Union Budget FY23-24 – What to Expect?5 min read
Finance Minister Nirmala Sitharaman stated on December 16, 2022, that the upcoming budget will be based on a template that will prepare India for the next 25 years and will “follow the spirit” of the previous budget – Growth. This budget is expected to lay the groundwork for growth that will lift India into a higher orbit.
With very high tax collection numbers due to the government’s efforts to broaden the tax base, this budget is more likely to focus on growth, self-reliance, job creation, and financial inclusion. The goal is to promote manufacturing and make India a global manufacturing hub. This budget will also be the last full budget before the next general election in 2024.
Let’s talk about taxation in general
The tax collection has been robust in the current financial year; as a result, not much is anticipated on any of the three fronts—personal income tax, corporate tax, and GST—although there may be minor adjustments here and there.
However, in the case of income tax, experts and the nation’s middle class have urged the government to increase deductions under sections 80C and 80D, redesign tax slabs, increase standard deductions, and merge the two tax regimes, which at this time would be difficult for the government considering the fiscal challenges lying ahead as capital expenditure is only expected to go up.
Capital Expenditure – the key driver of growth
The Capex number is one of the most important numbers to look for. To maintain the growth momentum, it is anticipated that the previous budget’s figure of ₹7.5 lakh crores will rise to at least ₹9 lakh crores. Despite increasing, the fiscal deficit is expected to remain under ₹19 lakh crores. The government, on the other hand, may open up many other sectors by making them export competitive.
Expectations from different sectors for this budget
One of the major announcements will be about India’s “Atmanirbharta”, to promote local manufacturing in order to increase domestic production, reduce imports, and attract international investment. The Production Link Incentive Scheme (PLI) outlay could increase by 25 to 30%. As we know, PLI has emerged as a game changer in many sectors like bulk drugs, medical devices, telecom, white goods, and food processing.
Benefits of the PLI Scheme under the Make in India Campaign –
So far, it appears that the government’s priority is to increase employment by including new sectors in the Production Linked Incentive Scheme. There could be a significant allocation to sectors such as –
- Toys manufacturing
- Cycle manufacturing
- Leather shoe manufacturing
- Container (shipping) manufacturing
- Chemical manufacturing
- Healthcare equipment manufacturing
These sectors generate a lot of jobs, and promoting them can help reduce reliance on China. The government may also increase allocations to the IT hardware manufacturing and pharmaceutical sectors, which are already covered by the PLI scheme. The government is also likely to devise schemes and incentives to encourage self-employment in urban areas.
The infrastructure sector is anticipated to continue receiving a significant boost. Investment in infrastructure has a direct impact on job creation and economic growth. We can anticipate some huge announcements regarding new infrastructure projects under the PM Gati Shakti Plan and under “Amrit Kal Mahotsav initiatives.”
3. Green Economy
As India remains committed to achieving net zero emissions by 2070, the government may announce new schemes and investments to boost renewable green energy. India committed to achieving 175 GW of installed renewable energy by 2022 under the Paris agreement. We have achieved approximately 166 GW, but India’s commitments far exceed that.
Aside from the core energy sector, the GoI is encouraging the use of more green fuels such as ethanol and requesting that automobile manufacturers develop low-cost energy-efficient vehicles based on such fuels. The government may announce some measures to increase technological adoption in the automotive industry. Sugar industries may also receive approval to produce more ethanol in order to meet the blending target earlier.
4. Govt Focus – New Technology, R&D
GoI wants to establish India as a global hub in these emerging new technologies. The government may make a major announcement regarding the development of new technologies in the domains of defence, health, and space using artificial intelligence, machine learning, and big data.
This budget, like previous ones, is likely to focus on inclusivity. With the introduction of the eRupee by the RBI in 2022, the government may announce the use of digital currency in industries as well. The increased capex plan is expected to boost priority sector lending. The government’s focus will be on divestment to gradually transition out of loss-making businesses, but in the current scenario, divestment appears to be a loss-making deal.
However, given that this will be the last comprehensive budget of the current administration before the general elections in 2024, there is a good chance that it will include some populist elements, such as raising agricultural and social security spending, which might put the path to fiscal discipline in jeopardy.
That’s all for today; we’ll be back with another blog in the Union Budget Analysis FY23-24 series soon.
Source: Publicly Available News & Union Budget FY22-23 Documents
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