By wide consensus, the world is headed towards a slowdown, if not a recession, by the end of 2023. The Indian finance minister presented a budget which does everything it possibly could to ensure that the Indian economy has the strength to survive and keep growing during this difficult phase that’s most probably around the corner.
Perhaps the most effective way of understanding this budget is through the capital expenditure proposed—an increase of 33% from the previous year. That, coupled with the highest ever outlay for the Indian railways at Rs 2.40 lakh crore, nine times the outlay in 2013–14, gives us a sense of what the government thinks has worked, and how it seeks to expand ideas that have worked.
It should be remembered that the last budget was also a capex-heavy budget which was needed as it was this kind of government spend that had helped India stabilise during the Covid-19 pandemic period and its aftermath. The food distribution programme, again a pandemic legacy, is also being extended for the next year at a cost of Rs 2 lakh crore because of the assessment that some support in terms of supplies and income creation (through capex) is needed to keep the momentum in the economy. The Rs 10 lakh crore provisioned for spending on capex would have a significant multiplier effect as it cascades through the economy, and by the time its real impact is seen, the world will probably be in the middle of a downturn—that’s when the effect of this capex spend would be most fortifying.
It is in this light that many other aspects of the budget could be understood, ensuring that support is provided where it will be most needed. For instance, for MSMEs, the infusion of Rs 9,000 crore in the Credit Guarantee Scheme, an additional collateral-free guaranteed credit of Rs 2 lakh crore, and the reduction of the cost of credit by 1 per cent is a boost that would ensure the health of such firms when times turn stormy.
Greater spending on the railways—highest ever at Rs 2.40 lakh crore—and a hundred new critical transport infrastructure across sectors like ports, coal, steel, fertilisers, and food grains at a cost of Rs 75,000 crore would further boost income generation with significant downstream effects.
From the enhancement of agriculture to the broadening of loans for fisheries, this budget has targeted all the sections and sectors that might be vulnerable to a downturn. There are many reasons why this is critical. For one, India needs a straight decade or so of stable growth to ensure that it fulfils its own economic and geostrategic potential. The budget speech of Finance Minister Nirmala Sitharaman started by emphasising this pivotal moment when it underlined that per capita income has doubled since 2014 to Rs 1.97 lakh. This will likely more than double in the next decade.
While the conversation about the economy is usually about big-ticket numbers like the GDP (gross domestic product), which India aims to grow to $5 trillion, one of the understandings that has finally dawned on the public sphere is that per capita income is equally, if not more, important. It is per capita income growth that ensures that the fruits of growth are not getting concentrated in a few hands alone. Growth in per capita income ensures that domestic savings continue to hold steady, and rise, which is one of the main reasons why India has managed to emerge relatively strong after the 2008 financial crisis and even after the pandemic.
By raising the cap on capital gains tax (the budget caps deduction from capital gains on residential property investment to Rs 10 crore) and improving the income tax regime, the budget aims to put more money in the hands of the middle class. Through a combination of greater capex and more money for the salaried class, it hopes that not only would India’s high growth rate remain stable, it would also be able to weather the financial storm that is coming.
Tax breaks have in fact been provided at every level or band of taxation rate, each of which is aimed at ensuring more money remains with the people. The finance minister announced that the government will forego Rs 35,000 crore in the process of reducing taxes.
The next two years are going to be crucial for India. If it can weather the next financial storm and continue to grow at above 5%, and at a rate higher than China (which it is today), then it would become clear that the next century would be India’s. Already, India has most probably become the most populous country in the world as China’s population growth slows and falls, while the nation’s population continues to grow.
This demographic advantage can only be used if, at an individual level, Indians feel empowered and financially uplifted. The country must sustain a high investment climate and ensure that the average person continues to feel more economically prosperous. This is the fundamental security that enabled America’s rise—major improvement in infrastructure, per capita rise in income, an overall rise of GDP, and a sweeping tide of confidence. The climate is now ripe for this to happen in India. This will give India a reassuring political economy which would enable its smooth rise as a global power. Already India is a net provider, rather than receiver, of financial assistance in the world, and its financial strength now needs to remain stable and grow for it to be seen as a reassuring port of call (a role it played through grants in helping rescue the Sri Lankan economy recently). This budget puts the protective shields in place so that nothing can disturb India’s ascension.
Hindol Sengupta
Multiple award-winning historian and author