dispensation due to lack of demand. However, the pace has picked up during the current year. New investment announced in the manufacturing sector during April – December 2022 was five times the corresponding level during 2019-20. Without doubt, efforts of the Modi government have generated the required growth impulses leading to GDP growth of 8.7 per cent during 2021-22 and estimated at seven per cent during 2022-23 despite a challenging global caused by the Ukraine War, geo-political tensions and rising interest rates.

How has it fared on the fiscal deficit (FD) front? During 2021-22, FD was contained at 6.7 per cent of the GDP against BE of 6.8 per cent. During 2022-23 also, Sitharaman has stuck to the target of 6.4 per cent set out in the budget.

That the government has been able to do it despite slippages in expenditure on major subsidies (fertilizer subsidy outgo is estimated to be around Rs 225,000 crore against BE of Rs 105,000 crore, whereas food subsidy will be Rs 287,000 crore against BE of Rs 207,000 crore) is commendable. A lot of it has to do with the buoyancy in tax collection as the Centre's net tax receipts of around Rs 2100,000 crore have exceeded the BE by Rs 300,000 crore.

The FM has set a FD target of 5.9 per cent for 2023-24. Besides sustaining buoyancy in tax collection, she will bank a lot on a sizable cut in subsidies (food by Rs 90,000 crore and fertilizers by Rs 50,000 crore). In view of the withdrawal of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), even as the government can cut on food subsidy, reduction in subsidy on fertilizers is unlikely.A major highlight of the budget relates to changes in the personal income tax (PIT). Prior to 2020-21, a person having an income of Rs 2,50,001-Rs 5,00,000 per annum was required to pay tax of five per cent, those earning more than Rs 5,00,000 but less than Rs 10,00,000 paid 20 per cent tax, whereas someone having an income higher than Rs 10,00,000 paid 30 per cent. With these tax rates, individuals enjoyed a plethora of exemptions and deductions.

The 2020-21 Budget, even while retaining five per cent tax for annual income in the Rs 2,50,001-Rs 5,00,000 range, on income higher than Rs 5,00,000, it levied: 10 per cent for Rs 5,00,001-Rs 7,50,000; 15 per cent for Rs 7,50,001-Rs 10,00,000; 20 per cent for Rs 10,00,001-Rs 12,50,000; 25 per cent for Rs 12,50,001-Rs 15,00,000. For income above Rs 15,00,000, the 30 per cent tax continued.

Individuals were given the choice to go either for the new regime or continue with the old regime with exemptions/deductions. In the Budget for 2023-24, the FM has made the new regime highly attractive by altering the slabs and the rates to nil tax on income up to Rs 300,000; five per cent tax on income in Rs 300,001- Rs 600,000; 10 per cent in the Rs 600,001 – Rs 900,000; 15 per cent in Rs 900,001 – Rs 1,200,000; 20 per cent in Rs 1200,001 – 1500,000 and 30 per cent on above Rs 1,500,000. The icing on the cake is ‘no tax on annual income up to Rs 700,000'.

This will put more money in the pockets of individuals across all income levels up to Rs 1,500,000. For instance, a person earning Rs 900,000 needs to pay only Rs 45,000 as tax; the rest Rs 855,000 is available for spending. This will give a massive boost to aggregate demand in turn, spurring investment and growth.

It will propel en mass shift of assessees to the new regime bringing an end to the era of exemptions and deductions and associated maladies. Besides giving a push to economic growth through a judicious blend of encouraging investment and consumption, the FM has come up with schemes and budgetary allocations to give a boost to sectors such as agriculture, MSMEs, startups, cooperatives, affordable housing, etc., which are fundamental to generating employment and buttressing ‘inclusive' and ‘green' growth.

(The author is a
policy analyst)