By Nantoo Banerjee
The massive boost in infrastructure spending proposed in the 2023-24 budget is expected to be the biggest growth driver of the county’s economy with several sectors such as steel, coal, power, engineering, automobile and banking are expected to do well. The infrastructure spending along with the focus on tourism, urban development covering tier II and tier III cities, and push to domestic manufacturing are bound to have a strong positive impact on employment, income and consumption. However, much will depend on the government’s ability to implement the infrastructure investment proposals in the budget as they would need support from various state governments.
Hopefully, the budget will further encourage the inflow of foreign direct and portfolio investments through the year which should help contain the slide of the domestic currency vis-a-vis US$ provided that the government is serious about compressing the trade gap, which reached an all-time high during the calendar year of 2022. Higher FDI inflows alone can’t guarantee the stability of Indian Rupee as they failed to do in 2021 and 2022. India had registered its highest-ever total FDI inflows of $84.84 billion in 2021-22. At the end of the current fiscal, the figure may surpass $100 billion.
Investors on Dalal Street gave an immediate thumbs up to the Union Budget 2023-24, the last full budget of the Narendra Modi government before the scheduled next Lok Sabha election in May 2024. The Sensex of the Bombay Stock Exchange (BSE) zoomed over 1200 points. The National Stock Exchange’s Nifty jumped over 250 points. Shares of ICICI Bank, Tata Steel, HDFC, L&T and HDFC Bank were among the top gainers. Indian shares surged after the government raised the minimum tax rebate limit and stepped up spending, while bond yields moved lower after it lifted the gross borrowing for the next financial year in the Union budget. The market euphoria seemed to fizzle out during the day on account of the government’s borrowing surge to finance the big budget deficit. Incidentally, the stock market had banked on Narendra Modi’s leadership before the Lok Sabha elections in 2014 and 2019. Barring unforeseen circumstances, the market is expected to stay bullish with the government vastly raising infrastructure spending through the coming financial year.
Expectedly, post-budget railway stocks traded mostly higher after Finance Minister Nirmala Sitharaman announced the biggest ever budgetary outlay for railways. The budget announced the allocation of Rs 2.4 lakh crore for the railway sector. Shares of power companies also surged after the finance minister made an outlay of Rs 35,000 crore for energy transition investment. The capital investment outlay has been increased by a whopping 33 percent to Rs 10 lakh crore, which will be 3.3 percent of India’s GDP. With this, the capital investment outlay has been raised for the third year in a row. The allocation is higher than the Rs 7.5 lakh crore budgeted for 2022-23. A capital outlay of Rs 2.4 lakh crore has been provided for Railways in FY24. The higher capital outlays on infrastructure, tourism, MSMEs and agriculture are bound to have a multiplier impact on the economy.
The budget has given a big indirect push to automobile sales by way of providing incentives to state governments to junk their old polluting vehicles, including aged ambulances. The finance minister announced a scheme to support state governments and municipalities in replacing their old polluting vehicles. This is set to give a push to the sales of automobiles in the country, including to electric vehicles, as the focus of the government is also on a shift to green fuels by 2030. The measure will benefit all major vehicle manufacturers, including Tata Motors, Toyota Kirloskar, Maruti Suzuki, Mahindra & Mahindra and Hyundai. Tata Motors and Toyota Kirloskar have a line-up of electric vehicle products in all segments. The budget announcement has come at a time when auto companies are predicting sales slowdown. The automobile manufacturers witnessed record sales during 2022 despite the shortage of semiconductors that impacted manufacturing during the early part of the year.
The revival of regional connectivity with 50 additional airports, water aerodromes and landing grounds and 100 transport infrastructure projects for end-to-end connectivity for ports, coal, steel and fertiliser sectors among others are set to boost economy and employment. Customs duty cuts on key electronics parts will help raise domestic consumer electronics production. At least 50 destinations would be selected through challenge mode — physical, virtual connectivity, tourism security, guides — and would be made available on an app to enhance tourist experience. The focus on development of tourism, a major service sector, will be on account of both domestic and foreign tourists. The proposed urban infrastructure development fund on the lines of the Rural Infrastructure Development Fund will go a long way to cover the lending shortfall in urban development.
The government proposed to set aside Rs.10,000 crore per annum for this purpose. The fund will be managed by the National Housing Bank. On the whole, the budget is focussed on economic development. Yet, much of the ruling party’s aspirations to convert the budget propositions into votes will depend on how states respond to the central initiatives. Infrastructure projects will require strong support from states. For instance, the conversion of the strategic Kangra valley rail line into broad gauge has been hanging fire for the past five years. Going by an internal report of the Niti Aayog a year ago, the government was thinking of axing as many as 116 infrastructure projects worth Rs.1.26 trillion, due to unresolved obstacles ranging from land acquisition to Centre-state tussles. A good number of them concern road and rail construction. (IPA Service)