Prof. D. Mukhopadhyay, Dr. Kamal Agarwal
The Union Budget 2023-24 Fiscal Year is scheduled to be presented in the Parliament soon. This will be the Pre – Poll Budget as the Lok Sahba Election is due sometimes in 2024 making it more significant for both the ruling government and the opposition political parties. The ruling alliance should architect the Budget focusing more on economic well being and comfort of people not only in the current Fiscal Year but beyond reflecting how the ruling alliance would generate resources to meet future challenges if it is re-elected to power. On the contrary, the opposition political parties should keep no stone unturned in figuring out the shortcomings of the Budget that may affect people’s well-being if they are not voted to power. Therefore, the ruling alliance’s immediate challenge is to walk along the tight rope hanging in the air with caution while preparing and presenting the Union Budget 2023-24 as it is instrumental in creating impression before electorate college from which the voters would try to feel robustness of the approach in meeting the problems both in domestic and international arenas. The federal government is observed to be experiencing a fiscal deficit in the magnitude of 6.50% of GDP and provincial fiscal deficit ranges in between 3.50% and 4.00% which calls for a robust fiscal management for reducing the current fiscal deficit from 6.5% to 3% which seems to normal and beneficial to the economy .
The global economy is on recessionary mode owing to prolonged military conflict between Russia and Ukraine. Though Russia and Ukraine are on face to face war but many countries indirectly got involved in this war, Iran-Israel , Azerbaijan- Armenia, Civil War like situation in Pakistan, China-Taiwan conflicts etc are major contributory forces for geopolitical turbulence in the world and neighbouring countries attributed with potential for disturbing economic progress of India. Moreover, India is under constant threats from other sides of Line of Actual Control and Line of Control which places India in difficult geopolitical situation for non-compromising defence budget. Come next, infrastructure, health care delivery , education and skill development programs priorities. Taming inflation is a challenge in protecting the interest of lower and marginal economic strata by raising repo-rate but it would sanction on credit creation and loan and advance availability since high cost of financing is a demotivating force for the small and medium enterprises, besides the large industrial houses. Low investment leading to low employment would culminate to low income and low purchasing power which ultimately make the business houses navigate in long run void of sustainability. It may be worth mentioning that federal forex reserve is under constant stress due to international trade deficit. Trade between the nations is nucleus of the global economy. It supplies a wide range of goods and services to a country that may not otherwise be available in that country. The countries under such circumstances import from those countries who can supply after meeting their requirements. To import needs forex . India’s forex reserve as on 30th December, 2022 stood at $562.851 billion from $632.740 billion on 7th January, 2022 representing reduction by $70.00 billion and it is about 11.063% in just one calendar year . Forecast for 2023 by World Trade Organization(WTO) reveals a bleak snapshot of global trade which is likely to affect the balance of trade between the countries sustaining difficult economic climate. The WTO has downgraded its trade growth from 3.4% to 1.00% for next year. Rising inflation, galloping rise in energy prices and instability caused by Russia and Ukraine military conflicts are causing stress on global trade burn which is inescapable for India too.
