At a time when the global economy is besieged with multiple challenges including aftershocks of Covid- 19, the Russia and Ukraine war, which are generating a huge inflationary pressure across the globe, Indian Finance Minister Nirmala Sitharaman has announced an economically smart, politically prudent, and a fiscally credible Budget worth Rs 45 trillion. It is designed to boost economic growth with robust fiscal consolidation with an adequate allocation of Rs. 10 trillion for the entire infrastructure sector – an increase of 33 per cent, in which roads and highways get a whopping Rs 2.7 trillion. The infrastructural investment and productive capacity have a larger impact on growth and employment. “After the subdued pandemic period, private investments are picking up again and the Budget takes the lead to further ramp up the virtuous cycle of investment and job generation,” the FM said during Budget presentation in the Parliament.
Course correction
The FM has kept the fiscal deficit in line with the Budget Estimates of 6.4% of the gross domestic product (GDP). Buoyant Direct and Goods and Services Tax (GST) collections are reasons for keeping the fiscal deficit under check. Gross tax collections in FY23 have outperformed the Budget Estimates target by over 10%. By assuring that the fiscal deficit will be reduced to 5.9% in FY24 and further reduced to 4.5% in FY26, the FM has shown that fiscal consolidation remains a focus area. The steps to steadily increase the tax base, bringing greater transparency and enhancing investor confidence, are paying dividends. The FM needs to be commended for the Ease of Doing Business (EoDB) initiatives as the FM claimed that over 39,000 compliances and 3,400 provisions have been reduced and decriminalized.
Moreover, the focus on the salaried class needs to be applauded as the FM rationalized Income Taxes by extending the benefits of standard deduction and also by reducing the surcharge rate for high incomes from 37% to 25%. This will reduce the maximum tax rate from 42.7% to 39%. The initiatives are aimed at boosting the Indian economy as rising disposable incomes will promote savings and boost consumption.
Statistical analysis
In the Budget proposals, the Transport sector gets a larger outlay than Defence, if one excludes pensions and the civilian arm. While the jump in transport expenditure is linked to higher capital expenditure in the sector, the defence allocation, including pension, is pegged at Rs 5.9 lakh crore. Of this, nearly Rs 1.4 lakh crore is on account of defence pensions. Transport has received an allocation of Rs 5.2 lakh crore.
The Budget has three salient features: One, the annual increase in expenditure is lower than even the forecast growth in nominal GDP. Two, there continues to be a tilt towards capital expenditure, and third, the emphasis on capital spending has been balanced by a reduction in allocation towards subsidies and safety nets. The level of total expenditure in estimates is over Rs 45 lakh crore, higher by 7.5%. It is lower than the 10. 5% increase in nominal GDP to Rs 301.7 lakh crore. Since 2020-21, the Budget has shifted its pattern of allocation in favour of effective capital expenditure. Consequently, it’s doubled between 2019-20 and 2022-23 (revised estimates) to Rs 10.5 lakh crore. In the 2023-24 estimate, it has been enhanced by an additional 30% to Rs 13.7 lakh crore, as such, an impact of the enhanced capital expenditure showed up in allocations for the transport sector.
Huge highway infra spend
For a healthy economy, GDP growth is the result of strategic focus on fiscal prudence and comprehensive development driven by a strong push on infrastructure development — particularly the highways infrastructure sector. They play a dominant role in nation’s building by creating abundant comprehensive growth opportunities to uplift local communities, provide efficient connectivity for movement of goods, people, and services. In view of this, the Budget proposed the highest ever allocation of Rs 2.7 lakh crore for the sector, which is 25% more than the revised estimates of the current fiscal and the sector will also play a crucial role in the scheme of things with nearly 26% of the capital expenditure earmarked for this sector. As a matter of fact, the well-focused network of roads and highways is yielding covert and overt benefits to the stakeholders who are investing their resources. The continuing trend showed a rapid rise in NHs and roads construction with 10,457 kms NHs constructed in FY22 as against 6,061 kms in FY16.
