The pre-poll budget is not only economically fiscal but politically important as well. The nation is eagerly waiting to see what Finance Minister Nirmala Sitharaman is going to do tomorrow to present the complete budget ahead of the 2024 Lok Sabha polls.
In the last budget of the United Progressive Alliance government in 2013, the Finance Minister of the day p. Chidambaram tried to attract the middle class by giving concessions to those with income below Rs 5 lakh. In 2018, in view of the Lok Sabha polls, Arun Jaitley sought to provide substantial allocations to the agriculture sector and rural infrastructure.
Assembly elections are going to be held in 9 states this year. India should prepare for Lok Sabha polls next year. It is in this background that Finance Minister Nirmala Sitharaman’s budget is being presented.
The Indian economy has faced severe challenges for the past 3 years. The covid 19 pandemic, the Ukraine-Russia war, and tightening measures by the US Federal Reserve have affected the foreign economy; India too. Industrial damage and personal income damage became inevitable. There was a compulsion to spend in addition to incentives for economic growth, food security and fertilizer subsidies. As a result the fiscal deficit increased.
Foreign investments started to leave India when the US increased interest rates. The rupee depreciated by 11%. Against all this, Finance Minister Nirmala Sitharaman is going to present the complete last budget of the second Narendra Modi government tomorrow.
Compared to last year, today’s economic situation is not bad; India is the fastest growing economy in the world. In FY 2022-23, India’s GDP growth will be around 7%. That’s 3% more than all other major economies.
In the next financial year (2023-24), India will retain its position as the fastest growing economy. Expect increased GDP growth and additional tax revenue. The health of the banking sector has also been restored.
Neighboring countries such as Sri Lanka, Pakistan and Bangladesh have been forced to access foreign funds to prevent their economies from collapsing. But for India we remain strong in foreign exchange reserves. Our foreign exchange reserves are $550 billion (Rs. 55,000 crore). That is why the IMF refers to India as ‘a shining star in a dark environment’.
Despite all that, Finance Minister Nirmala Sitharaman cannot get rid of the dark clouds that are forming at the international level. The international economy is heading for a slowdown in 2023-24. The movements of the three major economic powers, the United States, China, and the European Union, are also seen in recession. It will affect not only foreign trade but India’s exports to a great extent.
In the next financial year, India’s growth will not be as high as the current year. 7% is more likely to decrease to 6%. The tax revenue seen in this financial year cannot be expected in the next financial year. At the same time the fiscal deficit should be reduced as promised in the last financial year.
India has achieved enviable basic growth in the last 8 years. Projects like ‘Bharat Mala’, ‘Shak Mala’, ‘Kathi Shakti’, highways that have doubled in the last 10 years, transport sector that has increased by three times and broadband connectivity that has increased by 40 times are historical achievements of India. While all these are commendable, they will not win the votes of the middle and lower classes.
Private sector investments do not seem to have picked up as expected. Therefore, India can sustain its growth in today’s foreign economic situation only if the government expenditure increases significantly for the 3rd year in a row. Capital expenditure and pre-election bailout announcements are unavoidable pressures facing the finance ministry.
In 2014, the income tax threshold was raised to Rs 2.5 lakh. Concessions in direct taxation, bringing prices under control, creating employment, increasing cash flow and prosperity in the rural economy are politically beneficial. Finance Minister Nirmala Sitharaman does not know all this!