On the right course – a growth-oriented Budget

• FM rightly focussed on boosting economic growth, employment generation, encouraging savings and investments, and fiscal consolidation.
  
  
• Building infrastructure also creates a massive number of jobs and has a multiplier effect on the economy.
  
  
• India is rightly betting on infrastructural growth.
  
  
• EODB measures, development, jobs, and a stable tax regime will help achieve investor confidence and sustained economic growth.
  

Undisputedly, the Union Budget is one of the most anticipated annual events in India. I personally believe that the Union Budget 2023-24 should not be seen as an isolated event but as one of the many steps over a series of successful and pathbreaking reforms.

For the past eight years, India has embarked on a number of reforms that are bringing about structural changes in the economy. In my opinion, the Finance Minister Nirmala Sitharaman rightly focussed on the following factors that align with the larger vision of the government. The focus areas are: (i) boosting economic growth, (ii) employment generation, (iii) encouraging savings and investments, and (iv) fiscal consolidation.

The government needs to be commended for keeping the fiscal deficit under control. India’s fiscal deficit was in line with the Budget Estimates of 6.4% of the gross domestic product (GDP). Buoyant direct and GST (goods and services tax) collections were one of the reasons for successfully keeping the fiscal deficit under check. Gross tax collections in FY23 have outperformed the Budget Estimates target by more than 10%. According to the latest Economic Survey, the fiscal glide path envisioned by the government is a result of careful fiscal management supported by buoyant revenue collection over the past two years.

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. As expected, the markets have taken the fiscal consolidation of the government in a favourable manner. The 10-year G-Sec improved from 7.34% prior to the Budget to 7.28% post the Budget speech.

The government’s measures to steadily increase the tax base, bringing in greater transparency and enhancing investor confidence are paying dividends. The government needs to be lauded for their ease-of-doing-business initiatives. According to the FM, over 39,000 compliances have been reduced and more than 3,400 legal provisions decriminalised.

The focus on the salaried class needs to be applauded. The government rationalised income taxes by extending the benefits of standard deduction and also by reducing the surcharge rate for high income earners from 37% to 25%. This measure will reduce the maximum tax rate from 42.7% to 39%. These, along with other measures, are aimed at boosting the Indian economy as rising disposable incomes will promote savings and aid in consumption. This will leave more money in the hands of the people. which will in turn increase consumption and thereby, help in faster capacity utilisation, which over time, increase private investments as well.

Without doubt, the Indian middle class are key drivers of consumption. Notably, India is a domestic consumption-based economy.

Pradhan Mantri Awas Yojana (PMAY), which includes affordable housing, got a boost with an allocation of ₹79,000 crore. A rapidly growing country like India, with a large young population, needs more homes at affordable price points that would enable more households to become homeowners. A source of pride for any middle-class Indian is to buy and stay in her own home. Another notable feature was the establishment of the Urban Infrastructure Development Fund that will be managed by the National Housing Bank. The aim is to create urban infrastructure in smaller cities. This is a laudable move as construction of housing and the development of surrounding infrastructure should go hand in hand.

By significantly increasing the capital expenditure for the third year in a row and by increasing it by 33% to ₹10 lakh crore (or 3.3% of the GDP) over the previous year, the Budget has sent strong signals that India is equipped to absorb large amounts of investments. Besides, investments in new projects will create jobs, which will then generate income, increase consumption and result in greater demand for goods and services. Job creation will increase aggregate demand and eventually lead to higher economic growth. As the Economic Survey rightly noted, there has been an unprecedented expansion and modernisation of infrastructure including ports and airports over the past eight years. According to me, one way to ensure sustained recovery without spiralling inflation is to build infrastructure. Building infrastructure also creates a massive number of jobs and has a multiplier effect on the economy. India is rightly betting on infrastructural growth.

The Budget fittingly focused on supporting start-ups, providing credit guarantee to MSMEs and other incentive measures. Manufacturing and infrastructure are critical sectors as these are primarily responsible for the creation of employment opportunities. Manufacturing forms 17% of India’s GDP and there is a recognition that this needs to increase to at least 25%, which is the ratio for other global comparable economies.

Overall, this was an excellent Budget which is growth-oriented and aims to set India on the right course. Continual reforms have been a priority for the current government and bringing in measures in ease of doing business, development, jobs, and a stable tax regime will help India achieve investor confidence and sustained economic growth. The government’s consistent and visionary steps make it very apparent that India continues to be on course to be a $5 trillion economy by 2025.

(The author is the VC & CEO of HDFC Ltd.)