Master list of infrastructure
The government will form an expert committee to review the Harmonized Master List of Infrastructure whereby the committee will recommend the classification and financing framework suitable for Amrit Kaal. The FM tasked the newly established infrastructure finance secretariat to assist all stakeholders with more private investment in various sectors including railways, roads, urban infrastructure, and power generation. The government is working on a mission to provide first and last-mile connectivity to ports, coal, steel, fertilizer, and food grains sectors. In addition, it has also identified 100 critical transport projects for connectivity and they will be taken up on a priority basis with an investment of Rs 75,000 crore, of which Rs 15,000 crore will be from private resources.
Highest allocation to railways
Indian Railways received a capital outlay of Rs 2.40 lakh crore, the highest-ever since 2013-14 with funds to accelerate projects like introducing hydrogen-powered wagons and trains, laying of additional tracks, electrification of network, and revamping stations with better amenities for passengers. According to Railway Minister Ashwini Vaishnaw, the first indigenously designed and developed hydrogen-fuelled train will be rolled out by December 2023, and such trains will be operated on Heritage Routes. The allocation for the railways is 48% more than the revised estimate (RE) for the current fiscal and nearly 72% higher than the budget estimate (BE). The maximum increase in allocation is meant for passenger amenities, which include redevelopment of stations. For 2023-24, Rs 13,350 crore has been earmarked for this compared to the RE of Rs 3,824 crore for the current fiscal. Over 1,275 stations are being revamped under the ‘Amrit Bharat Station’ scheme and the redevelopment of Delhi, Mumbai, and Ahmedabad stations is underway. The second highest increase in allocation has been proposed for railway’s rolling stock — trains, locomotives, and wagons. The government has proposed allocation at Rs 37,581 crore, more than double of the RE for rolling stock.
RRTS & Metro
The country’s first high-speed Regional Rapid Transit System (RRTS) corridor being constructed between Delhi and Meerut got a major boost of Rs 3,596 crore in the Union Budget. However, the allocation was lower than last year’s
Rs 4,472 crore. No allocation has been made for Delhi Metro Rail Corporation, which is constructing three priority corridors in its Phase IV expansion. The Budget set aside an overall Rs 19,518 crore for all metro rail projects across the country. “For the past few years, the Union Finance Ministry has been providing a budget for all metro train projects in India in totality instead of each separate undertaking,” noted a source. Until a few years ago, grants to DMRC were made separately. The source added that DMRC would ask for funds according to requirements from the Union Housing and Urban Affairs Ministry, which is the nodal authority for all metro projects. The allocation for metro projects includes equity investment of Rs 4,471 crore, pass-through assistance of Rs 13,723 crore and Rs 1,324 crore as subordinate debt.
Urban infrastructure
The Budget proposed that the government will set up an Urban Infrastructure Development Fund (UIDF), which will make Rs 10,000 crore available to states to create infrastructure in Tier-2 and Tier-3 cities. All cities and towns will be enabled to go for 100% mechanical cleaning of septic tanks and transition from “manhole” to “machine hole”. Announcing the government’s roadmap for making cities and towns sustainable and cleaner, the FM said there will be an enhanced focus on scientific management of dry and wet waste. The government’s focus on sanitation is clear from the allocation for 2023-24. While the Centre has proposed a minor increase at Rs 76,432 crore for the Housing and Urban Affairs Ministry, compared to the revised estimate of Rs 75,546 crore for 2022-23, it has allocated Rs 5,000 crore for Swachh Bharat Mission for the next fiscal — a whopping 250% more than the revised estimate of the current fiscal. The UIDF will be managed by the National Housing Bank and will be used by public agencies to create urban infrastructure in Tier-2 and Tier-3 cities. This is a laudable move as construction of housing and the development of surrounding infrastructure should go hand in hand.
Boost to housing sector
Pradhan Mantri Awas Yojana (PMAY) which includes affordable housing, got a boost with an allocation of Rs 79,000 crore. A rapidly growing country with a large young population needs more homes at affordable price points which would enable more households to become homeowners.
Tourism infra gets a leg up
After facing a sharp dip during the pandemic, the travel and tourism industry has risen substantially. The tourism sector is a major contributor to the country’s economy with many people dependent on the tourism industry for their livelihood. As many as 50 tourist destinations will be selected through challenge mode to be developed as a whole package for domestic and international tourism. She also said that the states will be encouraged to set up a ‘Unity Mall’ in the state capitals. “The most popular tourist destinations will help in promoting and selling ‘One District, One product’, GI products and other handicrafts.”
