Union Budget 2023-24: A way forward for Inclusive and Sustainable Development
Macroeconomic Synopsis & Growth Resurgence
After a sharp recovery from COVID-19 Indian economy is estimated to grow at 7 percent rate in the current fiscal year according to the advance estimates of the Central Statistics Office. It shows the strength and resilience of the economy. It has sharply escalated to become the fifth largest economy in the world. Apart from that it is evident from different global indices that India has significantly improved its governance and ease of doing business. The G20 presidency for the year 2023 is a matter of pride for the country.
1. Introduction: Vision for Amrit Kaal
The Union budget for the fiscal year 2023-24 has come with a vision of a prosperous and inclusive India. It aims to prioritise infrastructure development, investment, green growth, empowerment of youth, the financial sector, fiscal management, and unleashing the potentials of Indian economy.
The budget highlights the need to continue wide-ranging reforms and implement sound policies, along with the efforts of all and inclusion of all in the process of development. In the direction of sabka saath sabka prayas the budget proposes to create opportunities for youth, create jobs, and provide stimulus to economic growth with macroeconomic stability. Budget announcements show that government is committed to provide better quality of life and dignified life for all. The budget is in consonance with the vision for Amrit Kaal wherein economic growth must be technology driven with strong public finances and a robust financial sector.
2. Priorities of the Budget 2023-24 (The Saptarishi Framework)
The first budget of the Amrit Kaal sets priorities for seven mutually complimentary activities:
- Inclusive development
- Reaching the last mile
- Infrastructure and investment
- Unleashing the Potential
- Green growth
- Youth power
- Financial sector
2.1 Inclusive Development
While the economy is growing at a fast pace after the pandemic, it is proposed that the fruits of development must reach all sections of society and all regions of the country. In this direction, the budget places priority on inclusive development to transmit the benefits of developments to farmers, women, youth, Scheduled Castes (SCs), Scheduled Tribes (STs), Other Backward Castes (OBCs), persons with disabilities, and the economically weaker section. Apart from that, regions like Jammu and Kashmir, Ladakh, and the North East have been given special attention.
2.2 Reaching the Last Mile
In this direction, the Union Budget emphasises the development of the North-Eastern states, tribal areas, drought-prone areas, and providing financial assistance to poor prisoners. Assistance under the Aspirational Districts and Blocks Programme, which was launched in 2018, will be extended for the saturation of essential public services such as health, education, nutrition, water resources, agriculture, financial inclusion, skill development, and basic infrastructure.
Targeted Social & Tribal Disbursements:
- Vulnerable Tribal Groups: The budget proposes Rs. 15,000 crores over the next three years to implement development action plans for particularly vulnerable tribal groups to provide them access to safe housing, clean drinking water, education, sanitation, sustainable livelihood opportunities, and better connectivity.
- Eklavya Model Residential Schools: Further, 38,800 teaching and non-teaching staff will be recruited over the next three years for the existing 740 Eklavya Model Residential Schools, which serve tribal children.
- PM Awas Yojana: Another remarkable disbursement is an increase of 66 percent to over Rs 79,000 crore under the PM Awas Yojana, which will benefit poor people across the country for their housing needs.
- Support for Incarcerated Poor: As a novel gesture, poor prisoners who are incarcerated due to a lack of funds will be given financial assistance to meet their requirement of a penalty or bail surety amount.
2.3 Infrastructure and Investment
India has witnessed fast infrastructure development in the last few years, except during the pandemic phase. This budget carries forward this trend in infrastructure development. Investment for infrastructure development is coming from the public as well as the private sectors. Public-private partnerships (PPP) have gotten a boost under the leadership of the current government, which has transformed the physical infrastructure of the country. As a matter of fact, infrastructure is an essential requirement of economic development and modernization. Investment in infrastructure boosts economic activities, production, and supply, and at the same time creates employment, income, and demand.
The budget hikes capital expenditure by 37 percent to an amount of Rs. 10 lakh crores over the revised estimates of capital expenditure in the budget of 2022-23 and 33 percent over the budget estimates of 2022-23, which is estimated to be a huge 3.3 percent of GDP. It shows the commitment of the government towards high economic growth, job creation, and the creation of a conducive environment for private investment.
Apart from its own capital expenditure, the central government gives grants to state governments for the creation of capital assets. Thus, the total central capital expenditure and grants for the creation of capital assets, which is called effective capital expenditure, is going to increase to 4.5 percent of GDP. Massive developments in roads, railways, urban infrastructure, power, logistics, regional connectivity, urban sanitation, and sustainable cities will be achieved through PPP.
