Indian Finance Minister Nirmala Sitharaman presented her last full-fledged Union budget on behalf of Prime Minister Narendra Modi’s second-term government on Wednesday, February 1st. The Union Budget 2023-24 did not make any new promises to the common people, especially the working class, nor did it say anything about creating employment.
Like the other prior Union budgets of Sitharaman, the Union Budget 2023-24 has given only empty assurances and has slashed the allocation for welfare programmes targeting the poor in various ways. Like any other year, Sitharaman did not even mention India’s perennial unemployment crisis, inflation and rising oil and gas prices in her speech.
The Union Budget 2023-24 exposed many problem areas that pose a serious threat to the welfare of the poor and the economic growth euphoria that the Modi government has been peddling for the last eight years.
Government revenue, expenditure and fiscal deficit
In the Union Budget 2023-24, Sitharaman showed that the largest source of government revenue is debts, and interest payments consume the largest chunk of its expenditures. In the following graph, we have explained how the government earns and spends its revenue.
The fiscal deficit currently stands at 6.4%, which Sitharaman promised to reduce to 4.5% by 2024-25. But there was no comment on how the government would meet the fiscal deficit. It can impose new taxes to generate revenue, insist on selling more public sector units (PSUs), borrow more money, or cut down subsidies and welfare programmes’ allocations to reduce the fiscal deficit gap by 1.9 percentage points.
If the Modi government imposes new indirect taxes on the people to meet the fiscal deficit, it will be a major assault on the common people in the current situation when they suffer from severe inflation and high unemployment.
The government’s attempt to liquidate its stakes in the PSUs has failed in the current financial year (2022-23). The government had targeted earning Rs 650bn by selling its stakes in the PSUs, but it could earn only Rs 311.06bn. Hence, Sitharaman has reduced the disinvestment target for the financial year (FY) 2023-24 to Rs 510bn.
It’s highly unlikely that the government would meet its target amid a volatile situation in the stock market caused by the Adani share crash, which will eventually have a long-term effect on the market.
Borrowing money will not solve the problem for the government, as the interest payments will increase and cripple its ability to fund other programmes and schemes.
Thus, reducing allocations for the government’s welfare programme targeting the poor remains the only option for the Modi government, which it has implemented in the Union Budget 2023-24. There has been a significant reduction in the allocation of funds for programmes like the Mahatma Gandhi Rural Employment Guarantee Act (MNREGA) and health and education.
What has the Union Budget 2023-24 prioritised?
Sitharaman has focused more on infrastructure development in the Union Budget 2023-24. Although the government’s capital expenditure (capex) on infrastructure development will lead to indirect employment generation, there will be no immediate relief to those seeking unemployment.
The Union Budget 2023-24 has increased the government’s capex by Rs 2.4 trillion, which is 33.4% higher than 2022-23, and allocated Rs 10 trillion. Sitharaman claimed this is the highest capex allocation ever.
The Indian Railways has benefited the most in the infrastructure development allocations in the Union Budget 2023-24. Overall, the government has allocated Rs 2.4 trillion for Indian Railways, of which the allocation for the development of railway lines has been increased from Rs 153.88bn in the FY 2022-23 to Rs 172.97bn for FY 2023-24.
But Sitharaman didn’t utter a word about when the various vacancies in the Indian Railways, now amounting to 293,000, would be filled. There are over a million vacancies in the government sector for which no hiring has been done for years.
Additionally, the defence sector has been allocated Rs 5.94 trillion for FY 2023-24 vis-à-vis Rs 5.25 trillion for FY 2022-23. Also, Rs 350bn has been allocated for clean power generation. However, there is no statement in the Union Budget 2023-24 to clarify the government’s role or strategy regarding the country’s development and capacity building for green energy generation.
There is a small relief for employees regarding tax exemptions under the new income tax regime. However, income taxpayers do not get any deductions on their insurance, home loan, or child education expenses under this new tax regime.
The finance ministry has not yet provided data on income taxpayers who migrated from the old regime to the new regime. Still, the government has said that new taxpayers will automatically come under the new regime in the coming days. They will not get tax exemptions based on investment or expenses like home loan instalments.
As a result of this, investment in many financial sectors will decrease to a large extent, and investments in government debt bonds and other bonds will also decrease in various ways. However, the Modi government has not yet expressed concern from a policy point of view on this challenge the new tax regime poses.
The super-rich has received special priority in tax exemptions. The 37% tax imposed on the super-rich on annual income of Rs 50m and above has been reduced to 25%, reducing the government’s revenue amid a massive fiscal deficit. The government did not comment in the Union Budget 2023-24 about how the deficit will be reduced.
Notable in this context is a recently published Oxfam report which shows that India’s 1% super-rich people own 40.5% of the country’s wealth as of 2021. The bottom 50%—700m people—own only 3% of the wealth.