Aviation gets infra push
Regional aerial connectivity has got a boost with the government planning to revive old, and unused airstrips across the country. As many as 50 additional airports, heliports, water aerodromes and advanced landing grounds will be revived for improving regional air connectivity. In the last eight years, the number of airports in use has increased from 74 to 147; this is due to the subsidized regional connectivity scheme (RCS) ‘Ude Desh Ka Aam Nagrik’ (UDAN). Domestic air traffic recovery has been among the highest in India globally, post-Covid, and India is now the world’s third largest aviation market at over 1.1 crore flyers have taken UDAN flights in the last six years.
Interest-free loan to states
Incentivizing states to accelerate capital spending for improving infrastructure, the Centre extended the 50-year interest-free loan scheme by one year for state governments and increased the outlay from Rs 1 lakh crore to Rs 1.3 lakh crore. A portion of this will be linked to meeting some reform measures prescribed by the Centre. The scheme is a part of the government’s strategy on cooperative federalism. It’s extension is seen to indicate that states have found it attractive and are keen to carry on the reforms. “I have decided to continue the 50-year interest free loan to state governments for one more year to spur investment in infrastructure and incentivize them for complementary policy actions, with a significantly enhanced outlay of Rs 1.3 lakh crore,” the FM said and added that the entire loan must be spent on capital expenditure. While most of the spending will be at the states’ discretion, a part will be conditional. Certain parts of the outlay will also be linked to projects such as scrapping old government vehicles, reforms in urban planning, housing for police personnel, constructing Unity Malls, children and adolescents’ libraries, and digital infrastructure. She said that of the fiscal deficit of 3.5% of the gross state domestic product, 0.5% will be tied to power sector reforms.
Greening agenda
The government has matched its words with money by putting Rs 35,000 crore on the table for transition to green energy as part of India’s 2070 ‘net zero’ emission ambition. The fund will be used to support new-age energy solutions ranging from green hydrogen and ammonia, battery storage, and transmission lines for evacuating renewable power and biofuels such as biogas and ethanol (petrol laced with ethyl alcohol). In fact, the government needs to show the money for its ambitious green agenda. True to the Budget intention, part of the money will be used for providing VGF (viability gap funding) for 4,000 MWh (megawatt-hour) and VGF of Rs 8,000 crore for the proposed Rs 20,700-crore transmission line for evacuating power from the proposed 13 GW solar-wind-battery storage project in Ladakh to reduce the tariff initially, till a domestic market scales up and prices come down. A framework for pumped storage generation projects will also be formulated. Both these technologies will play a key role in the government’s bid to promote round-the-clock solar or wind power projects by providing standby power during night or no-wind scenarios. This will be an important element for maintaining grid stability as the share of renewables rises.
Artificial Intelligence
The government has expressed its intention to develop the country’s digital economy, with focus on Artificial Intelligence (AI). The FM highlighted the importance of amplifying the vision of ‘Make AI in India and Make AI Work for India’. “I believe AI will change the face of India and enable the country to establish a stronger foundation of a “Digital India”, the FM said, adding that three AI-based centres of excellence will be set up at top educational institutions of the country. The initiative is expected to involve leading industry players in interdisciplinary research, for creation of technologies to ensure betterment of sectors such as agriculture, health, and sustainable cities.
Counter point
The Budget for flagship MGNREGA has received a cut from Rs 73,000 crore in 2022-23 to Rs 60,000 crore in 2023-24, with the figure becoming starker in the wake of the fact that the actual expenditure in the current financial year is likely to touch Rs 90,000 crore. The scheme expenditure in 2021-22 was little over Rs 98,000 crore, while in 2020-21, Rs 1,11,169 crore was spent.
Former FM P Chidambaram blamed the government for “squeezing” the scheme from all sides. Nikhil Dey of NREGA Sangharsh Morcha said the arrears at the end of the current financial year are likely to be over Rs 25,000 crore, which would be paid off with the next year’s budget, thereby creating a financial crunch in the scheme.
Concluding remark
Amidst the global slowdown, India has maintained an exceptional growth rate in the past few years. The Amrit Kaal Budget with its obvious focus on fiscal consolidation and capital expenditure, will continue to support the country’s growth story and maintain its ambitions and prospects to become the world’s third largest economy in the next couple of years.
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