India’s Finance Minister Nirmala Sitharaman presented the interim budget for 2023-24 on Wednesday, striking a balance between stimulating growth in the run up to general elections next year while maintaining fiscal prudence.
Economic context & budget expectations
The Indian economy is projected to grow around 7% this fiscal year, making it one of the fastest growing major economies in the world. However, it has shown signs of slowing from the over 8% expansion last year.
There were calls for increased spending on infrastructure and social sectors to boost growth and consumption ahead of elections. However, experts warned against reckless populism that could jeopardize macroeconomic stability.
The budget was also presented against the backdrop of high inflation and the government’s commitment to fiscal consolidation. The fiscal deficit target for 2023-24 was set at 5.1% of GDP.
Some of the key highlights of Sitharaman’s 5th budget presentation are:
- Income tax rebate limit increased from ₹5 lakh to ₹7 lakh under the new tax regime
- Capital investment outlay raised by 33% to ₹10 lakh crore – 3.3% of GDP
- 157 new nursing colleges to be established across the country
- 30% corporate tax rate extended to new domestic manufacturing companies
Key budget proposals
|Infrastructure|₹ 75,000 crore for National Green Hydrogen Mission, 100 critical transport infrastructure projects for last-mile connectivity|
|Healthcare|157 new nursing colleges to be set up, mental health programs|
|Banking & finance|New savings scheme for women, senior citizen savings scheme limit enhanced|
|Technology|& innovation|National Data Governance Policy to unlock data potential, Centre of Excellence for Artificial Intelligence|
“This is a budget that channels the aspirations echoing in all corners of our country,” Sitharaman stated in her budget speech, as she outlined proposals aimed at boosting growth and making it more inclusive through investments in infrastructure and the social sector.
Tax proposals – relief to middle class
A key announcement in Sitharaman’s budget was the revision of income tax slabs under the new regime. The rebate limit was increased from ₹5 lakh to ₹7 lakh, providing relief to India’s middle class amid high inflation.
This means that people with total annual income of up to ₹7 lakh will now pay zero tax. Earlier, the nil tax slab was only up to ₹5 lakh income.
While standard deduction, exemptions and deductions available under the old regime have been removed, the tweaks in the new regime will leave most taxpayers better off.
The finance minister also announced other measures like an enhanced deposit limit for senior citizens saving scheme to provide support to fixed income groups managing impact of rising costs.
Capex hike to spur growth & crowd-in private investment
A significant 33% rise in capital spending to ₹10 lakh crore, or 3.3% of GDP, was announced in the budget. Economists hailed this move to boost infrastructure development and create jobs.
Higher public investment is also expected to “crowd-in” private capex, providing a thrust to economic growth. The economic survey presented yesterday projected private investments to pick up thanks to structural reforms undertaken by the government and easing inflation concerns.
Sitharaman said 100 critical transport infrastructure projects have been identified to improve last-mile connectivity across urban and rural India. The National Green Hydrogen Mission with an outlay of ₹75,000 crore was also announced.
Rural, agriculture & social sector schemes continued
The finance minister made several pro-farmer announcements in the budget like the extension of the PM KISAN direct income transfer scheme to farmers. The Kisan drone scheme was also expanded with incentives for them to adopt new-age technologies.
A scheme to promote millets was revealed as 2023 was declared the International Year of Millets.
On the healthcare front, 157 new nursing colleges will be established to boost availability of skilled resources. Mental health programs at district levels were also announced to address this key issue.
Overall, existing schemes and subsidies targeting the country’s rural population, farmers and lower income groups were continued without much tinkering, in contrast to expectations of major populist measures before elections.
Next steps & political reactions
The budget will now be discussed by both houses of the parliament before its provisions are implemented for the next financial year.
Early reactions have been mixed with the opposition accusing the government of misleading people by projecting unrealistic revenue projections to fund its expenditure plans.
However, most analysts concur that Sitharaman has presented a largely responsible budget walking the tightrope between fiscal prudence and pre-election temptations.
Much now hinges on the execution of the government’s capex plans and revenue growth assumptions. The real test lies in spurring investments and job creation in the run up to the general elections in mid-2024.
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