In line with one of the recommendations of the fourteenth finance commission, the budget proposes to prepare cities to improve their creditworthiness so that they can raise funds from the financial markets through municipal bonds. Except for the massive municipal corporations of a few major metropolitan cities, it appears to be a difficult task in the near term. However, the proposed Urban Infrastructure Development Fund, which is like the existing Rural Infrastructure Fund, is likely to be an effective mechanism for urban infrastructure development in Tier 2 and Tier 3 cities.
2.4 Unleashing the Potential
The budget emphasises the commitment of the government to provide good, transparent, and accountable governance in the country. In this direction, furtherance of existing Mission Karmayogi for capacity building plans for civil servants, setting up of three Centres of Excellence for Artificial Intelligence towards the vision of “Make AI in India”, preparation of National Data Governance Policy, simplification of know your customer (KYC) policy, common business identifier through Permanent Account Number (PAN) for enhancing ease of doing business, unified return filing process for various tax authorities, upgradation of E-court system are some of the major policies and proposals in the budget. Vivad se Vishwas I and II are two interventions to provide major relief to MSMEs.
2.5 Green Growth
India has continuously shown its commitment to green growth, and serious steps are being taken to achieve net zero carbon emissions by the year 2070. This budget also envisages an environmentally conscious lifestyle under the vision for LiFE. The green hydrogen mission is a very important step in this direction to achieve low carbon intensity and decrease fossil fuel consumption. This will also reduce our dependence on imported petroleum products and thus help reduce the burgeoning size of our current account deficit.
An allocation of Rs. 35,000 crores has been proposed for capital investment in energy transition, energy security, and net-zero carbon objectives. Renewable energy, energy storage systems, the extension of vehicle replacement policy for government vehicles, green credit programs, and renewable energy evacuation are some of the major policies and programmes being initiated towards green growth.
PM-PRANAM, GOBARdhan scheme, Bhartiya Prakritik Kheti Bio-Input Resource Centers, MISHTI and Amrit Dharohar, circular economy, are other programmes, policies, and actions to encourage natural and organic farming systems. Environmentally sustainable and responsive actions by individuals and companies are expected.
2.6 Youth Power
The budget takes forward the National Apprenticeship Promotion Scheme, and envisages Pradhan Mantri Kaushal Vikas Yojana 4.0 and Skill India Digital Platform towards the empowerment of youth in the country.
2.7 Financial Sector
The processes of financial inclusion, faster and better delivery of services, easy access to credit, and enhanced participation in financial markets have been going on at a fast pace over the last few years. In this direction, the budget announces the implementation of a revamped credit guarantee for MSMEs, the setting up of a National Financial Information Registry to serve as a central source of financial information, a comprehensive review of financial sector regulations, capacity building in securities markets, and the development of digital public infrastructure, etc.
3. Fiscal Aspects of the Union Budget 2023-24
Budget for 2023-24 projects total receipts of Rs. 45,03,097 crores out of which Rs. 17,86,816 crores are estimated to be from borrowing and other liabilities. Total budgeted expenditure for the year 2023-24 is 45,03,097 crores. Total capital expenditure is estimated to be Rs. 10,00,961 crores, which is about 22 percent of total size of the budgeted expenditure.
FIGURE 1: SOURCES OF RECEIPTS OF CENTRAL GOVERNMENT (BUDGET OF 2023-24)
Figure 1 shows the sources of income for the central government. It shows that borrowing and other liabilities are about 34 percent of total budgeted receipts while non-debt capital receipts are only 2 percent of total. All other income comes from revenue receipts, which include tax receipts and non-tax receipts. Thus, corporation income tax and personal income tax each has a projected share of 15 percent, while GST and other consumption taxes have a 17 percent share. Union excise duties and customs duties also have significant contributions of 7 and 4 percent, respectively.
| Receipt Source / Component | Share in Total Receipts (%) |
|---|---|
| Borrowing & Other Liabilities | 34% |
| Goods and Services Tax (GST) | 17% |
| Corporation Tax | 15% |
| Income Tax (Personal) | 15% |
| Union Excise Duties | 7% |
| Non-tax Receipts | 6% |
| Customs Duty | 4% |
| Non-debt Capital Receipts | 2% |
| Total Budgeted Receipts | 100% |
FIGURE 2: ITEMS OF EXPENDITURE OF CENTRAL GOVERNMENT (BUDGET OF 2023-24)
On the expenditure side, Figure 2 shows that in the estimates of the budget, the largest item of expenditure for the central government is interest payments. It alone will consume 20 percent of total budgeted expenditures in the coming fiscal year. Expenditure on central sector schemes and centrally sponsored schemes will be 17 and 9 percent of total expenditure, respectively. It is to be noted that many of the central schemes are concentrated in a select few central ministries like the Ministry of Health & Family Welfare, Ministry of Agriculture, Ministry of Education, Ministry of Rural Development and Ministry of Women & Child Development. An enhanced expenditure on central schemes has a direct impact on the welfare of people across the country. So, a high fraction of total expenditure on central schemes reflects the commitment to inclusive development in the budget.
