Budget Should Navigate Economy Against Global Challenges

With less than a week to go, the last full Budget of the government has entered the last mile. Budget 2023-24 comes at a time when the global economic environment continues to be troubled. The confluence of global headwinds is triggering fears of an imminent global recession. With US, European Union, and China slowing down simultaneously, it is expected that global growth would slow to 3.2 per cent in 2022 and is pegged at 2.7 per cent in 2023.

Nevertheless, India with 7% GDP growth rate estimated for 2022-23, represents a beacon of hope in an otherwise bleak global economy. However, while Indian economy has done well relative to most economies, it is not immune to global slowdown and uncertainties. Hence, the budget must focus on strengthening India’s macro-economic stability as well as continue to provide support to recovery. Directionally it should also take forward the reforms process to unlock India’s latent growth potential.

Fiscal consolidation is imperative for macro-economic stability. The Budget should lay down the fiscal consolidation roadmap and adhere to the target of 6.4 % of GDP for this fiscal and bring it down to 6.0% of GDP in FY24 and 4.5% by FY26.This would be done through revenue mobilization and expenditure control.

The government has recently taken creditable measures to curtail expenditure by taking steps such as the restructured food subsidy scheme and the creation of the Single Nodal Agency (SNA) dashboard which tracks transfer of funds to states for centrally sponsored schemes. Such measures, when taken together with buoyant tax revenues, would keep the deficit in check while providing the fiscal space for undertaking capex. Accelerating the pace of disinvestment is another area which needs consideration in the forthcoming Budget.

All eyes would be on government’s capital expenditure plans to kick-start the virtuous cycle of investment and growth. The government has made commendable initiatives last year to boost the capital expenditure to revive the economy from the pandemic induced slowdown. This had a salutary impact on the economy with gross fixed capital formation projected to increase by 11.5 per cent for FY23 as indicated by the First Advance Estimates on the economy. Allocation for capital spending should continue to stay high at 35% to about Rs 10 lakh crore in the forthcoming Budget as well. The targets under NIP and Gatishakti should be completed on time. Such large-scale spending can help attract investments down the supply chain, including from small and medium enterprises.

Further, the Budget should also incentivise States to spend on infrastructure investment by continuing with the INR1 lakh crore interest free loans scheme for state capex and make it performance driven. The Budget should prioritize a package for large play of urban municipal bonds for use in financing urban infrastructure.

It is also well known that the challenge of providing well paid jobs for the masses and creating wealth for the country would be addressed through a Budgetary push to labour intensive manufacturing. In fact, manufacturing would also play a pivotal role in helping the economy in reaching the milestone of US$5 trillion GDP by 2025. And, with shifting global value chains, and companies planning to move out of China and Europe, this is an opportune time for India to expand its manufacturing.

The Budget should continue to provide a fillip to ease of doing business, free up land and labour markets, extend PLI Scheme to labour intensive sectors, continue with tax certainty and maintain corporate tax at same level while extending the deadline for lower corporate tax for new manufacturing units. The Budget could announce a cross-ministry Compliance Commission which could look at rationalization, digitization and decriminalization of India’s regulations which would greatly improve the environment for business.

Besides, for India to emerge as a manufacturing hub and to promote exports, a graded roadmap may be strategized to shift import duty slabs to a competitive level over a period of 3 years. The budget should also consider extending the Remission of Duties and Taxes on Exported Products scheme (RoDTEP) to all sectors including SEZs and EoUs.

Another priority is to develop a technology and innovation led economy. If India is to become a developed country by its 100th year of independence in 2047, technology will have to be a major pillar in this journey. Budget should set up a joint Industry-Government Science and Technology Advisory Council to deliberate on key enablers for increasing investment in R&D from the present level of 0.7 % to 4 % of GDP by 2047 with an interim goal of 2.5 % by 2030.

Lastly, sustainability and climate change have emerged as an intrinsic component of the overall development strategy and a survival challenge in the post Covid-19 era. We should create a national strategy for climate responsive budgeting and reporting and enhance the allocation for climate change mitigation and adaptation measures. The Budget could also set up a specialised Development Finance Institution (DFI) for financing climate change mitigation and adaption. Overall, a Budget which provides an impetus to the domestic growth drivers, would go a long way in nurturing sentiment and ensuring prosperity.

The article was first published in The Sunday Guardian, 28 January 2023.

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