Let us first recognize that Budget 2023-24 is a budget with a difference. This so-called election year budget does not resort to any short-term populism or announce any schemes largely designed to ‘buy’ votes. A casual look at the commentary preceding the budget would confirm that this was indeed the expectation. For long years, the norm has been election year budgets that announce a large number of programs that are designed to earn votes as the expense of making investment in long-term sustainable socio-economic development. This is itself a radical shift in political-economic thinking. It shows a mature leadership that is confident about delivering genuine development to its citizens and thereby earning their trust and thus their support. It underlines that this government does not consider ‘Sabka Saath, Sabka Vikas, Sabka Vishwaas, Sabka Prayas’ to be a mere slogan, but a genuine political commitment.
It is important to note that it is simply not the quantum of spending that matters, the quality of actual implementation and use of the allocated monies matter even more for the actual outcomes. The Modi government has ensured that infrastructure gets developed in time, with minimum cost over-runs, ensuring optimal use of taxpayers money. The direct-benefit transfer and other governance measures for social sector spending has radically improved the reach and actual impact per Rupee spend. The technology supported transparent systems of delivery has ensured that the allocated expenditure actually reaches intended beneficiaries in a manner that makes a meaningful difference to their lives. This means that actual impact of the development expenditure by the Modi government has typically had far more marginal development impact compared to previous regime.
Finance Minister Nirmala Sitharaman presented the Union Budget 2023-24 on a positive roadmap with fiscal deficit for 2023-24 at 5.9 percent of GDP well below the 6.4% budgeted for 2022-23. The fiscal deficit for 2021-22 was 6.7%, which was lower than the revised budget estimates of 6.9%. The aim is to reduce the fiscal deficit to less than 6% of GDP for the first time since the fiscal year ended March 2020 (i.e., pre-pandemic), while increasing capital spending to support growth.
These by itself are no mean achievements, coming as they do under post-pandemic recovery challenges and the global economy now being plagued by a war that is seriously impacting energy and food prices globally adding to inflationary pressures. Credit must be given to this government for effective fiscal management under difficult circumstances, and without sacrificing the twin objectives of socio-economic development and increased capital expenditure on infrastructure to sustain growth.
As Finance Minister Nirmala Sitharaman outlined, this vision for longer-term commitment to India’s rise as a global economic power, and a vibrant society that addresses the socio-economic priorities of its citizens are encapsulated by the focus in seven key areas or Saptarishi. These are:
- Inclusive Development
- Infrastructure and investment
- Reaching Last Mile
- Unleashing potential
- Green growth
- Youth Power
- Financial Sector
These seven fundamentals should not be seen in isolation. Priorities under each of them feed into the other. The budget is therefore reflective of the vision outlined by Prime Minister Shri Narendra Modi for making India a competitive economy and a global economic powerhouse, while at the same time fully rediscover its tradition of being a compassionate civilization that is truly inclusive and addresses the needs of its citizens, and indeed is a force of socio-economic good for the entire world. Let us briefly discuss some the key budget announcements and understand their role in the achieving this wider vision.
An objective analysis would put the nine years of PM Modi led government as the most significant decade for inclusive development in India’s history. From providing toilets to tap water connections, from making available gas cylinders to electricity connections, India’s poor finally got their due from the state. It was the Modi led government that destroyed two myths. First, that basics of life such as clean running water, electricity or toilets were middle-class luxuries and could not be made available to the poor on a large-scale. Second, that the pace of development to take these amenities to the lower-income families would take decades. Indeed, a vast majority of Indian households now have access to these amenities whereas less than a 20% of families had them in the beginning of 2014.
Looking at sheer scale of achievements underline the pace at which the fundamentals of socio-economic empowerment of India’s low-income families is taking place. Ensuring 478 million Jan Dhan accounts, or providing insurance coverage to 446 million citizens under PM Suraksha Bima and PM Jeevan Jyoti Yojana are just two examples of this.
This budget brought continuity to this ambitious program of socio-economic development, keeping in mind the country’s future needs. As India industrializes and rapidly urbanizes, ensuring affordable housing to lower-income urban families, most of whom are migrants from rural areas would be critical. This would also be central to urban renewal and sustainable urban development. With that in mind, the allocation under PM Awas Yojana has been increased 66% in this budget to 79000 crores.
