Finance Minister Shrimati Nirmala Sitharaman may be commended for presenting a short and clear budget speech. Compared to her earlier budget presentations, it was much improved, rather flawless. There was a slip of tongue at one place which she managed in a pleasant manner. She did not have to muffle words as the agenda was distinct. One may disagree with the outline and outcome of the underlying principles of growth in the economy. One need not study between the lines for the plan of development envisioned in the philosophy behind the budget. It is unmistakably evident, rather embossed, in the documents presented, including the FM’s speech, with the budget.
GROWTH THROUGH PUBLIC FINANCE
One may take the case of increasing role of private entities, including public-private- enterprises. It has been referred to at seven places in the budget speech, as under:
- “Promotion of tourism will be taken up on mission mode, with active participation of states, convergence of government programmes and public-private partnerships.
- “…we will adopt a cluster-based and value chain approach through Public Private Partnerships (PPP). This will mean collaboration between farmers, state and industry for input supplies, extension services, and market linkages.
- “Facilities in select ICMR Labs will be made available for research by public and private medical college faculty and private sector R&D teams for encouraging collaborative research and innovation.
- “Investments in Infrastructure and productive capacity have a large multiplier impact on growth and employment. After the subdued period of the pandemic, private investments are growing again. The Budget takes the lead once again to ramp up the virtuous cycle of investment and job creation.
- “This substantial increase in recent years is central to the government’s efforts to enhance growth potential and job creation, crowd-in private investments, and provide a cushion against global headwinds.
- “The newly established Infrastructure Finance Secretariat will assist all stakeholders for more private investment in infrastructure, including railways, roads, urban infrastructure and power, which are predominantly dependent on public resources.
- “One hundred critical transport infrastructure projects, for last and first mile connectivity for ports, coal, steel, fertilizer, and food grains sectors have been identified. They will be taken up on priority with investment ofRs. 75,000 crore, including ` 15,000 crore from private sources.”
INCREASING ROLE OF PUBLIC DEBT
In continuations of the growth scheme of the present political establishment of the nation, the plan for growth involving public debts has further been consolidated. Now its scope has been widened to Cities, Municipal Entities and Urban Local Bodies. Paragraph 54 of the Budget Speech states that “cities will be incentivised to improve their credit worthiness for municipal bonds.” Paragraph 47 of the Speech states that the scheme for 50-year interest free loan to state governments shall be continued for one more year “to spur investment in infrastructure and to incentivise them for complementary policy actions.” Its purposes have been described in Paragraph 111 which includes, “financing reforms in urban local bodies to make them creditworthy for municipal bonds.”
The alternative method of development of an economy is to encourage its public to save and mobilise such savings to investment so that capital formation in the economy may get impetus. The Indian government, it appears, has opted for ignoring or discouraging this model of economy and adopted the model in which the economy kick-starts from public debt. A considerable portion of Indian economic activities are contributed by unorganised sector whose propensity to save has been higher. It was hit hard by the demonetisation as all such savings had to be brought to the banking system.
Wage earners and salaried class had been forced to go for saving schemes to tax planning to get benefit of deductions under the provisions of the Income Tax Act. This is being discouraged through the new regime of filing tax returns.
CAPITAL EXPENDITURE AT THE COST OF SOCIAL FUNDING
Increase in capital expenditure is good for the economy in the long run. However, the tendency to cut slices from social sector funding including the Mahatma Gandhi National Rural Employment Guarantee Act 2005 (MGNREGA) and schemes for minority developments is a disturbing feature. The allocation as depicted in the following Table is self-evident.
[Rs. in lakh crores]
| Particulars | 2021-22A | 2022-23 BE | 2022-23 RE | 2023-24 BE | |
| 1 | Social Services | 2.61 | 2.15 | 2.05 | 2.20 |
| 2 | Agriculture & Allied Services | 4.76 | 3.71 | 4.65 | 3.54 |
| 3 | Rural Development | 1.01 | 0.77 | 0.93 | 0.64 |
In all these outlays proposed expenditures in BE 2023-24 are lower than Actuals 2021-22 and BE and RE 2022-23.
It is true that capital expenditures give benefits in the long year. However, the percolation of the fruits of economic development to all strata of the economy and providing necessary succour to those in urgent need should not be sacrificed at the altar of future and projected benefits. From this angle, the budget provisions seem to have ignored the primary and immediate needs of the society like poverty alleviation and employment generation.
HEALTH OF THE ECONOMY
There are several good features of the Indian economy, both in terms of human and material resources. Its Forex Reserve is worthwhile. It absorbed the shocks of the financial crisis of 2007 and 2008 and the onslaught of the recent worldwide pandemic better than many nations in the world.
But all is not well. The economy has been declining from quarter to quarter. This declining tendency in all major economic indicators cannot be attributed solely to the pandemic because such trends existed before COVID-19.
One such area which needs to be highlighted, while analysing budget provisions, relates to public debts. The Debt to GDP ratio of India is above 80% which is an alarming situation. While discussing fiscal consolidation and the stated task of keeping fiscal deficit below 4.5% of GDP by the year 2025-26, the ratio of fiscal deficit to the revenue and capital receipts and expenditure of the year is ignored. It is good to plan in terms of GDP, but the importance of planning in terms of cash flow should not be lost in the milieu. The following figures configurated from the Statement of ‘Budget at a Glance’ is meant to elaborate on this particular aspect.
[Rs. in lakh crores]
| Particulars | 2021-22 A | 2022-23 BE | 2022-23 RE | 2023-24 BE | |
| 1 | Revenue Receipts | 21.70 | 22.04 | 23.48 | 26.32 |
| 2 | Recovery of loans & Other Capital Receipts | 0.39 | 0.80 | 0.84 | 0.84 |
| 3 | Borrowings (Fiscal deficit) | 15.85 | 16.61 | 17.55 | 17.87 |
| 4 | Total Receipts (1+2+3) | 37.94 | 39.45 | 41.87 | 45.03 |
| 5 | Interest Payments | 8.05 | 9.41 | 9.41 | 10.80 |
| 6 | Expenditure on Other Revenue Account | 23.96 | 22.54 | 25.18 | 24.22 |
| 7 | Capital Expenditure | 5.93 | 7.50 | 7.28 | 10.01 |
| 8 | Total Expenditure | 37.94 | 39.45 | 41.87 | 45.03 |
| 9 | Interest Payment as a %age of Borrowing | 50.79% | 56.65% | 53.62% | 60.44% |
| 10 | Borrowing as a %age of Total Expenditure | 41.78% | 42.10% | 41.92% | 39.68% |
Borrowing (fiscal deficit) of around 40% is required for payment of expenditures. Interest payments for a year are around 60% of total borrowings. Further, a portion of debt becomes accrued and due for payment which is part of the debt-servicing required. If this instalment of debts is included the fiscal deficit would account for more than 90 per cent. In other words, fresh loans are taken primarily to pay off the interest on past debts and instalments of debts for the year. The borrowing, as such, may not serve any worthwhile need of the economy.