Why the 2023-24 Budget is more crucial than you think

The 2023-24 Indian Budget comes at a crucial juncture, considering global events as well as the internal

eco-political situation. Globally, the war continues to simmer on with no end in sight, while a new aggression emerges each time talks of a ceasefire are initiated. With the western economies (Europe and US) reeling under inflation, Indian external trade has taken a hit, bringing it down from 50% to 35% in recent years. In December 2022 alone our exports fell by 12.2% on a y-o-y basis.
On the other hand, manufacturing supply has been easing due to China doing away with its zero tolerance to Covid policy. But it will take another 12-15 months for things to normalize and for trade to flow smoothly.

Accompanying global disarray, a similar situation is also persisting close to home. 2023 being the year of India’s ascendency to the G20 Presidency, there would be greater expectations on how we use budget allocation to lead by example especially with the ‘Healing our Earth’ theme.

The general elections set up for next year would force the FM’s hand to keep the budget populist, with some necessary leeway thrown in to ensure enough capital and expenditure for employment and development. Overall, this budget will reflect a bigger impact in terms of next year’s elections, and it would be interesting to see how the FM pushes a tough target to achieve a GDP number of $5bn, given the current global scenario.

Things to keep in mind from Budget 2022-23
The focus on public investment in modern infrastructure will help in generating employment and increasing consumption power in the hands of the public, while simultaneously developing key infrastructure for the private sector to build on or feed from. The government is also taking the lead in increasing investment in energy and sunrise spaces, considering the capital-intensive and risky nature of the clean energy sector. This is to hopefully provide industrialists and entrepreneurs the push required to follow on with their initiatives as well.

This theme comes full circle with India’s proposition from the G20 presidency, cementing a clear-cut spot for clean energy on this year’s budget. Since inclusive development and financing of investment were both key themes from the last budget, the path following them will be watched by all during this year’s roundup as well.

Keep an eye out for the following themes in the 2023-2024 budget
A severe cleanup of the tax regime can be expected. Taking the indirect taxation structure into consideration, the GST has done a good job so far at mopping up indirect revenue for the government. But the structure has become extremely complicated with multiple loopholes and a persisting need to read between the lines. Simplifying this regime will be beneficial for all parties involved.

The average taxpayer is always hoping for better tax relief, but the amounts for Section 80C have become obsolete in today’s high inflationary scenario. Also, there are rumors of 10 lakhs and above being in the 25% bracket and as well as an addition of a new slab for 30% at 15 lakhs or 20 lakhs and above levels. With elections around the corner, this would be the best chance for the government to take the populist move and provide better tax relief to placate the needs of the people. But since this is their easiest stream of revenue, it does not seem likely any compromises will be made. If nothing, cleaning up the capital tax regime and having the same tax levels for capital asset classes will help pacify any objections to a certain degree.

Another important aspect the government needs to tackle is efficiency in the tax collection process. While efforts have been made toward automating and making the process less painful, there are server issues and bugs still persistent in the system.

Moving away from the talks of taxation, India’s fiscal deficit has taken a turn for the worse in recent years since the country has taken the responsibility of funding all its internal spending. This year, the aim should be to hit a 6.4%-6.5% range as compared to the 9.2% that it had reached last year. Maintaining a 6% range would provide a sigh of relief and instill confidence in the larger population.

All in all, this year’s budget will help solidify India’s way forward during a time of global recession and economic unrest. The government’s decisions will play a big role in either boosting the morale of its people or will provide yet another reason for the public to err on the side of caution.

The writer is Director, TresVista