As economy transforms and there is greater rural to urban migration due to the development of new industrial clusters and expansion of existing cities, it will not be enough to focus on just the industrial and logistics infrastructure, but also develop social infrastructure. Developing this social infrastructure would be key to inclusive growth in the cities. The announcement to establish an Urban Infrastructure Development Fund (UIDF) that will be used by public agencies to develop comprehensive urban infrastructure is intended to lead to such inclusive urban growth.
Infrastructure and Investment
One of the highlights of this budget has been the massive increase in capital expenditure on infrastructure by over 30% over previous year budget. At INR 13.7 lakh crore, this is a historically high allocation. Infrastructure spending has significant multiplier effect in the economy and leads to growth and employment across several sectors. Sustained spending on infrastructure by this government, and significant allocations in post-pandemic budgets has helped sustain growth under difficult circumstances while cushioning the impact of job-losses and unemployment.
Since infrastructure spending creates productive capital for the economy, it also contributes to longer-term growth and competitiveness. India has a huge infrastructure deficit across sectors, whether roads, rail, energy or urban, and addressing this deficit quickly is also essential to development of the manufacturing sector and India’s ability to competitively attract FDI. Inefficient logistics and poor infrastructure in India has been one of the factors behind India’s relative lack of success in attracting large-scale foreign investment in manufacturing. This is now rapidly changing as new infrastructure makes India an attractive investment. India is in fact in a sweet spot-a growing middle-class and realization caused by the pandemic that over dependence on any single location for manufacturing can lead to serious disruptions means that India is emerging as a one the top long-term investment bets.
A very interesting development is the allocation of INR 2.4 lakh crore for development of railways. India has suffered from an over-dependence on roads. Even bulk material that is typically carried by rail in other advanced economies have had to depend on road due to lack of capacity in rail. The rapid expansion of rail infrastructure and the dedicated capacities for freight is expected to change that. This new rail infrastructure would be especially critical to developing efficient logistics for some of the core sectors such as steel, cement, fertilizer, foodgrains, industrial raw materials, and energy. This significant allocation to railways is also in keeping with priorities of the PM Gati Shakti Master Plan to seeks to create seamless multi-modal logistics networks in the country.
While the Production Linked Investment (PLI) schemes have been previously launched targeting critical manufacturing sectors with a eye on the future industrial landscape, this budget also included similar targeted interventions to support economic value-creation. These include the decision to set up three centers of excellence in Artificial intelligence (AI). AI would be central to the overall focus on automation, robotics and smart manufacturing that would dominate the future industrial landscape. The 35000 crores outlay on energy security, energy transition and net zero objectives would add heft to the development of new technologies and products for the green economy.
Increasing value-addition and productivity in agriculture is a hugely important part of overall economic growth and increasing overall income levels. A robust rural economy not only provides for consumption demand, it creates corpus of savings for investment. The 20 lakh crore agricultural credit targeted at animal husbandry, dairy and fisheries must therefore be seen in that context, where alternative and productive avenues for increasing agro-based incomes and opportunities for value-addition will be developed.
Addressing the gaps in last mile hard infrastructure is a critical objective of the PM Gati Shakti Master Plan. These seemingly small gaps in infrastructure have huge impact, creating congestion and reducing the efficiency of the entire logistics chain. This year’s budget has therefore prioritized addressing such gaps, specifically through investment of Rs. 75,000 crores, including Rs. 15,000 crores from private sources, for one hundred critical transport infrastructure projects, for last and first mile connectivity for ports, coal, steel, fertilizer, and food grains sectors.
But the last mile gap also exists for social infrastructure. This is less well understood, but the lack of facilities and systems to deliver numerous social sector plans effectively to citizens, especially in the more backward areas of the country lead to widening of the development and income gap. The launch of the ambitious aspirational Blocks Program covering 500 blocks launched for saturation of essential government services across multiple domains such as health, nutrition, education, agriculture, water resources, financial inclusion, skill development, and basic infrastructure represents a well-designed attempt to close this last mile gap in the social sector delivery.
Unleashing the potential
India has long been held back in achieving its true potential due under-investment in its citizens and poor governance that impedes the entrepreneurial and business energies of its hard-working and creative population. Prime Minister Modi has made it his mission from day one to address these challenges. It therefore comes as no surprise that this year’s budget has again prioritized these objectives.
