Why It Will Be A Realistic Budget, Not A Dream One

Expectations that the upcoming Union budget, as much as those in any other year, can change anything drastically is misplaced. The Union Budget is a statement of accounts for the Government of India, and not the only policy announcement window. In addition, the budget announcement is only a plan for the year ahead, and it would be incomplete unless each line item is tallied with delivery of those plans, as the year progresses.

This government has shown alacrity when required, prudence when needed, practical spending when a must, to safely steer the economy. It has not waited for the Union Budget to celebrate it as an event, as much as the news industry wants to. On a lighter side, with the news industry benefiting from the incremental ad revenues for its run-up to and the budget-day coverage, the government might benefit from levying a budget-day cess.

Expecting a Union Budget, in a single day, to dramatically change the economic destiny and build social development, is like expecting a truant child to mend her or his ways overnight. Especially in the context of the past three years of global events – the prolonged Covid wave, supply chain disruptions, the Russia-Ukraine war, currency fluctuations, inflation and geopolitical issues have impacted all global economies.

The Indian economy has performed much better than almost all other global economies. Practically to forecast a sustainable large growth this year ahead, with the continued global turmoil, is an unfair one. Also the base effect that post-Covid offered as a growth rate in FY 2022-23 may not continue. Earlier in December, the Finance Minister had observed that the budget would set a framework to prepare India for the next 25 years (Amrit Kaal) and to “follow the spirit; of earlier budgets. It would be to reason for an equitable society, if the policies could focus on growth across all segments of the population, and not just chase aggregate growth.

The combined fiscal deficit of the Centre and all states is above 10 per cent of the GDP. This is the reason why much of the capex spending into newer projects and capacity expansion would have to come from private industrialists, entrepreneurs and private investors. Will this budget see a warmer reception to them?

Politically, the year 2023 will see nine states going to elections. If political pundits get their forecasts correct, probably the national elections due in April - May 2024 might also happen by end-2023 or early-2024. In the light of these facts, and going by past trends, the budget may not be a populist one.

*W.A.R.M budget expectations

But this is one opportunity for the government before the next national elections to showcase any large budgetary allocation to widen the taxation net or to promote domestic entrepreneurship or to attract global investments. Surely, with India’s enhanced global roles in various national blocs and multilateral units, it has showcased its concerns for those with lesser access to development. One would expect this budget to further focus on socio-economic empowerment. Call it a W.A.R.M focussed budget wishlist -– focussed on women, agriculture, rural and the MSME.

*Wishlist queue

One of the long-standing wishes is to unburden the honest tax payers. For lack of widening the actual tax net, the same set of regular tax payers bear the burden. It is not just unfair to them, but also allows for other earners to get away. If there is a way to reduce personal income tax slab rates, and to widen the net, it would be a welcome change. Of course, taxing agriculture is an option that we need to make up our political minds on. As our economy scales up, we need to be pragmatic that we need to tax this sector too, for equality of treatment to all earning citizens. While the concept of increased Wealth tax, albeit in the form of a rich-tax is worth a debate, the challenge is how and how much. A state can tax its citizens when it offers comfort to enjoy their earnings. A look at the state of our urban infrastructure and lower quality of living is sufficient to have the worry that any rich tax might force those to migrate to better comfortable shores.

Instead, one of the ways to boost the tax revenues might be to have an Urbanisation Cess to pay for civic upgrades to our crowded metro cities. After all, the bulk of tax revenues also come from these cities.

If at all this budget can, it should indicate a policy path, to nudge the banking sector for better credit access to non-corporates. Globally, governments and corporates borrow from the bond markets, while the banking sector focuses on SME, MSME and retail. In India, banks largely lend to corporates, while the lower end of the entrepreneurial value chain does not have easy access to credit. By thumb rule, we need twice the number of current banks or banking sector size, to play active credit dispensation for the economy to grow. We also need larger domestic banks of global scale. Hopefully, the government can nudge the banking regulator to either bring in minimum lending guidance for banks to do incremental lending to these marginalised sectors, or allow for digital-only-sectoral-focussed banks.

Srinath Sridharan is Author (Time for Bharat) & Corporate Advisor. Tweets as @ssmumbai