| Expenditure Item | Share in Total Expenditure (%) |
|---|---|
| Interest Payments | 20% |
| States’ Share of Taxes & Duties | 18% |
| Central Sector Schemes (Excluding Capex on Defence and Subsidy) | 17% |
| Centrally Sponsored Schemes | 9% |
| Finance Commission and Other Transfers | 9% |
| Defence | 8% |
| Other Expenditures | 8% |
| Subsidies | 7% |
| Pensions | 4% |
| Total Budgeted Expenditure | 100% |
4. Subsidies Rationalisation & Social Welfare Implications
About seven percent of total expenditure and 19.7 percent of revenue expenditure will be incurred on subsidies (Figure 7). Major subsidy expenditure of the government is incurred on food, fertilizer, and fuel. The government has been trying to reduce the subsidy bill to create scope for capital expenditure within the overall fiscal space while being committed to achieving sustainable fiscal targets.
In the budget of 2022-23 total expenditure on food, fuel, fertilizer, and agriculture subsidies was reduced to Rs. 3,17,866 crores. However, in the revised estimates, it has reached Rs. 5,97,864 crores. For the year 2023-24, the subsidy bill is pruned to Rs. 3,74,707 crores which is a drastic cut in subsidies. The cut in subsidy is across food, fuel, fertilizer, and agriculture. It may affect the welfare of people adversely. We need to be mindful that agriculture and allied activities proved to be very resilient during the pandemic phase, and Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) effectively helped poor people in fighting pandemic phase. A drastic cut in subsidies to agriculture and allied activities is a cause of concern.
Despite substantial reduction in food subsidies, continuation of free food under Antyodaya and priority households under the PM Garib Kalyan Anna Yojana for one more year is a welcome move. It will really help billions of people in the country who are still facing hardships created by the pandemic.
FIGURE 7: TRENDS IN THREE MAJOR SUBSIDIES (% OF REVENUE EXPENDITURE)
| Subsidy Component | 2021-22 (Actuals) | 2022-23 (Revised Estimates) | 2023-24 (Budget / RE) |
|---|---|---|---|
| Food Subsidy | ~ 13.0% | ~ 12.0% | ~ 8.0% |
| Fertiliser Subsidy | ~ 4.9% | ~ 7.8% | ~ 6.0% |
| Petroleum Subsidy | ~ 0.1% | ~ 0.8% | ~ 0.1% |
| Agriculture & Allied Activities | ~ 4.5% | ~ 4.0% | ~ 4.0% |
5. Sectoral Expenditure: Health, Education & CBGA Social Ministry Analysis
As far as health sector expenditure is concerned, it has been marginally hiked from 1.96 percent of revised estimates for 2022-23 to 2.02 percent of budget estimates of 2023-24 but a meagre 0.31 percent of GDP allocation, that too in the post pandemic phase, when the country should consider developing a robust health infrastructure to deal with any health crisis, is worth pondering (Figure 3).
Within health sector, allocations have been increased under National Health Mission, Ayushman Bharat (Pradhan Mantri Jan Arogya Yojana), Pradhan Mantri Ayushman Bharat Health Infrastructure Mission and National Digital Health Mission but funds have been drastically cut for the Pradhan Mantri Swasthya Suraksha Yojana.
Relative to 2022-23 (Revised estimates), higher allocations have been given for social welfare, education, urban development, and transport, while allocations have been reduced for rural development.
FIGURE 3: TRENDS OF MAJOR ITEMS OF CENTRAL GOVT. EXPENDITURE (in Rs. Lakh Cr.)
