Union Budget Review | Accent on growth, jobs creation over populism

Union Finance Minister Nirmala Sitharaman presents the Union Budget 2023-24 in the Lok Sabha. Photo: PTI

It was the first union budget of 'Amrit Kaal' and being the last full budget before the 2024 general elections, there was some expectation that the government may play to the gallery and announce populist measures.

But Finance Minister Nirmala Sitharaman has gone for growth and jobs creation over populism with the highest-ever allocation for capital expenditure. Yet it still had something for everyone – income tax benefits for the salaried class, doubling of limits under the senior citizen savings scheme, continuation of free food scheme for one more year, highest-ever capital expenditure allocation for Railways and so on.

However, allocations under food and fertliser subsidies have been slashed along with the one for MNREGA. Real GDP growth is expected at 6.5 per cent and the government expects to borrow a record Rs 15.4 lakh crore to bridge the revenue gap.

Income tax
One of the major focus areas of this year's budget was on individual income taxes. Currently, there are two tax regimes: the old one with deductions and exemptions and the new one without deductions and exemptions.

While the old tax regime has been left as it is, two key changes have been made in the new regime. First is the increase in rebate from the current Rs 5 lakh (available under both old and new regimes) to Rs 7 lakh. This means that someone with an income of up to Rs 7 lakh attracts zero income tax under the new regime. Secondly, slabs and rates have been changed for those with income above Rs 7 lakh. The basic exemption limit has been hiked from Rs. 2.5 L to Rs 3 lakh and slab-wise taxation will be as follows:

Thus an individual with an annual income of Rs 9 lakh will have to pay only Rs 45,000 in taxes against Rs 60,000 currently, and someone with an income of Rs 15 lakh will have to pay Rs 1.5 lakh as tax, down from Rs 1.87 lakh currently. Thus individuals do not have to make investments to reduce the tax burden and spend the savings in taxes as they wish. Another key change is the imposition of tax on income from traditional insurance policies issued from April 1, 2023, for premiums over Rs 5 lakh (other than for ULIP), which are currently tax-free. This is a move to promote term insurance.

Senior Citizens and women
The maximum investment limit under Senior Citizen Savings Scheme has been doubled from Rs 15 lakh to Rs 30 lakh which currently earns an interest rate of 8 per cent. A one-time new small savings scheme for women and girls, Mahila Samman Savings Certificate, will be made available for two years up to March 2025. Up to Rs 2 lakh can be deposited for a period of up to two years with a fixed interest rate of 7.5 per cent with a partial withdrawal facility.

Highest-ever capital expenditure
Capital expenditures, or capex, are those expenditures that create assets, for example, a six-lane highway built by the Government. Capital expenditure is considered to be of a higher quality than revenue expenditures such as salaries and pensions, which do not create any assets. Such infrastructure created by the Government helps the private sector to invest in factories and plants and thus create the much-needed jobs in the economy. 

Even though the Indian economy recorded one of the highest growth among major world economies coming out of Covid, one concern was of jobless growth. Capex figure for FY23-24 is Rs 10 lakh crore which is 3.3% of GDP. This is the highest-ever capex figure both in terms of percentage of GDP and absolute figure. This is also a 33% increase over the previous budget. And it is the third consecutive year of an increase in allocations.

Union budget has also extended the 50-year interest-free loan to the state government to be used exclusively for capital expenditure for one more year.

Fiscal deficit & borrowings
Government expenditure over its revenues is called a fiscal deficit. The fiscal deficit, which is financed by borrowing, had gone up due to higher expenditures during the Covid period. The budget estimates the deficit for FY 23-24 at 5.9%, down from the 6.4% estimated for the current financial year. A lower fiscal deficit means a lower portion of savings in the economy is going to the government as debt and a higher amount of savings is available for borrowing by the non-government sector comprising individuals and private businesses.

Sources of revenue
Major sources of tax revenue expected are corporation tax of Rs 9.23 lakh crore, which is the tax paid by corporates on profit, income taxes of Rs 9.01 lakh crore and GST of Rs 9.57 lakh crore. Non-tax revenue estimated is at Rs 3.02 lakh crore and Rs. 61,000 crore is expected from disinvestment. Tax to GDP ratio is estimated to be 11.1/%.

Other announcements
A major portion of the subsidies is for food followed by fertliser. The finance minister has slashed both. Food subsidy has come down 31% from Rs. 2.87 lakh crore to Rs. 1.97 lakh crore. Fertiliser subsidy has been reduced to Rs 1.75 lakh crore after a cut of 22 per cent. 

Allocation for the flagship employment guarantee programme, MNREGS has also come down by a third from Rs 89,400 crore to Rs 60,000 crore. This is also the lowest allocation for the scheme in the past four budgets.

PM KISAN, which is the income transfer scheme for farmers, has been kept unchanged at Rs 60,000 crore. The affordable housing scheme, PM Awas Yojana, saw a 66 per cent hike in allocation to Rs 79,000 crore. Capital outlay for railways was the highest ever at Rs 2.40 lakh crore.

The target for agricultural credit has been raised to Rs 20 lakh crore and an agriculture accelerator fund has been proposed to encourage agri-startups in rural areas. The FM has also allocated Rs 35,000 cro for capital investments for the transition to green energy.

(The writer is an ex-banker and currently teaches economics & finance.)

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