On The Right Course — A Growth-Oriented Budget

Undisputedly, the Union Budget is one of the most anticipated annual events in India. I personally believe that the Union Budget 2023-24 should not be seen as an isolated event but as one of many steps over a series of successful and path-breaking reforms.

For the past eight years, India has embarked on a number of reforms that are bringing about structural changes in the economy. In my opinion, the Finance Minister rightly focused on the following factors, which align with the larger vision of the government. The focus areas are boosting economic growth, employment generation, encouraging savings and investments, and fiscal consolidation.

The government needs to be commended for keeping the fiscal deficit under control. India’s fiscal deficit was in line with the budget estimates of 6.4% of GDP. Buoyant direct and goods and services tax collections were one of the reasons for successfully keeping the fiscal under check. Gross tax collections in FY23 have outperformed the budget estimate target by more than 10%. According to the latest economic survey, the fiscal glide path envisioned by the government is the result of careful fiscal management supported by buoyant revenue collection over the past two years.

By assuring that the fiscal deficit will be reduced to 5.9% in FY24 and further reduced to 4.5% in FY26, the Finance Minister has shown that fiscal consolidation remains a focus area. As expected, the markets have taken the fiscal consolidation of the government in a favourable manner. The 10-year government securities improved from 7.34% prior to the budget to 7.28% post-budget speech.

The government’s measures to steadily increase the tax base, bringing in greater transparency and enhancing investor confidence are paying dividends. The government needs to be lauded for their ease of doing initiatives. According to the Finance Minister, over 39,000 compliances and 3,400 provisions have been reduced and decriminalised.

The focus on the salaried class needs to be applauded. The government rationalised income taxes by extending the benefits of the standard deduction and also by reducing the surcharge rate for high-income earners from 37% to 25%. This measure will reduce the maximum tax rate from 42.7% to 39%. These, along with other measures, are aimed at boosting the Indian economy as rising disposable incomes will promote savings and aid in consumption. This will leave more money in the hands of the people. which will in turn increase consumption and thereby help in faster capacity utilisation, which over time will increase private investments as well.

Without doubt, the Indian middle class is a key driver of consumption. Notably, India is a domestic consumption-based economy.

PMAY, which includes affordable housing, got a boost with an allocation of Rs 79,000 crore. A rapidly growing country like India with a large young population needs more homes at affordable price points, which would enable more households to become homeowners. A source of pride for any middle-class Indian is to buy and stay in their own home.

Another notable feature was the establishment of the Urban Infrastructure Development Fund, which will be managed by the National Housing Bank. The aim is to create urban infrastructure in smaller cities. This is a laudable move, as the construction of housing and the development of surrounding infrastructure should go hand-in-hand.

By significantly increasing the capital expenditure for the third year in a row and by increasing it by 33% to Rs. 10 lakh crore (or 3.3% of the GDP) over the previous year, the budget has sent strong signals that India is equipped to absorb large amounts of investment.

Besides, investments in new projects will create jobs, which will then generate income, increase consumption, and result in greater demand for goods and services. Job creation will increase aggregate demand and eventually lead to higher economic growth.

As the economic survey rightly noted, there has been an unprecedented expansion and modernisation of infrastructure, including ports and airports, over the past eight years.

According to me, one way to ensure sustained recovery without spiralling inflation is to build infrastructure. Building infrastructure also creates a massive number of jobs and has a multiplier effect on the economy. India is rightly betting on infrastructural growth.

The budget is fittingly focused on supporting start-ups, providing credit guarantees to MSMEs, and other incentive measures. Manufacturing and infrastructure are critical sectors, as these are primarily responsible for the creation of employment opportunities. Manufacturing forms 17% of India’s GDP, and there is recognition that this needs to increase to at least 25%, which is the ratio for other global comparable economies.

Overall, this was an excellent budget that is growth-oriented and aims to set India on the right course. Continual reforms have been a priority for the current government, and bringing in measures for ease of doing business, development, jobs, and a stable tax regime will help India achieve investor confidence and sustained economic growth. The government’s consistent and visionary steps make it very apparent that India continues to be on course to be a $5 trillion economy by 2025.

Keki Mistry is the vice chairman and chief executive officer at HDFC Ltd.

The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.