By K Raveendran
Increased tax collections in view of a post-Covid pickup in the economy, easing of commodity prices as part of a global trend and lower subsidies on account of a reduction in food and fertilizer subsidy, apart from the withdrawal of Covid-related reliefs have given finance minister Nirmala Sitharaman a lot of elbow room to play around with the fiscal situation. Lower oil prices have also lent a helping hand.
Accordingly, her fifth and the last full-fledged budget of the Modi government’s second tenure has fixed fiscal deficit for 2023-24 at 5.9 percent, well below the 6.4 percent budgeted for 2022-23. Providing some comfort was the fact that the fiscal deficit for 2021-22 was 6.7 per cent, a tad lower than 6.9 per cent in the revised budget estimates. This has emboldened the finance minister to project the trend of a steady decline and reiterate the intention to bring down the number to the respectable level of 4.5 percent by 2025-26, as she had stated in her previous budget.
It may be pointed out that the pandemic and its aftermath had led to a rethink on fiscal deficit rigidity and the government loosened the purse strings to provide support to the struggling economy. That idea continues to find favour as there is a general opinion in favour of certain flexibility on this count in the interest of broad-based growth.
Nirmala Sitharaman’s pre-budget consultations had seen almost a consensus that a fiscal deficit of between 5.8 percent and 6 percent would be realistic in the given situation. The finance minister seems to have taken the advise seriously so that the government could plan a significant capital expenditure push.
The budget has announced a capex push by raising the outlay for 2023-24 to 33 per cent, which works out to Rs 10 trillion. This is the highest ever capital expenditure allocation in the budget, the outlay having been only Rs 7.5 trillion in the previous budget. The boost will help finance vital infrastructure projects, including transport, which is the first requirement for economic progress. An amount of Rs 10,000 crore has been earmarked for the development of urban infrastructure, including the development of 50 new airport. The new capital expenditure outlay works out to 3.3 percent of GDP.
Nirmala Sitharaman’s budget also creates a record for the highest allocation to the railways. The outlay for Indian Railways has been hiked to Rs 2.40 lakh crore. And the finance minister has not forgotten to mention that this was nine times the outlay made in 2013-14, the transition year.
The fiscal deficit is planned to be bridged through net market borrowings from dated securities are estimated at Rs. 11.8 lakh crore. The balance financing is expected to come from small savings and other sources. The gross market borrowings are estimated at Rs. 15.4 lakh crore. The total receipts other than borrowings and the total expenditure are estimated at Rs. 27.2 lakh crore and Rs. 45 lakh crore respectively. The net tax receipts are estimated at Rs. 23.3 lakh crore.
Back-to-back global headwinds and global economic uncertainties continue to pose constraints which are often beyond the direct control of domestic economic policy levers. But the buoyancy in tax receipts and targeted expenditure rationalization have helped Nirmala Sitharaman persist with the thrust on rapid development.
The gross tax revenue is projected to grow at 10.4 per cent in FY 2023-24, compared to the previous year, with both direct and indirect tax receipts estimated to grow at 10.5 per cent and 10.4 per cent, respectively. The taxes are expected to contribute 54.4 per cent and 45.6 per cent, respectively, to the total tax revenue, according to the fiscal policy statement. The tax to GDP ratio is estimated at 11.1 per cent.
The overall medium term thrust of the tax policy is towards rationalizing tariff structure and widening the tax base. This is being achieved by removing tax inversions which have crept in the tax structure and pruning the exemptions. The government has also promised further measures to widen the tax base, easing compliance for the taxpayers, formalization of the supply chain and improving ease of doing business. (IPA Service)