Good accounting brings good friends in tough times. So Finance Minister Nirmala Sitharaman channelled a bit of the Dunkirk spirit into Budget 2023 presented Tuesday.
It's the government's tenth budget and was so freighted with expectations that Sitharaman would stir our stumps with an energetic mission, if not money. On cue, the FM did lay out a 25-year blueprint with a grandiose India@100 vision, indicating the government's long-term outlook.
The budget speech -- her shortest so far -- ticked the right boxes of job creation, infrastructure push, a proposed digital rupee, taxing cryptocurrencies, and public expenditure prioriotising growth over the needless obsession with debt.
That said, Budget 2023 isn't without annoying pockmarks, largely due to under-focused aspects like the lack of measures addressing a demand push or doubling of farmers income that needs an urgent second wind. As for individuals and the middleclass, they only got FM's half a heart. Households continue to swing between despair and hope, and need only two things: low taxes and low inflation. But they got neither, though the FM hinted that like good things, bad things will come to an end, if you wait a little longer.
Also read: Digital rupee to be issued by RBI
For all the square Johns out there, the FM flashed a big thank you twice, but that's that. Briefly invoking Mahabharat, she reminded taxpayers about the dharmic tax regime, which means, one must survive with no tax cuts for now. The good news though is, there are seemingly no new taxes or cesses, unless the fine print throws up some nasty surprises.
Ending months of handwringing, Sitharaman legalised cryptocurrencies. As against an outright ban favoured by the RBI, she instead reined them in with a steep 30% tax, or at the highest slab. Making it further dispiriting, losses from sale of virtual assets cannot be offset against other incomes. This was one of the biggest announcements in Tuesday's budget, but yielded no reaction even from among her colleagues. For a second, the house was so silent that one could hear a pin drop.
Infrastructure got its rightful share with the FM announcing 25,000 km national highways in FY23 besides laying down an inclusive blueprint for Amrit Kal. Besides other rail and road projects, the seven-engine Gati Shakti programme is expected to drive public investment and build modern infra, again with a India@100 focus.
In all, Sitharaman presented an expenditure budget of Rs 39.45 lakh crore for FY23 up from Rs 37 lakh crore in FY22. As against concerns about underspending this fiscal, revised estimates show that government spending indeed will increase by about Rs 3 lakh crore higher than the original estimates of Rs 34 lakh crore.
Within total expenditure, the juiciest bone went to capital expenditure. With tax collections bursting at the seams, the FM had enough leverage and she took it with both hands. Capex outlay was up by 35.4% at Rs 7.5 lakh crore, 2.2 times the spend in FY20 and 2.9% of GDP -- the highest-ever allocation. Effective capex will be Rs 10.68 lakh crore, or 4.1% of GDP with other contributions taken together.
Corporates have returned the government's 2019 tax cut favour and along with the ruthless fuel taxes, the overall gross tax collections in FY22 will be roughly Rs 3 lakh crore higher than budgeted. GST collections too are going gangbusters at Rs 1.40 lakh crore -- the highest since inception. Yet, the FM refused to cover herself in glory, and FY23 collections are estimated at a modest Rs 27.5 lakh crore, indicating that the buoyancy will pipe down next fiscal..
In all, for FY22, the revised fiscal deficit was set at 6.9% of GDP, as against 6.8% projected earlier. For next fiscal, it'll be reduced to 6.4%, in line with the government's medium-term fiscal policy announced last year.
While one could cut an A for Sitharaman's conservatism, her fiscal marksmanship, or the accuracy of government's forecast of revenue, expenditure and specifically, deficit, could come under pressure undermining the credibility of budget math. Predictably, markets, which voted with their wallets in opening trade, found themselves somewhat slack-jawed moments after. Particularly, the budget got onto bond market's wicks, and the 10-year benchmark jumped to 6.8%.
To retain a positive vibe, the FM, with her game face on, tinkered with tax elements to introduce an updated IT return to correct mistakes within two years implying that unintentional errors won't be looked at with suspicion. Likewise, alternate minimum tax is reduced from 18.5% for cooperative societies to 15%, the same as corporates. The surcharge on cooperatives to be reduced to 7% from 12% for those with income of Rs 1 crore to Rs 10 crore, mostly working with rural/farming communities.
Bringing parity between state and central government employees, the centre increased the contribution of 14% of salary to the national pension system for state government employees from the current 10%. Besides, surcharge on LTCG is capped on 15%, while incentives for startups and 15% concessional tax rate for new manufacturing companies is encouraging. Customs duty on capital goods has been leveraged to boost local manufacturing, besides allowing some exemptions for others like gems and jewellery.
Infusing a sense of patriotism, the Finance Minister announced setting up of 75 digital banking units in 75 districts marking 75 years of Independence, but their exact need, nature and purpose was left open for interpretation.
Having given a bailout package for telcos last year, Sitharaman decided the time was ripe to proceed with the much-awaited 5G spectrum auction next fiscal. The announcement saw opposition's discomfort, but the FM proceeded without missing a beat. Bharat Net broadband will be ready by 2025, while the archaic SEZ law will be replaced by a new legislation taking states on board.
Defence got its rightful boost with an increase in capital procurement budget for domestic players at 68% from the current 58%. Interestingly, R&D will be opened up for industry, startups and academia with 25% of the R&D budget earmarked for them. An independent nodal umbrella body will be set up to develop certification and testing requirements. A Drone Shakti programme for startups was the cue for shares of drone companies to go into a quick victory dance.
Corporate exits will now be easier and faster with the proposed amendments to the Insolvency and Bankruptcy Code that will reduce voluntary liquidation from the current two years to less than six months. This has been identified some five years ago by former Chief Economic Advisor Dr Arvind Subramanian, but it's likely to get off the ground only now. Flashing her report card unabashedly, Sitharaman noted how about 25,000 compliances were reduced, while 1,486 union laws have been repealed indicating her commitment towards, 'minimum government, maximum governance.'
Some other interesting announcements include e-passports with embedded chips next fiscal, high-level committee for urban planning, battery swapping policy to scale up EV charging facilities andnew savings opportunity via a sovereign green bond. While healthcare and education rightfully got its due share, MSMEs too found a passing mention and also some meat of the matter with the extension of the credit guarantee scheme. The programme helped about 13 million MSMEs during the pandemic and has been extended up to March, 2023. As for allocations, an additional Rs 50,000 crore is earmarked exclusively for the hospitality sector.
But one of the major setbacks includes privatisation. Sitharaman, who openly confessed her love for free markets over statism, maintained an eerie calm in her speech. Barring a sparing mention of Air India and the upcoming LIC IPO, the FM's speech was without any mention of the projected proceeds.
As against speculation, the budget speech made no special mention for election-bound states, which is heartening. Like last year, there was no poetic flourish, neither was any table-thumping and chest-beating from colleagues. Still, Sitharaman's budget puts shoulder to the wheel to take the economy forward.