Capex Gamble and Wellbeing Failure: The Budget Story in Nine Charts | spcilvly


In 2023-24, which is likely to see a slowdown in global growth, the Center has budgeted a record capital expenditure of $10 trillion, almost 37% more than the revised estimate for the current year. Thus, capital spending will represent 22% of total spending, the highest percentage in almost two decades. Revenue spending will increase by only 1%.

Table 1

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Table 1

A breakdown of capital expenditure figures shows that the Center plans to do the heavy lifting with the big push. In 2022-23, the $The 1.5 trillion increase in capital spending depended largely on a component that would go to states. But this time, the Centre’s share in capital expenditure will increase to $8.6 billion, $6.4 trillion, and this increase constitutes 80% of the total jump in capital expenditure. High capital expenditure is expected to contribute to economic growth through a multiplier effect.

Meanwhile, changes to the tax structure will provide relief to the public, meeting long-pending expectations of the middle class. The government hopes to generate more revenue from the collection of goods and services tax (GST), and its growth is estimated at 12%. If that happens, GST collections would exceed nominal GDP in 2023-24. Corporate and income tax collections are expected to grow by 10.5%, as is GDP.

Table 2

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Table 2

With this, the GST is expected to once again be the largest source of tax revenue, at 3.2% of GDP, and the once-leading corporate tax will be slightly lower at 3.2% of GDP. 1%. Many experts have criticized the heavy reliance on GST as placing an undue burden on the poor, while lower corporate taxes have failed to revive private investments. The key question will be whether the tax relief will be able to offset the impact that the $Rs 35,000 crore of consumer revenue will be lost.

Following the path of fiscal consolidation, the Minister of Finance set the fiscal deficit target at 5.9% of GDP by 2023-24 (see Chart 3) and reiterated the objective of reducing it to 4.5% of GDP by 2025 -26. The government has set the ambitious fiscal deficit target by reprioritizing spending from revenue to capital, which experts say is a better mix of spending to support growth.


Will the generous capital spending be socially inclusive enough? Lackluster allocations, or even cuts, to some key welfare plans and sectors could be a big mistake. In 2022-23, the government was conservative in its budget revenue expenditure target, but is now forecast to overshoot it by 8.3%, mainly due to the growing needs of the slowly recovering rural economy. But in 2023-24, there was no much-needed boost.

The overall allocation for rural development is projected to decline by 2.1% from the revised 2022-23 estimates to $2.4 billion. (However, it has seen an increase of almost 16% over the latest budgeted figures.) Outlays on the crucial rural employment scheme, the Mahatma Gandhi National Rural Employment Guarantee Scheme, were at their lowest level in six years, with a sharp drop of almost 10%. third, or by $30,000 crore, compared to revised estimates for 2022-23. The National Social Assistance Programme, which is also a centrally sponsored scheme, remains unchanged in its allocation.

Budget spending on sectors that mainly benefit weaker sectors saw a slightly slower increase: 6.4% compared to 6.9% in 2022-23. Agriculture and related sectors lost focus, with disbursement below $1.5 billion to $1.4 billion.

Meanwhile, following an increase in outflows due to higher payments for fertilizer and food subsidies compared to the initial budget, a substantial cut in the subsidy bill also provides scope for capital investments. In total, the burden of major subsidies was reduced by 28% from the revised 2022-23 estimates to $3.7 billion. Therefore, the share of the Centre’s subsidy bill in revenue expenditure for 2023-24 has fallen to a four-year low of 11.5%. The budget was a disappointment for women, with the gender budget ratio dropping from 5.2% to 5% in the revised estimates for 2022-23.

Overall, the Center appears to have rejected populism while maintaining a conservative approach. “The boost to capital spending has partly come at the expense of rural and social welfare spending,” said Ranjani Sinha, chief economist at CareEdge. “However, capital expenditure has been found to have a strong multiplier effect on growth through job creation and indirect increase in demand. “

Other issues

Finally, beyond the headline numbers, it is revenue sharing that has often been a point of contention between the Center and the states. While the tension may not be as palpable as it was two years ago, when the pandemic hit states’ earnings, the dwindling share of states in the Centre’s gross tax collection could reignite the debate. The states’ share is budgeted at 30.4% of the Centre’s gross tax collection, the lowest in three years and substantially lower than the 35-37% between 2015-16 and 2018-19.

This may not sit well with some states, especially those with opposition-led governments, which have been demanding a continuation of the GST compensation guarantee for two more years. (The compensation, rather than the losses that states expected due to the imposition of the new regime in 2017, ended last year.)

Missing disinvestment targets again, despite the public listing of Life Insurance Corp. of India in May, the government’s stake sale plans have been revised downwards to $60,000 crore in 2022-23 $65,000 crore fixed earlier. The budgeted goal for next year is $61,000 crore, down 6% from the latest budget estimates. Despite lower expectations, this would still require large disinvestments for the government to meet the target.

Finally, a little about the list of items where the Center expects to have gone over budget during the current year. (The year is expected to end with a total expenditure of $41.9 billion, compared to what was budgeted $39.4 billion.) The Center saw maximum pressure from fertilizer subsidies as the war between Russia and Ukraine pushed up prices. The continuation of the free food grain program also resulted in higher than budgeted food subsidy costs.


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Apart from subsidies, the government has also experienced overspending due to a one-time subsidy to oil marketers to cover insufficient recoveries of domestic LPG. Despite the additional spending, the Center still expects to meet its fiscal deficit target of 6.4% of GDP, thanks to higher-than-expected tax collections as well as higher-than-expected GDP. Ultimately, resisting populist temptations, the budget prudently appears to be a determined push for growth.

(Story and facts by Niti Kiran, Pragya Srivastava, Manjul Paul, Nandita Venkatesan and Shuja Asrar; Graphics by Paras Jain).

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