February 12, 2023

Budget 2023-24: Hoax of ‘Populist’ Relief

Sanjay Roy

THE first advance estimates released by the NSO on January 6, estimates the nominal GDP of India for the current financial year 2022-23 to be Rs 273 lakh crores and in this backdrop the budget proposed by the finance minister projects a 10.5 per cent nominal growth leading to a nominal GDP of 301 lakh crores for the financial year 2023-24. The Economic Survey 2022-23 estimates a real growth rate for the year 2023-24 to be 6.5 per cent as the baseline figure which indicates an implicit inflation to the tune of 4 per cent for the financial year 2023-24. The IMF forecast in the World Economic Outlook released in January 2023 estimates inflation for the coming year for developing countries to be 5.5 per cent and cautioned about the potential risks of slowing down in the advanced economies anticipating disruptions due to war causing rise in food and fuel costs, tightening of the labour market and also because of the depressing effects of the rising interest rates due to conservative monetary stances of the central banks.

The budget speech however didn’t mention about any of the above possible challenges probably because of complacency on the post Covid recovery and also inflation cooling down as reflected in WPI and CPI of December 2022 at 4.95 and 5.72 respectively. The budget using advantage of higher revenue receipt partly due to higher tax compliance and mostly because of high inflation particularly for indirect taxes could have increased expenditure with respect to GDP in a situation when the economy is facing severe problems of effective demand. On the contrary the finance minister prioritises restraining fiscal deficit to 5.9 per cent of GDP while contracting expenditure with respect to GDP.


As the pandemic effect is almost over, we see a recovery in almost all the sectors and the good news is that contact intensive services such as trade and hospitality industry could get out of the pandemic driven contraction. Decoding the recovery requires elimination of extraordinary fluctuations in growth rates caused by the pandemic. It is understandable that as the economy dipped due to the Covid, almost all the sectors experienced contraction. On the other hand, in the post Covid scenario due to the low base, recoveries in sectors would be reflected through very high year-on-year growth rates which eventually moderate to more stable figures once the ‘pent-up’ demand cools down. It is more important to assess recovery in comparison to 2019-20 which was the pre-Covid normal year to the current year in constant prices. And that shows that in mining and quarrying if we were at 100 in 2019 we are at 102 in 2022-23 and similarly in manufacturing, trade, hotels and restaurants and construction we are at 108, 107 and 114. In the case of financial sectors and public administration and other services we are at 121 and 122 respectively.

The three sectors in non-agriculture that used to have greater share in India’s employment are trade and hospitality, manufacturing and construction and all of these only show a modest increase in 2022-23 compared to their GDPs in 2019. It is also important that in the first half of 2022-23 growth of manufacturing was as low as 0.1 per cent and the advance estimate forecasts annual growth rate at the end of the current year to be 1.6 per cent anticipating growth of manufacturing in the second half of the current year to be 3 per cent.

According to the NSO estimate in the second half of the current year, construction sector growth will come down to 7.3 per cent compared to the first half growth rate of 11.5 per cent. In the case of trade and hospitality industry, the growth rate is estimated to fall from 19.5 per cent recorded in the first half to 9.4 per cent in the second half of the current year. There is rise in credit offtake related to industry which signals recovery and MSMEs share in credit offtake was 23.7 per cent in November 2022. The credit offtake was modest for big corporates as they hugely deleveraged their balance sheets while maintaining high profit rates. In the later part of the current financial year, while credit grew faster for big companies nevertheless their net fixed assets didn’t grow at the same pace. In fact, they were mostly meeting their working capital requirements through these credits particularly in the backdrop of rising input prices.


In the last year and also in the budget this year, lot of focus went to central government’s big push to capital expenditure. In this year, the budget allocation under the head of total capital expenditure increased by about 37.4 per cent with respect to last year’s revised estimates. But one need not lose sight of the fact that capital expenditure in revised estimates was less from the budgeted figure by Rs 22,000 crores. More importantly government’s contribution to total capital expenditure comprises of three components: capital expenditure by government, grants for capital asset creation and capital expenditure by central public sector enterprises. For the last year, the spending according to revised estimates under the head of capital expenditure by CPSEs has gone down by Rs 68.3 thousand crores and if we add up both budgetary provision of capital expenditure and capital expenditure by CPSEs the revised estimate falls short of the budget estimate of the last year by Rs 90,000 thousand crores. So if we compare BE 2022-23 to BE 2023-24 combining various components of capital expenditure the rise is in the tune of 21 per cent and taking account of 4 per cent inflation as implied in the budget, the growth in capital expenditure in real terms would be not more than 16 to 17 per cent, which is less than half of what is being projected as the rate of growth of capital expenditure from budget documents.

The other related fact is the slow growth of private corporate investment which the government thought would take off in the post pandemic period. On the contrary, growth of private corporate investment shows a secular decline for more than a decade and that is primarily because of low expectations of profit in a scenario of depressed demand. This is also reflected in the fact that the number of investment proposals in 2022 is less than the number of proposals made even in the years immediately after the pandemic, that is 2020 and 2021, and less than half of what had been received in the year 2018 before the pandemic.


The budget is being presented in the context of persisting high unemployment rate of 7.2 per cent according to the latest PLFS report and the real wages show a decline as recorded in the Economic Survey. On the other hand, NSO’s advance estimate suggests that the per capita income grew by 18 per cent compared to the last year and if that happens together with high unemployment rate and declining real wage, it simply indicates growing inequality in the economy. In such a scenario, the budget proposes 33 per cent cut in MNREGS and the total cut in major subsidies is about 28 per cent compared to last year’s revised estimates. This is surely going to have a cascading effect on prices which would trigger inflationary pressure due to rise in input prices in agriculture and also transportation costs.

The food subsidy is cut by 31 per cent and the allocation for rural development has also been slashed. The media management of this anti-people budget has been done by calling it ‘populist’ by referring to the proposed redefinition of income tax slabs which might bring some relief to some sections of the salaried people. Despite the fact that those who belong to the highest income slab of salaried people having an annual income of more than Rs 5 lakhs would be paying income tax at the rate of 30 per cent while the top corporates whose profit before tax is higher than Rs 500 crores and those who own 62 per cent of all the profits of the corporate sector, pay an effective corporate tax at the rate of 19.14 per cent. More importantly in India those who pay income tax and file returns constitute only 5.9 per cent of the total 136 crore population. More than 94 per cent of the total population has nothing to do with income tax regime change, while they have to bear the brunt of subsidy cut and higher prices which the budget proposes.