Youth power: Realizing the Demographic Dividend
In order to make India’s youth future ready for the emerging technology driven industrial landscape, popularly known as industrialization 4.0, a Pradhan Mantri Kaushal Vikas Yojana 4.0 has been launched to skill lakhs of youth within the next three years covering new age courses for Industry 4.0 like coding, AI, robotics, mechatronics, IOT, 3D printing, drones, and soft skills. In addition, 30 Skill India International centres are to be set up across different states to skill youth for international opportunities. Given India’s demographic advantage, and the ageing populations across many advanced economies, there would be significant opportunities for India’s skilled youth to work globally to address labour and skill shortages in key areas. Equally interesting is the announcement of Direct Benefit Transfer under a pan-India National Apprenticeship Promotion Scheme to be rolled out to provide stipend support to 47 lakh youth in three years. Apprentice programs often face the challenge that youths, especially migrant youths cannot sustain themselves properly in industrial towns, and afford housing and other amenities. This stipend will help augment their apprentice wages and make it easier for these apprentice programs to be attractive to the target youth population and thus take off.
India’s primary and secondary education quality needs to be addressed urgently in order to ensure that we optimally leverage our demographic dividend. The decision to support the development of District Institutes of Education and Training as vibrant institutes of excellence for Teachers’ Training is expected to address the issues of quality teaching. An interesting out-of-the-box initiative is the National Digital Library for Children and Adolescents to be set-up for facilitating availability of quality books across geographies, languages, genres and levels, and device agnostic accessibility. This would leverage digitalization to make available learning resources that simply could not have been accessible in rural schools or government run schools with lesser resources. Given the ability of today’s youth across the economic spectrum to use digital tools, this could emerge as a game-changer.
In order to address poor governance and poorly designed laws and procedures that lead to harassment and difficulties for entrepreneurs and citizens, this government has reduced the need for about 39,000 compliances and has decriminalized 3,400 legal provisions to enhance Ease Of Doing Business. To further drive these reforms, this years budget introduced the Jan Vishwas Bill to amend 42 Central Acts to further trust-based governance.
The challenge of governance is not limited to poorly designed laws, regulations and compliance procedures, it is related to people who are implementing to them. Comprehensive governance reforms requires a more accountable and sensitive bureaucracy, including the lower bureaucracy who serve as the day to day interface with businesses and citizens. Mission Karmayogi represents an ambitious program to develop capacity, competency and accountability of government officers. This year’s budget formally launched iGOT Karmayogi, an integrated online training platform, launched to provide continuous learning opportunities for lakhs of government employees to upgrade their skills and facilitate people-centric approach.
There is massive talent in India’s MSME sector. The MSME sector already accounts for a substantial share of the manufacturing and services, including exports and is the major source of employment. Properly harnessed, the entrepreneurial and creative abilities of this sector can compete globally and be a force multiplier for economic growth and employment. A major hurdle for MSMEs is access to credit at fair interest rates. In this context, the revamped credit guarantee scheme for MSMEs announced in this budget through infusion of Rs 9,000 crore in the corpus promises to be a radical game changer. This scheme would enable additional collateral-free guaranteed credit of Rs 2 lakh crore and also reduce the cost of the credit by about 1 per cent. This program needs to be closely watched, further tweaked if there are implementation issues and ramped up to the extent possible to further reduce cost of credit for MSMEs.
Last but not the least, Ms. Sitharaman and her team must be complimented for out-of-the-box policy thinking. The decision to allow deduction for expenditure incurred on payments made to MSMEs only when payment is actually made by the firms that made such purchases creates a huge incentive for these firms to not delay payments to MSMEs. Lack of timely payment is a major challenge for MSME cash flows and adds to costs due to the need to access expensive short-term credit to tide over cash-flow issues.
This article attempts to juxtapose budget 2023-24 in the context of the larger vision of India’s rise that was outlined by Prime Minister Narendra Modi in his independence day speech on 15th August, 2022. There is need for focus and complete commitment to this vision if India is to emerge as a developed economy and a global power by 2047. The next 25 years is as crucial to India’s future as our struggle for independence was in the in first half of the 20th century. The budget must be seen in this light-as providing for focused incremental interventions that act as force multipliers across different sectors towards achieving this vision. Let us end therefore where we started. Prime Minister Modi and Finance Minister Sitharaman could have done the expected, and veered away from that focus and instead come up with a election friendly budget full of freebies. But they chose not to. This reflects a commitment to national interests that transcends narrow electoral politics. It also represents a new India-where the citizens themselves realize the need for longer-term transformation, and are not willing to be fooled by election led opportunism.