The year 2023 ushers in the most eventful year with one-third of the country seeking to form new governments in States amid a budget that would be the virtual last full annual budget of the Modi government getting many colourful touches ahead of the 2024 Lok Sabha polls.
In February 2024, it would be only a partial budget. A massive public spending programme was announced last year with a spending of Rs 5.5 lakh crore and by the close of the year it has taken additional sanctions to spend Rs 7.5 lakh crore – an increase of Rs 35.4 percent. Over Rs 2 lakh crore goes into free food dole, that has emerged as a new bartering system for cash, keeping a large number of the under-privileged smiling as it changes their lives.
Inflation index stabilises but the prices are zooming. It is politically and economically tightrope walking through international uncertainties fuelled by the Russia-Ukraine war, global, particularly European, energy crisis and projected slowdown.
Budget making is not easy as the nation moves on to election mode with the Tripura polls in February with people across the country facing difficult job scenario, not so comfortable consumer demand hitting manufacturing and core sector growth. The industry bodies like CII are demanding raising the income-tax threshold to Rs 5 lakh, cut in GST for most items to less than 28 percent and thrust rural infrastructure for facilitating employment generation and sales with an opposition sharpening its teeth.
Finance Minister Nirmala Sitharaman is likely to agree to some of these demands. The industry is not worried about the government finances. Each of the above suggestions have bearing on revenue collection. The deficit is about 6 plus percent says government, but the IMF finds it at 10 percent. Market borrowings projected at Rs 11.6 lakh crore, about one-third of the budgetary expenses, is likely to shoot up as till September itself it reached Rs 8.45 lakh crore. The burgeoning public debt rises to 89.1 percent. The IMF is concerned that 84.16 percent of Indian GDP comprises borrowings. Life for a finance minister is not a bed of roses as current account deficit and external borrowings are increasing with an unstable dollar.
These acute problems are apparently not the priority of the industry. That the industry has not moved out of the 1950s mindset is evident with their suggestions to cut employer contribution to National Pension Scheme to 10 percent from 14 percent, a move that hits the workers hard. And from an unhappy worker they want higher productivity and better market!
The CII, PHDCCI, and ASSOCHAM should better have given more constructive suggestions to the Finance Minister. Wonder why they did not draw the attention of the government to expensive, highly polluting fruitless exercise of scrapping cars. Similarly, they should have told the FM that after Rs 2.6 lakh crore petrol-road-building cess a year, abolition of highway toll is beneficial for bringing down prices drastically making budgeting process easier and help RBI keep interest rates low.
Infra spendings add to glittering activities of project expenses. It is often forgotten that infra is also a drain and most developed countries have done it not with a gusto in a short period but over long span. That is prudent. Despite that today the US needs $58 billion for repairing 220,000 bridges and immediate reconstruction of 79,500 bridges.
Indian industry with its high profit motive wants the government to bear the expenses that they should have done themselves. Infra needs investment and also provisioning at a high level for refurbishing and replacement. Industry bodies professing infra investment want that the concessions bolster their companies through government efforts that may not be sustainable for long.
Inappropriate priorities can land the country, fewest in the world that still is on a growth trajectory, to an undesirable tract. The world is looking at how the existing infra could be maintained for a longer time. Somehow, many economists want review of the spree of demolitions of office buildings in Delhi and elsewhere. The western world capitals pride in refurbishing these heritage structures to continue with it for centuries.
High speed trains should better not be a fad. Better management with least investment can speed up many trains. Abandoning of stations and creating new ones can be avoided. It would give more leeway to the FM. The country needs to rethink on building massive rail stations with fences and security. The richest countries try to keep the rail stations simple, with adequate facilities but keep their expenses low.
The industry did not even suggest replacing loss-making metros in smaller towns like Jaipur or Lucknow with simple but efficient trams. It would not as many of them are beneficiaries of ill-placed priorities.
The burgeoning public debt rises to 89.1 percent. This cannot be the normal prescription. The industry has to share the infra and other expenses and can’t allow the country to slide on heavy repayments. Total debt is estimated at Rs 152 lakh crore in March 2023, Rs 17 lakh crore rise in a year. About 20 percent or one-fifth of the budgetary allocation, Rs 7.88 lakh crore of a budget of Rs 39.44 lakh crore, repays interest payments.
Industry should have suggested the government how to keep the debt low. Instead, it wants the government to borrow more to bolster their profits. It has to take a call to resist pressure on increasing capital expenditure. Let the private sector mull how it should help in keeping the fiscal deficit low to match a low revenue growth.
The government is not in a position to raise tax rates. For fiscal prudence it has to give up a bit. It is a tough year and such innovation away from extravaganza would help the nation. The industry cannot expect the government to burden the people particularly in a year when world growth as per IMF, UNCTAD and World Bank would be slower. The IT majors are under pressure from global economic troubles and would be squeezing more.
The IMF sees India growing at 6.1 percent in 2023-24, a little less than 6.8 percent estimates of the RBI. It’s indeed challenging for the government to give more jobs, manage finances, and be the world engine of growth. The RBI finds India capable but prudence, sagacity and tough steps are needed to sail through in a stormier world in 2023-24.—INFA