The wealth of India’s super-rich has grown by an average of 121% since the coronavirus pandemic to 2022, which translates to Rs 36.08bn a day or Rs 25m per minute.
Exemption to the super-rich at this point means allowing wealth inequality to widen while deliberately widening the fiscal deficit. The government further impeded the welfare of the socio-economically weaker sections through such actions.
Trade and commerce
In the case of business and commerce, though the deadline for exemption on income tax for start-ups has been extended by one more year to March 2024, the government has not attempted to provide debt-free capital to start-ups and micro, small and medium enterprises (MSMEs).
Since the 2020 pandemic, the government has repeatedly talked about lending to the MSME sector. Still, due to the decline in per capita income of the masses, there is already a shortfall in overall demand for commodities in the market, and in that case, why MSME sector companies will take risks and opt for credit to produce for an uncertain market?
Rather than providing them with credit opportunities, the MSMEs and start-ups need more government support in terms of capital, market and policies to thrive and compete with other sectors. However, the government has failed to provide a real impetus to these sectors apart from rhetoric.
Sitharaman remained reluctant to provide anything more than increased credit to start-ups, especially those working in the rural sector, agriculture, fisheries and animal husbandry. Her ministry overlooked the MSMEs and start-ups by ignoring their core demand for capital support.
Education and health
On the one hand, the Union Budget 2023-24 has shown an increase in allocation to the education and health sectors, but on the other hand, it has not increased the allocation in both sectors in proportion to the GDP.
In the FY 2019-20, where the allocation for health was 1.4% of GDP, it has naturally increased due to the Covid-19 epidemic, and currently, 2.1% of GDP has been allocated for health in the Union Budget 2023-24.
The education sector has been allocated 2.9% of the GDP in the Union Budget 2023-24, an increase of only 0.1 percentage point from 2.8% of the GDP in FY 2019-20. This increase in the nominal allocation has been done at a time when schools and colleges have reopened since last year after being closed for almost two years, and students can attend physical classes.
During this time, the Union government did not undertake any scheme to bring back the students who were forced to drop out due to the financial crisis.
One of the major setbacks in the education sector has been the reduction of allocation for the mid-day meal scheme, which has been running on a shoestring budget for a long time.
States like West Bengal allocate less than Rs 6 per student per day for mid-day meals, which is now under the Union’s PM POSHAN scheme. The allocation for PM POSHAN has been reduced in the Union Budget 2023-24 when it should have been increased to retain students from marginal backgrounds.
In FY 2022-23, while the budget estimate (BE) for the PM POSHAN project was Rs 102.34bn, the revised estimate (RE) rose to Rs 128bn due to inflation and increasing demand from States. But in that proportion, without increasing the allocation in the BE of the Union Budget 2023-24 per the RE of FY 2022-23, only Rs 116bn has been allocated as BE. It’s Rs 12bn less than the RE of FY 2022-23.
Public welfare projects
Sitharaman has cut the allocation of various key public welfare projects in the Union Budget 2023-24. The MNREGA programme has been one of the major victims of the Modi government’s apathy.
The BE of the MNREGA scheme for FY 2022-23 was Rs 730bn, which was anyways less than the actual expenditure of Rs 984.68bn in FY 2021-22. The RE of MNREGA for FY 2022-23 has been estimated to be Rs 894bn, which is much higher than the initial BE.
However, despite realising the challenge of funds in the MNREGA programme and the growing demand for rural jobs, the Union Budget 2023-24 has only allocated Rs 600bn for the scheme, which is even Rs 130bn less than even the BE of FY 2022-23.
There have been allegations that the Modi government has not paid the arrears to the States, especially those ruled by the Opposition, including West Bengal. With such apathy towards MNREGA, the Modi government will aggravate rural unemployment and force millions to migrate to cities and provide a cheap labour pool to corporates in real estate and other relevant sectors.
Apart from MNREGA, the allocations for minority development, National Education Mission, National Health Mission, Pradhan Mantri Kisan Samman Nidhi (farmers’ pension), crop insurance, food subsidy, etc, have been drastically reduced vis-à-vis FY 2022-23.
The Economic Survey 2022-23 has admitted that the overall employment picture of the country is grim. The Centre for Monitoring Indian Economy (CMIE), in its private survey, maintains the current unemployment rate at 7%. Unemployment rates are increasing in rural as well as urban areas.
In such a situation, Sitharaman did not say anything in his budget about direct employment except for the appointment of teachers in tribal schools. On the other hand, she has pushed the ball of employment in the court of the private sector, especially the MSME sector, by merely promising them various types of loans. As a result, the Union Budget 2023-24, the full budget of the year before the general elections, failed to show any new hope for the people.
The continued steep fall in the stock markets following the Union Budget 2023-24 exemplifies that no one sees any scope for economic improvement under the present government.
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