Source: Union Budget 2023-24 Documents
| Major Sector / Item | 2021-22 (Actuals) | RE 2022-23 | BE 2023-24 |
|---|---|---|---|
| Social Welfare | 0.41 | 0.47 | 0.55 |
| Urban Development | 1.07 | 0.75 | 0.76 |
| Health | 0.84 | 0.77 | 0.89 |
| Education | 0.80 | 0.99 | 1.13 |
| Agriculture and Allied Activities | 1.43 | 1.36 | 1.44 |
| Rural Development | 2.29 | 2.43 | 2.38 |
| Transport | 3.32 | 3.90 | 5.17 |
CBGA Analysis: The 15 Social Sector Ministries
Centre for Budget and Governance Accountability (CBGA) in its analysis of the budget of 2023-24 has sorted fifteen ministries, which can broadly be referred to as the social sector ministries. These ministries include Ministries of Culture, Jal Shakti, Health and Family Welfare (including AYUSH), Human Resource Development, Labour and Employment, Minority Affairs, Social Justice and Empowerment, Tribal Affairs, Housing and Urban Affairs, Women and Child Development, Youth Affairs and Sports, Agriculture and Farmers Welfare, Environment, Forest and Climate Change, Rural Development, Consumer Affairs, Food and Public Distribution (includes food subsidy).
On the basis of budgetary allocations to these fifteen ministries it has been shown that share of these ministries in total budget has been falling since 2020-21 barring the year 2022-23 when it was raised marginally. In comparison to revised estimates of 2022-23 this share has been reduced from 24 percent of total budget of 2022-23 to 21.2 percent of the budget of 2023-24 which is a drastic reduction (‘walking the tightrope An Analysis of Union Budget 2023-24’, CBGA Delhi, 2023). This analysis casts a doubt over the claims of budget promising inclusive development. Nevertheless, we need to be very cautious before reaching any conclusion. A careful assessment of detailed expenditure within these ministries is required to assess its social welfare implications.
6. Capital Expenditure Surge & Infrastructure Roadmap
Figure 4 shows trends in the capital expenditure of the central government in absolute values. Capital expenditure has been rising very steeply since 2019-20, which is a very positive indication and a healthy change in the fiscal profile of the central government. As a share of budget, it is estimated to be about 22 percent, while as a share of GDP it is going to be over 3.3 percent. In the last five years, capex has gone up by more than 160 percent. It clearly shows the commitment of the government to achieve high economic growth and a $5 trillion economy target through capital expenditure and infrastructural development.
FIGURE 4: TRENDS IN CAPITAL EXPENDITURE OF CENTRAL GOVERNMENT (in Rs. Lakh Cr.)
| Year | Capital Expenditure (Rs. Lakh Cr.) | Grant in Aid for Capital Assets (Rs. Lakh Cr.) | Effective Capital Expenditure (Rs. Lakh Cr.) |
|---|---|---|---|
| 2015-16 | 2.5 | 1.3 | 3.8 |
| 2016-17 | 2.8 | 1.7 | 4.5 |
| 2017-18 | 2.6 | 1.9 | 4.5 |
| 2018-19 | 3.1 | 1.9 | 5.0 |
| 2019-20 | 3.4 | 1.9 | 5.2 |
| 2020-21 | 4.1 | 2.3 | 6.4 |
| 2021-22 | 5.9 | 2.4 | 8.4 |
| RE 2022-23 | 7.3 | 3.3 | 10.5 |
| BE 2023-24 | 10.0 | 3.7 | 13.7 |
In view of the rising proportion of capital expenditure, it is obvious that revenue expenditure is falling. Government is committed to reduce revenue deficit and fiscal deficit to reduce the burden of public debt as mandated under the Fiscal Responsibility and Budgetary Management (FRBM) rules. Hence, the government is constrained financially, and raising the proportion of capital expenditure without reducing the share of revenue expenditure is not possible. However, it is to be seen that the cut in revenue expenditure should largely come from a reduction in non-developmental types of revenue expenditure.
7. Trends in Deficits & FRBM Fiscal Consolidation Trajectory
Figure 5 shows trends in the four types of deficits (fiscal deficit, revenue deficit, effective revenue deficit, and primary deficit) of the central government. The trend lines show that deficits were being consistently reduced along the lines of the FRBM Act until the onslaught of the COVID-19 pandemic, due to which expansionary fiscal policies were followed and deficits, government borrowings, and public debt increased.
Sharp peaks in the trend lines are visible in the Figure 5 over the year 2020–21, and beyond that a reverse trend is also visible. Post pandemic government has been trying to reduce its deficits to bring them down to the levels recommended in FRBM rules.
According to the targets of the FRBM Act, 2003, as revised by the Fifteenth Finance Commission, the central government should reduce the fiscal deficit to 4% of GDP by the year 2025-26. With this, the Commission noted that Center’s overall liabilities will decrease from 62.9% of GDP in 2020–21 to 56.6% in 2025–26 through a fiscal consolidation route. Unfortunately, due to the pandemic the goal is still distant. Even amidst the anxiety and anticipation of recession, the budget has proposed a reduction in the fiscal deficit from 6.4 (2022-23 RE) to 5.9 (2023-24 BE) through a sharp reduction in revenue deficit and effective revenue deficit. This is a right move.
