In a budget analysis, one usually deep dives into the budget documents tabled in Parliament. However, an appraisal of Budget 2023 cannot follow this pattern. One cannot ignore the economic fundamentals such as forward-looking reforms and the domestic priorities and headwinds due to external factors that guide a budget. One also cannot fail to appreciate the backdrop of economies emerging from the Covid-19 pandemic and the staggering effects of the global downturn, the effects of record-high inflation and the debilitating effects of the Russia-Ukraine war. Despite these economic depressants in full play, the fact that India has emerged as the shining star of economic prosperity induces a sense of pride. It is only when the fundamentals are strong with manageable deficits and robust tax collection that a budget can further dig its heels in to expand the national economic activity.
This prelude is necessary because it gives a context to appreciate the dynamics of Budget 2023 and the fact that it is the last full budget of the incumbent government. The measures are clearly not populist, which has been the convention. Instead, Finance Minister Nirmala Sitharaman appears to have gathered the momentum in reducing the fiscal deficit and stay on course with 4.5% for FY 2025-26.
Coming to the Budget 2023 proposals, the Finance Minister has listed seven key priorities for the coming year, which complement each other to form a guiding path of ‘Saptrishi’ to steer India through the Amrit Kaal, a term coined for marking the nation’s centenary. The seven key priorities include: (1) inclusive development, (2) reaching the last mile, (3) infrastructure and investment, (4) unleashing the potential, (5) green growth, (6) youth power, and (7) financial sector.
Focused sector
There is continued focus on the agriculture sector with a proposal to set up ‘agriculture accelerator fund’ to enable start-ups in rural areas, giving much-needed impetus to agricultural innovation. The farming community remains at the forefront when it comes to the government’s plan of doubling the income. Another industry is pharmaceutical, where India is the largest provider of generic medicines globally, having a share of 20% in global supply by value and is ranked third in the production of pharma products. To sustain the growth momentum in the post-pandemic period, Budget 2023 has announced a programme to promote research and innovation through centres of excellence. This is in addition to the three production linked incentive (PLI) schemes operating in the sector — pharmaceutical drugs, medical devices, critical KSMs and APIs.
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Social infrastructure & capex
For the second priority, to reach the last mile, Budget 2023 made a mention of the recently launched Aspirational Blocks Programme, covering 500 blocks wherein essential government services will focus on health, nutrition and education. In line with call on low-cost housing for all, the PM Awas Yojana has received a boost of 66% increase, with the outlay now standing at Rs 79,000 crore.
The nation’s aspiration to become a global hub for manufacturing has received a boost by way of 33% increase in capital investment outlay, which now stands at Rs 10 lakh crore. Leveraging from stronger corporate and healthy banking institutions, the increase in capital outlay is a stimulus to industrial growth. With robust growth in bank credit and schemes for MSMEs, the multiplier effect will play out. There has already been structural reforms like the Insolvency and Bankruptcy Code (IBC) and the Goods and Services Tax (GST), and addressing ease of doing business by reducing 39,000 compliances and decriminalising over 3,400 legal provisions. These measures were a big ask of the industry.
Make in India & MSMEs
The fourth priority has included artificial intelligence with a vision of ‘Make AI in India’ and ‘Make AI Work for India’ in line with the ‘Make in India’ scheme to prepare the nation for the next stage of technological advancement. Coming to MSMEs specifically, Vivad se Vishwaas (VSV-1) has been announced, which aims to provide relief in the form of refund of 95% of the forfeited amount on failure in contractual obligations towards the government. At the same time, VSV-2 aims to settle the contractual disputes between MSMEs and the government, where arbitral awards are under challenge.
To develop India as a major hub for 5G services, Budget 2023 has proposed to set up 100 labs for developing applications to explore new opportunities, business models and employment potential. To support India’s pledge of ‘Net Zero’ by 2070, green energy finds a specific mention in Budget 2023. Initiatives such as National Green Hydrogen Mission have received an outlay of Rs 19,700 crore with capital investment towards energy transitions of Rs 35,000 crore. This will certainly enable growth in alternative technologies for energy and reduce dependence on fossil fuel imports.
To gain a demographic dividend and address the employability of youth, announcements such as the National Apprenticeship Promotion Scheme and upskilling business opportunities find prominent mention.
Also read: Budget 2023: Green push for auto sector — funds for scrapping old govt vehicles, cheaper EVs
Financial sector
Financial sector reforms include mention of GIFT-City (India’s first International Financial Services Centre in Gujarat), wherein the powers under SEZ Act have been given to the regulator, IFSC Authority, to avoid dual regulatory oversight. Setting up a single-window IT system for registration and approval will enhance the attractiveness of IFSC, which allows relocation of offshore funds.
Under financial inclusion, a one-time small savings scheme, Mahila Samman Saving Certificate, offers deposits up to Rs 2 lakh with a fixed interest rate of 7.5%. The maximum deposit limit for Senior Citizen Savings Scheme has been enhanced from Rs 15 lakh to Rs 30 lakh. To improve the governance of banks, amendments are proposed to the Banking Regulation Act, the Banking Companies Act, and the RBI Act.
Taxes
On the tax front, Budget 2023 continues with the trend of expanding its reach to online-gaming in line with crypto taxation introduced in 2022.
To boost domestic manufacturing and enhance compliance, there is a proposal to reduce basic customs duty from 21% to 13% (other than textiles and agricultural goods). India has been making strides in the electronic manufacturing sector, which has been a key driver of electronics manufacturing and exports. Keeping in mind a $300 billion target in electronic manufacturing and $120 billion for exports by FY26, the budget has proposed a reduction in customs duty on certain components. With an aim of reducing import dependency on diamonds and shift to green methods, Budget 2023 has highlighted an emerging sector, Lab Grown Diamonds. To promote indigenous production, a research and development grant has been proposed to the IITs to leverage on employment potential.
On direct tax proposals, there has been a clamour to increase the basic tax exemption limit to provide relief to the salaried class and marginal taxpayers. Given the inflationary pressure and the requirement to boost domestic consumption, Budget 2023 proposes to increase the taxable income threshold from Rs 5 lakh to Rs 7 lakh. Further, the slab rates have been simplified and reduced from six to five. The super surcharge for high-network individuals has been reduced from 37% to 25%. Focusing specifically on the salaried class and pensioners, it has been proposed to increase the standard deduction limit in the new tax regime. Focusing on the micro-enterprises and professionals, limits for availing the presumptive taxation scheme has been increased to Rs 3 crore and Rs 75 lakh, respectively.
On GIFT-City reforms, offshore funds which are relocating to IFSC till 31 March 2025 have been given tax benefits for an extended period. For the salaried class and pensioners, Budget 2023 proposes an increase in the standard deduction.
Tax collection in the past two years, post the Covid-19 pandemic, coupled with deeper administrative reform, has boosted the Finance Minister’s confidence to not tamper with extant tax code and the necessity to rewrite the tax code. Undoubtedly, 2017 implementation of GST has been a game changer, as evident from increase in GST filers and collection, the impact of which was felt in the ensuing financial year. It is largely attributable to the functioning of a proactive GST Council.
There is something for all in Budget 2023, with minister Sitharaman living to the motto of ‘Sabka Saath Sabka Vikas’.
Mukesh Butani is Managing Partner, BMR Legal. He tweets @mukeshbutani.
With inputs from managing associate Harsh Shukla, and associate Shreya Wadhera. Views are personal.
(Edited by Prashant)