Opinion

Budget 2023: Temptation to see the budget as populist might exist, but there is a hope that won't happen

Lowering income taxes will aid the country's ability to retain its top talent

Nadir Godrej Last Updated:January 31, 2023 22:47:55 IST

Union finance minister Nirmala Sitharaman. Image courtesy Moneycontrol

The upcoming Union Budget provides an opportunity for the government to revive the economy as India begins its historic leadership at the G20. All of us are anticipating a thoughtful, comprehensive, and forward-looking Budget. The Ministry of Finance and department of economic affairs released a budget circular to systematically drive the narrative of various elements in India’s Union Budget 2023–24.  With a focus on growth and supporting development, it aims to set the country’s economy up for success for the next 25 years.

Economy to grow by 7.0% in current fiscal

The Indian economy is anticipated to grow by 7.0 percent in the current fiscal year, indicating that general economic activity has returned to pre-pandemic levels despite repeated waves of COVID-19 infection, supply-chain interruptions, and inflation. In its Budget for 2022–2023, the Indian government predicted nominal GDP growth of 11.1 percent. The first advance estimates published by the statistical office, in fact, are pegging growth at a much higher rate of 15.4 percent.

The economic slowdown in China, the continuing fallout of the pandemic, the war in Ukraine and global inflation – all present significant challenges for the Indian economy. Although there is wage-push inflation in the core index, headline inflation is predicted to be around 5 percent because commodities make up most of our inflation basket and are experiencing a global decline in price. The global recession makes overall expansion challenging. Exports are declining.

Growth must, therefore, be given priority. It is reasonable to build some flexibility and margin into budget deficit targets, so long as the excess spending encourages faster GDP growth. Infrastructure investment has sped up the economy, attracting private capital and fostering exports. The Gati-Shakti effort and domestic development will both be highly advantageous.

Concern regarding the kind of deficit

Instead of focusing on the total budget deficit, there should be more concern regarding the kind of deficit. Any investment that promotes development is valued. Direct payments to the poor should be made, while subsidies should be reduced.

The temptation to see the Budget as populist might exist, but there is a hope that will not happen. The Union Budget presents an excellent opportunity to invest in women’s empowerment for 2023–2024. To empower women, the government must put more effort into areas like infrastructure, skill development, education, health care and financial inclusion. Putting money into the labour force can increase women’s income and lead to job growth, ultimately assisting those at the bottom of the economic pyramid.

A report by KPMG reveals the Union Budget for 2023–24 will continue to set the groundwork and offer a roadmap for directing the economy over the ‘Amrit Kaal.’ Some of the main areas of attention could be carbon reduction, climate commitment, and the transition to cleaner sources of energy. Fast-track technology adoption, the Production Linked Incentive (PLI) programme, modification of tax slabs, an amendment to the Green Energy Finance and Energy Conservation Act, the mandate for using green hydrogen and increasing the ceiling on home loan interest deductions, will be other areas of focus.

Prioritise investments in startups, tech

The expected increase in expenditure to promote digital and automation technologies will help us remain competitive in the global market. Additionally, lowering income taxes will aid the country’s ability to retain its top talent. Investments in start-ups and technology should be prioritised to develop more sophisticated and creative solutions for implementing sustainable business models. With the government’s desire to impose a carbon tax to advance the Environment, Social, and Governance (ESG) agenda, sustainability will be undoubtedly a primary focus of the Budget 2023-2024.

India has been hailed as a bright spot amid the more general economic turmoil globally. Our unique fundamentals have helped us steadily climb the ranks of the world’s biggest economies. Budget 2023 should build on these strengths. At the same time, it should continue building resilience to global economic headwinds while also positioning us to sustain a high rate of growth in the future.

The writer is Chairman and Managing Director, Godrej Industries. He tweets @gdijon @GodrejGroup. Views expressed are personal.

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