ANALYSIS OF UNION BUDGET 2023
1.Context
Finance Minister Nirmala Sitharaman has stuck to the growth strategy that she first unveiled in 2019: stay on the path of fiscal prudence and incentivise the private sector to invest more in the economy’s productive capacity
2.Current state of the Indian economy
- First of all, Even before Covid, the Indian economy was suffering from a secular deceleration in growth
- In the financial year 2019-20, which ended in March 2020, the economy grew at 3.7%
- RBI’s research shows that India’s potential growth rate that rate at which it can grow without inflation becoming a problem has been falling over the past two decades
- In the 2003-08 phase, which was India’s highest growth period ever, the potential growth rate was 8%. Between 2009 and 2015, it fell to 7%
- Over the next three years FY21 to FY23, the economy suffered a technical recession as well as a protracted period of high inflation
- The First Advance Estimates (FAE) of national income (read GDP or Gross Domestic Product) that were released on January 6 give a good understanding of how the economy is placed at the end of FY23
The GDP is calculated by looking at the spending by four different segments of the economy
1. Private Consumption: which refers to what Indians spend in their personal capacity, be it on buying a fridge or an ice cream, accounts for 56% of GDP. These expenditures had grown by just 8% over the FY20 levels.
2. Expenditure towards investments (accounting for 33% of India’s GDP): Which involves firms, both big and small, and the government’s spending on creating productive capacity, such as building a road. These were up 15% over FY20 levels.
3. Everyday expenditure of Government (Accounting for 11% of GDP): This spending is expected to be just 7% above FY20 levels
4. Net Exports (Imports-Exports): Since imports are higher than exports, this has been pulling down the GDP, especially as exports have faltered due to the global slowdown
This data show that there is all-round weakness in the economy. Most economists have argued that the biggest problem is that private consumption is weak. That’s because people have been suffering one blow to their income after another, and this has over time led to tepid demand
In the absence of demand, businesses have stayed away from investing heavily. Even the modest 15% increase over the past three years is largely towards replacing old investments, not making new ones
Global Slowdown: It made matter worse for everyone, Over the past two decades, India’s growth cycles have got increasingly synchronised with that of advanced economies since the 2000s due to enhanced integration of trade and capital flows
3. Budget Aspirations in these situations
Faced with slowing domestic growth rate, global recession fears, persistently elevated prices, unemployment worries, high fiscal deficit, and a general election in the next 14 months, Sitharaman decided to stay the course with the strategy she adopted in 2019
Finance minister focussed on the following things
3.1.Raising Capital expenditure:
Capital expenditure is the money that is spent on building productive assets such as roads, bridges and ports
This has a greater return to the economy, and every Rs 100 spent leads to a Rs 250 gain for the economy. Revenue expenditure, on the other hand, returns less than Rs 100
The Budget has raised capital expenditure by the government to Rs 10 lakh crore — this is more than double the Rs 4.39 lakh crore of 2020-21
3.2. Fiscal prudence:
The FM has assured that the fiscal deficit (market borrowing by the government) will fall to 5.9% of the GDP
This is expected to have a salutary impact on the broader economy, as it suggests that money will be available for private entrepreneurs to borrow and invest
3.3. New Personal Income Tax regime
Salaried Indians were expecting some relief on the income tax front. The government provided it but in the so-called new personal income tax regime, which was introduced in 2020 but did not have many takers
The FM has used the incentives to popularise the income tax regime while also declaring that it will now be the default scheme
Until last year, it was optional, with the proviso that once you adopted it you could not go back to the old income tax regime.
The new income tax slabs under new tax regime:
| Income (in Rupees) | Tax (in percentage) |
| 0 - 3 Lakhs | Nil |
| 3 - 6 Lakhs | 5 per cent |
| 6 - 9 Lakhs | 10 per cent |
| 9 - 12 Lakhs | 15 per cent |
| 12 - 15 Lakhs | 20 per cent |
| Over 15 Lakhs | 30 per cent |
* Those who are earning up to 7 Lakhs are entitled to rebate
Old Tax regime:
| Income (in Rupees) | Tax (in percentage) |
| 0 - 2.5 Lakhs | Nil |
| 2.5 - 5 Lakhs | 5 per cent |
| 5 - 10 Lakhs | 20 per cent |
| Over 10 Lakhs | 30 per cent |
*Those who are earning up to 5 Lakhs are entitled to rebate
- The move is aimed at incentivising people to shift to the new tax regime, which has not seen much traction since launch in FY21
- The lower tax regime for individuals was introduced in 2020 under Section 115BAC as a simpler alternative, without claiming any investment-related deductions or exemptions
- This was expected to prove useful for individuals who were not in a position to invest and claim deductions. The new regime had more slabs than the previous one
4.What gets cheaper and What gets Costlier
The Finance Minister announced a cut in customs duty on the import of certain inputs for mobile phone manufacturing. Further, customs duty on parts of open cells of TV panels would be cut to 2.5 per cent, while customs duty on kitchen electric chimney has been increased to 15 per cent from 7.5 per cent
4.1. What gets cheaper
|
Customs duty on parts of open cells of TV panels cut to 2.5 per cent
Govt proposes to reduce customs duty on the import of certain inputs for mobile phone manufacturing Govt to reduce basic customs duty on seeds used in manufacturing of lab-grown diamonds Govt to reduce customs duty on shrimp feed to promote exports |
4.2.What gets costlier
|
Taxes on cigarettes hiked by 16 per cent
Basic import duty on compounded rubber increased to 25 per cent from 10 per cent Basic customs duty hiked on articles made from gold bars Customs duty on kitchen electric chimney increased to 15 per cent from 7.5 per cent |
Source: indianexpress
