Balancing Expectations: A Tightrope Walk
There is good news for the NDA government heading into its last full budget on February 1. India’s GDP (gross domestic product) is likely to grow 7 per cent during financial year 2022-23, if the first advance estimates are to be believed. "Real GDP or GDP at constant (2011-12) prices in the year 2022-23 is estimated at ?157.60 lakh crore, as against the provisional estimate of GDP for the year 2021-22 of ?147.36 lakh crore, released on 31st May 2022,” the Ministry of Statistics & Programme Implementation says in a statement ahead of the annual budgetary exercise.
This is very heartening as a higher growth rate signals a healthy economy. It also gives Finance Minister Nirmala Sitharaman headroom to announce sops and tax relief that both India Inc. and the common taxpayers have great hopes for from the budget.
And naturally so, since budget 2023-24 is expected to draw not just a fiscal roadmap for the next financial year but also provide a framework for growth and economic development for the next 25 years as well.
Speaking in the Rajya Sabha, the Upper House of Parliament on December 7, 2022, Prime Minister Narendra Modi said, "The 'Amrit Kaal' of India's independence (2023-2047) will not only be a period of national development and glory but also an occasion when the country will play an important role in giving a direction to the world."
Experts closely watching the economy expect the budget speech of the finance minister to include a direction for India's economic growth story over the next 25 years. On her part, Sitharaman has already indicated that India will continue to push the growth agenda on the back of increased public spending like before. "The upcoming budget will follow the spirit of the earlier budgets. We are going to set the template, which was set earlier but follow it and take it further for India’s next 25 years," Sitharaman said during an interaction with the industry in December.
Expected Theme: Spend More
Overall, there are greater expectations from the upcoming budget, as a result of an uncertain global economic environment. A big positive, though, for India is the robust growth in receipts. India’s Goods and Services Tax (GST) revenues rose to nearly Rs 1.5 lakh crore in December 2022, 15 per cent higher than a year ago and 2.5 per cent more than November’s collections. In fact, December was the tenth month in a row when the GST collections crossed the Rs 1.4 lakh crore mark, with revenues from import of goods rising 8 per cent and revenues from domestic transactions (including import of services) up 18 per cent compared to the figures for December 2021.
How do experts view this? Rajani Sinha, Chief Economist, CareEdge, CARE Ratings says, "As far as receipts are concerned, gross tax revenue collection has been buoyant in the current fiscal growing by around 16 per cent (YoY) in Apr-Nov 2022. Even after factoring the revenue shortfall from excise and customs
duty cuts, we expect gross tax revenue to exceed the budgeted target by Rs 3.5 lakh crore. On the non-tax revenue front, revenue from dividends and profits is expected to witness a moderation owing to lower dividend transfer from the RBI."
Indranil Pan, Chief Economist, Yes Bank expects the receipts to be much higher than what was budgeted for FY23. “For FY23, total receipts are likely to have increased 10.6 per cent, much higher than the targeted 4.8 per cent in the budget for the year. This is due to higher tax collections as inflation levels in the economy were much higher than earlier anticipated,” says Pan. He continues, “At Yes Bank, we expect the net tax revenues to finish FY23 at 7.7 per cent of GDP while it was targeted at 7.5 per cent of GDP. Non-tax revenue growth is likely to be broadly in line with the budgeted estimates. Total receipts are thus likely to outstrip the budget expectations by around Rs 1.6 lakh crore.”
Will the tax collections continue to show robust growth in the next fiscal year as well? Economists say that may not be the case. In fact, the collections may moderate eventually. "This year’s windfall tax revenue on account of higher nominal GDP growth, more broad-based growth across sectors, and higher inflation is expected to moderate," says Dipti Deshpande, Principal Economist, CRISIL. However, a lower subsidy bill in FY24 may free up some cash, she adds. "On the positive side, some fiscal headroom may be created by a lower subsidy bill next year for food, fuel and fertiliser. These savings can be channelised towards capex," she adds.
Why would the subsidy bill be lower in FY24? Explains Pan of Yes Bank: “For FY24, the fertiliser and food subsidies will be lower than in FY23. This is because of the drop in the crude oil prices and the withdrawal of the PM Garib Kalyan Yojana.”
More Capex & Global Headwinds
Capital expenditure (capex) is the money spent by the government on the development of machinery, equipment, building, health facilities, education, etc. In her budget presented on February 1, 2022, the finance minister had raised the outlay for capital expenditure by a whopping 35.4 per cent, from Rs 5.54 lakh crore (FY22) to Rs 7.50 lakh crore (for FY23). It is expected that the finance minister may continue to increase the capex allocations in the next budget as well.
Agrees Pan of Yes Bank. “Given that there is not much of a chance of private investments to revive immediately, the mantle of capital expenditures will fall on the government. We expect the capital expenditure/GDP to be targeted at 2.9 per cent, better than the 2.7 per cent to be achieved in FY23.”
According to Sinha of CareEdge, capex witnessed a strong growth of around 63 per cent on a year-on-year basis during April-November 2022. However, this needs to go even higher, says Sinha. "Despite this strong capex growth, the monthly average capital spending has been around Rs 56,000 crore, this must rise up to Rs 75,600 crore in the coming months to meet the annual capex target of Rs 7.5 lakh crore for FY23," she adds. Which simply means the government will have to quickly spend more in the remaining months of the current fiscal year. And it may be doing so already.
Deshpande says the government’s role in driving capex can also create jobs by increasing spending on employment-intensive sectors such as rural roads and highways, housing, railways, and irrigation. Will it be an easy task amidst the global uncertainties? That is the question worrying the experts.
What are some of the challenges before the FM? Economists and analysts acknowledge that Budget 2023-24 is coming against the backdrop of a challenging external scenario with global growth slowing and financial conditions tightening. "Uncertain global environment, slowing exports, volatility in commodity markets, sticky core inflation will be the key watch-outs for India’s growth story in the coming year," says Sinha.
Experts point out that the Rs 7.5 lakh crore capex target also included a Rs 1-lakh crore 'interest free' loan to states. This should continue in FY24 as well.
Tax Relief Expected
Tweaking of the tax slabs has been a top expectation of the salaried class for the past eight years. Since 2014, the tax slabs have remained constant budget after budget. Currently, the lowest tax slab rate is fixed at Rs 2.5 lakh while the highest slab starts at Rs 10 lakh. "Both these slabs remain untouched to date," says Ved Jain, an economist and past president of the Institute of Chartered Accountants of India. But why? "It is because the focus of the government has been on increasing the tax base so that more people file their tax returns. And that is why the government has not increased the lowest slab rate until now," Jain explains.
However, things may just change on February 1. It is due to multiple reasons, say tax experts. The salaried class taxpayer is bearing the brunt of high inflation which is eating away the savings. Continuous hike in interest rates have made the monthly EMIs for home loans, other loans dearer. Then, the higher fuel prices have severely impacted the household budget. "Given these difficulties faced by the taxpayers, it is time now that the income tax slab rates are tweaked to provide some relief," says Jain. He feels the basic income tax slab may be increased to Rs 5 lakh and the highest slab should be tweaked to Rs 20 lakh. "The tax savings that will accrue to the taxpayer will increase consumption and investment in the economy which will further help the growth of the country," Jain adds.
Come February 1, all eyes will be on Sitharaman and her speech and later the fine print of what the budget documents hold for everyone.
ashish.sinha@businessworld.in
