Great Budget For Capital Expenditure And Railways, Not Bad For Direct Taxes

Finance Minister Nirmala Sitharaman began her speech by calling this budget the first one in Amritkaal. The reference, and indeed the implicit branding, is towards the next 25 years, during which India is expected to change for the better beyond recognition.  India will become an $20 trillion economy over the period, with a reasonable per capita income as well.

A symbol in a budget initiative illustrates the point. India is going to give a big thrust to the R&D for laboratory grown diamonds which are otherwise indistinguishable from natural diamonds, except for massive cost advantages. In fact, many customers are sold these laboratory made diamonds abroad at the full price of equivalently sized natural diamonds. At present heaps of them are willy-nilly imported for processing in India, before being largely reexported. So, to grow them ourselves, will be a great boon. This is one new initiative that certainly went down very well in Surat.

For long there has been a school of thought that called for a doing away with  the thicket of exemptions in direct taxes. Last year, in response to this, the government offered a dual option. The old scheme with its various tax savings schemes, and another, with a lower taxation rate but no exemptions.

Unfortunately, there were few takers for the new scheme, because one could pay less taxes by using the various exemptions in the old scheme. This year, presumably to revive the new scheme, the Finance Minister Nirmala Sitharaman has sweetened it. This has been done to reduce, if not do away with the beneficial arbitrage aspects of the old scheme versus the new. The detailed calculations will have to be done, but if the new scheme is the more attractive now, it kills two birds with one stone. There will be less complicated tax calculations involved in using the exemptions, and actually lower tax liabilities just by going in for the new scheme. This works as long as the tax rates are not raised again in subsequent years.

On the face of it, the salaried middle class is very pleased.  The Finance Minister even reduced the surcharge on the highest slab to attract more of the well-heeled users.

Likewise, the stock market, that went up steadily during the minister’s speech, and stayed up after it ended. It got nothing, but at least there were no nasty surprises.

Cigarettes taxes have gone up 16%, but taxes on apparel, somewhat inexplicably, have also gone up.

The first half hour of the Finance Minister’s speech was concerned with the poorest of the poor, with a flurry of incentives and outreach efforts. There is an effort to encourage women in the rural workforce to increase their social security. Digitisation in agriculture, crop improvement initiatives with public- private cooperation, were spoken of. Millet production and popularisation is to receive a thrust. Fisheries and animal husbandry were also favoured, alongside more schemes for tribal people, particularly the most backward and vulnerable amongst them. The government will promote greater R&D in agriculture. Mangroves and wet lands are to be nurtured. Storage facilities are to be greatly enhanced for agriculture. However, there was no mention of the Blue Water Economy.

There is a careful consideration of the green economy to reduce India’s carbon footprint, in context of its its problematic dependence on fuel imports. Alternative fertilizers will be promoted, 10,000 bio-input resource centres will be developed.

There was a special mention of R&D for the pharmaceutical sector also.

There will be more nursing colleges, as many as 157 new ones. Digital and physical libraries for children. Mechanical cleaning of sewers and desludging- an absolute requirement for any civilised country.

Hydrogen production as an alternative clean fuel got an allocation of Rs. 19,700 crores. This is not a large sum as yet, but this initiative has great potential in a country that imports 80% of its petroleum. Unlike the thrust for electric vehicles alongside, which leaves a problem of a mountain of very large, and hard to dispose of spent lithium batteries. Hydrogen as a fuel can be indigenously developed, the green version is actually not too expensive to produce, and it does not have any residual waste problems.

There are moves towards youth empowerment. It is mentioned as one of the seven leading principles of Amritkaal, called the Saptarishis. There will be projects in coding, Artificial Intelligence, Robotics, 3 D printing introduced.

There is to be enhanced health infrastructure, and a mission for the elimination of Sickle Cell Anaemia.

There is to be a revamped Teacher’s Training Programme.

The entire budget is seeded with new ideas, even as old initiatives like the earlier Yojanas are strengthened. However, mention of some critical areas such as major defence manufacturing were not spoken of at all.

The boldest step in Budget 2023 is the enhancement of the capital expenditure budget to Rs. 10 lakh crores from Rs. 7.5 lakh crore. This represents 3.3 % of GDP, and is aimed at a faster development of infrastructure. The Indian Railways will receive a separate Rs. 2.40 lakh crores which will not only help modernise and grow the railways with new tracks, but turn it into a net revenue earner for the government,. This railway budget is nine times higher than the outlay in 2013-14.

Both these commendable allocations should go a long way towards reducing Indian logistic costs, a bugbear for international competitiveness in a season when we are trying hard to attract foreign manufacturers to relocate from China. The aim is to reduce logistics costs from the present 14%, to 9%.

There was no mention of the PLI schemes either in the minister’s speech. An exciting idea, not much elaborated on, is the thrust towards manufacturing one product per district of the country, largely expected to give a boost to handicrafts production and local employment. We shall have to see how the implementation turns out. Data storage centres too were highlighted.

Identifying the PAN card  for more than a direct tax identification device may turn out interesting for the millions who actually do not have one, particularly in the rural tax-exempt areas.

Tourism in India is always on the anvil for boosting, and this budget was no exception. Whether the development of as many as 50 new sites will be done with enough panache to attract new domestic and foreign tourists, remains to be seen.

However, religious tourism into Varanasi has proved very successful. More people went to Kashi than they did to Goa over the last year. Therefore Ayodhya should be a block-buster once the Ram Temple is built along with all the spanking new infrastructure there all around the city.

For an election year budget, even the last one before the general elections next year, it maintained its business as usual sangfroid while pointing out that tax collections were up and the economy was doing well. It was, as if,  the Modi government does not need to go in for populism even though the cost of living has gone up significantly with all everyday household products up by between Rs. 10 and Rs. 20. Compared to the rest of the world this is not a lot, but its nothing to be happy about. It remains to be seen how these price rises will affect the voting in nine assembly elections this year for a start.

(1,222 words)

February 1^st, 2023

For: Firstpost/News18.com

Gautam Mukherjee