Union Budget contains potential sources of revenue and commitment of expenses, capital and discretionary capital expenditures and artful expertise and skill in fiscal management is sine qua non for efficient financing and investing activities from the national exchequer.Under the given scenario, the ruling government is recommended not adopt populist approach to budgeting keeping in view the forthcoming General Election-2024 but pragmatic focus on socioeconomic development should be the focus. To be specific, India’s trade deficit with China is $100 billion in the current fiscal year. Most of the countries are both importers and exporters as well. They export goods, that they have in abundance, to other countries, and import any products that are in short supply in the domestic market. A situation of trade surplus or trade deficit arises when the balance between imports and exports becomes skewed.A trade deficit occurs when a country imports more than it exports. In order to maintain desired economic activities and growth in the election year and beyond, the Union Government is recommended to boost up aggregate demand and individual consumption , give more importance to manufacturing sector and take care of idle capacity of plants and factories, more weight-age on skill development training and education , creation of more employment for skilled, semiskilled and less skilled workforce, more capital expenditure on infrastructure and application of prudence and judiciousness on is a must while committing discretionary capital expenditure. It is worth mentioning that tax rebate on purchase of residential house should be enhanced from the existing tax benefits of Rs. 2,00,000/ to at least Rupees Six Lakh in order to increase demand of real estates and the said benefits may also be extended for purchase of more than one residential units and similar approach is suggested for other durable goods such as motor car, entertainment , household appliances etc. If demand for the consumers’ goods increase, it would boost up aggregate demand which would culminate to increase in employment, more income and hence rise national GDP. Further, economy protectionism approach should be done away and hassle free free entry and free exist , invitation for FDI and stimulating open market driven economic policy, ease of doing business, ‘Make in India’ need to be given stimulating allowance, rebate, exemption, weight-aged depreciation allowance for investment in infrastructure, transport, telecommunication, pharmaceutical, education, research and development and strategic sectors and investment allowance as well in terms of weight-aged rates. More and more double taxation avoidance treaties, hassle free international taxation settlement and transfer pricing mechanism, increase in basic tax free limit for individual taxpayers, tax on tax (surcharge) for both corporate and non-corporate assesses. Rationalization needs to be reviewed . Existing social security schemes should be allowed to continue and the base should be expanded further. Direct Tax Code in the line of GST Act 2017 should be enacted at the earliest. Women Entrepreneurs should be given more tax benefits in terms of low cost of financing, low insurance premium and inclusive approach in expanding tax payers base in addition to progressive taxation approach may stimulate economic activities in the pre- and post election years. Strategic cost management in power and utility, health care delivery, pharmaceutical, infrastructure , strategic sectors, logistics both inbound and outbound logistic management should be encouraged and conformity with global quality parameters should be in place so that Indian products and services could sustain the burn of price competitiveness and quality acceptability in the international market. The Budget 2023-24 should focus on development and aggregate demand increasing approach.
As far as indirect taxation is concerned, the budget should provide adequate cushion on tour and travel, tourism, hotel and hospitality and food and provisions items. Food items inflation needs special attention as about 40 crore of Indian are still below the poverty line. Fertilizer and and agricultural equipment such as tractors, puppets, irrigation crop harvesting and marketing know how may be made available at discount, rebate and even free of indirect taxes. As far as Customs , import and export fiscal management is concerned, import should be discouraged by providing for heavy import duties and on the contrary, subsidy and exemption in duty may be provided for as export of goods is the potential source of earning forex and forex reserve is one of the most dominating macro economic variables that indicates the financial health of the national exchequer. The Budget should prove concessional duties and taxes on construction materials for builders of ports, warehouses near ports, cold storage, and investors interested to commit capital expenditure for development of allied infrastructure in and around sea and river ports. In a nutshell, more freedom and relaxation in compliance needs to be considered for providing in the budget. The comparative advantage doctrine may be encouraged for adoption for boosting exports so that duty exempted for exports may be compensated by inflow of forex.
To conclude, India is agriculture dominating economy and agriculture and food processing sector with adequate infusion of investments in rural road and communication , logistics and cold storage in order to increase participation and increase in rural entrepreneurship should be provided for in Budget 2023-24 and this may assist in achieving the Mission, ‘Atmanirbhar Bharat’. The ruling federal government should adopt pragmatic approach in preparing the Budget 2023-24 keeping in view the importance of achieving target economic growth under the existing volatile geopolitical situation and the ongoing conspiracy pandemic across the globe. In all probability, Union Budget 2023-24 shall be a deficit budget. However, India need not worry much about deficit budget as deficit budget to tolerable extent is beneficial for the emerging economies like India as it creates scope for generating employment and consequently boost the economy. Last but not the least , job creation, fiscal consolidation, research and development and commitment of discretionary capital expenditure which is essential defence expenditure and welfare schemes for Indian Defence Force , Defence Establishment and strengthening internal security maintenance through upgradation should receive priorities in Budget as India can hardly compromise with her sovereignty and national integrity.
(The authors are former Interim Vice Chancellor, SMVD University and Assistant Professor , ( Finance), NMIMS University, Bangalore)
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