FIGURE 5: TRENDS IN THE DEFICITS OF CENTRAL GOVERNMENT (% OF GDP)
Source: Union Budget 2023-24 Documents
| Financial Year | Fiscal Deficit | Revenue Deficit | Effective Revenue Deficit | Primary Deficit |
|---|---|---|---|---|
| 2013-14 | 4.5% | 3.2% | 1.9% | 1.1% |
| 2014-15 | 4.1% | 2.9% | 1.9% | 0.9% |
| 2015-16 | 3.9% | 2.5% | 1.5% | 0.7% |
| 2016-17 | 3.5% | 2.1% | 1.4% | 0.4% |
| 2017-18 | 3.5% | 2.6% | 1.5% | 0.4% |
| 2018-19 | 3.4% | 2.4% | 1.4% | 0.4% |
| 2019-20 | 4.6% | 3.3% | 2.4% | 1.6% |
| 2020-21 (Pandemic Peak) | 9.2% | 7.3% | 5.8% | 5.8% |
| 2021-22 | 6.7% | 4.4% | 3.4% | 3.3% |
| RE 2022-23 | 6.4% | 4.1% | 2.8% | 3.0% |
| BE 2023-24 | 5.9% | 2.9% | 1.7% | 2.3% |
8. Sources of Deficit Financing & Federal Fiscal Rules
The government has reaffirmed its seriousness about achieving a fiscal deficit of 4.5 percent of GDP by the year 2025-26. A corrected fiscal stance will create scope for fiscal expansion if a recession strikes. Further, with a decrease in government borrowing as a proportion of GDP, debt GDP ratio will fall and reduced burden of interest payments will lessen pressure on the revenue account.
States governments will be allowed to incur a fiscal deficit up to 3.5 percent of Gross State Domestic Product, of which 0.5 percent will be meant for power sector reforms.
Figure 6 shows the deficit financing pattern of central government. Market borrowing is the largest source of financing followed by securities against small savings and provident fund. Net market borrowing of Rs. 11.8 lakh crores will be raised through dated securities, while gross market borrowings of Rs. 15.4 lakh crores are estimated. Drawing down of cash balances is proposed to be negative for 2023–24.
FIGURE 6: SOURCES OF DEFICIT FINANCING OF CENTRAL GOVERNMENT (Rs. Crore)
Source: Union Budget 2023-24 Documents
- Market Borrowings (Dated Securities): Dominant primary source of deficit financing. Gross market borrowings estimated at Rs. 15.4 lakh crores; Net market borrowings budgeted at Rs. 11.8 lakh crores.
- Securities Against Small Savings: Second largest contributor to deficit financing.
- State Provident Fund: Consistent institutional contributor across 2015-16 through 2023-24 BE.
- Other Receipts (Internal Debt and Public Account): Complementary funding mechanism.
- External Debt: Minor proportion of overall deficit financing portfolio.
- Draw Down of Cash Balance: Maintained at controlled levels, proposed to be negative for 2023–24.
9. Conclusion: Roadmap for a $5 Trillion Economy
India has witnessed a sharp recovery from the pandemic, and the upcoming year is likely to witness robust domestic demand and a spurt in crowding of private investment through enhanced government capital expenditure. The government is committed to carrying out reforms in various spheres of the economy. High rate of inflation, widening current account deficits, exchange rate depreciation, and unemployment are some of the challenges the economy is currently facing. On the positive side, Indian economy has bright prospects for economic growth and employment creation.
The budget for 2023–24 provides a roadmap for India to become a $5 trillion economy while ensuring inclusive development. The continued emphasis on capital expenditure is critical to achieving the $5 trillion economy goal. The budget goes well with the vision for Amrit Kaal. It sets seven priorities that will steer the economy into a phase of high and inclusive growth through massive expenditure on infrastructure and enhanced expenditure for poor and marginalised sections.
It also prioritises the empowerment of youth, green growth through environmentally friendly behaviour of individuals and firms, and natural and organic agricultural practices. The saptrishi priorities are set in the budget without compromising fiscal prudence. Overall, the budget for 2023-24 is very well designed to further strengthen the economy.
The Union Budget 2023-24 strikes a judicious balance between aggressive growth-inducing capital investments (3.3% of GDP, rising to 4.5% effective capex) and rigorous fiscal deficit glidepath targets (5.9% in 2023-24 towards 4.5% by 2025-26 under FRBM guidelines), cementing India’s economic trajectory during Amrit Kaal.