FM’s growth potion pushes high capex, big consumer spends

Finance Minister Nirmala Sitharaman did not lose the opportunity in her budget speech to point out that, in the midst of crashing economies in the neighbourhood and looming recession in the West, India had stood out as a ‘bright star’, managing a somewhat robust 7% growth trajectory. Though this would further decelerate to 6.5–7% in the months to come, the government through its budget proposals has made it clear it will bat for continuing a double-whammy growth push: vigorous capital expenditure along with a boost to consumer spending. The government has proposed a massive Rs10 lakh crore outlay on capital expenditure, a hike of 33% over last year. Together with the grants-in-aid to states, the capex figure will rise to Rs 13.7 lakh crore. This will fund construction of highways, village roads and city infrastructure, generating growth and jobs. Add to that the highest railway budget ever of Rs 2.40 lakh crore and the revival of 50 airports and heliports to aid regional connectivity.

The budget is also generative by giving the middle class more money to spend. The long list of changes to personal income tax includes increasing the tax exemption limit from Rs 5 lakh to Rs 7 lakh per annum. It also reworks the tax slabs to five instead of the previous six, which may marginally reduce the tax burden for middle income earners. There is relief for the highest earners too, who will be taxed at 39% instead of the current, obscenely high 42.4%. Corporates and investors are also celebrating as the big hit on capital gains tax never came. However, the strained family budgets deserved some relief on cess and taxes on goods and services as well as on the high surcharge on income tax. This would have added to consumer spending too.

It must also be said the budget is futuristic and underlines the need to develop clean energy. The budget proposals include reducing taxes on compressed biogas that is blended with CNG, a better option than other dirty fuels. The FM has also proposed customs duty exemption for machinery to produce lithium-ion batteries which will ultimately make electric vehicles cheaper and more popular. However, the FM’s `35,000 crore outlay for the country’s transition to cleaner energy, is simply not enough. The task of “achieving India’s goal of net zero carbon emission by 2070” is gigantic and needs massive funding. What has been allocated will at best aid the research and publicity.

Lack of support for agriculture and rural India is also disappointing. There is mention of enhancing credit to the farm sector. Funds have been allocated for developing digital public infrastructure and for agri-tech startups, but there is little succour for reducing the high levels of poverty and indebtedness. More specifically, there is a 33% reduction in allocation to MNREGA, the universal rural jobs guarantee scheme, and flat allocation for PM KISAN, the Rs 6,000-a-year minimum income support scheme. This means the overall budget under these two ministries has declined by 5% compared to the previous year.