Consistent, Prudent FY24 Budget Sets The Stage For Long-Term Growth

By  Bhargav Dasgupta – MD & CEO, ICICI Lombard

The Union Budget for 2023-24 (Apr-Mar) delivered by the Finance Minister Nirmala Sitharaman has stayed true to the path of prudence and consistency without sacrificing the long-term vision of sustainable growth.

The key takeaway was that this growth-oriented budget ticks all the major check boxes, even as it remains responsible by sticking to the fiscal consolidation path of 5.9% for FY24 vs 6.4% in FY23. Additionally, it reiterates not just the target of a fiscal deficit below 4.5% by 2025-26 but also shows a definite shift in the quality of spending. We are seeing revenue expenditure now shift towards capital expenditure. This is reflected in the capital expenditure target being raised 33% on year to 10 lakh crore rupees. This is well above market expectations and will have a major multiplier effect on private spending and growth. The money markets cheered the fiscal deficit plan and lowered net borrowing figures at Rs. 11.8 lakh croresince it shows that the country’s fiscal consolidation plans remain on track without being impacted by near-term developments such as elections.

This prudent approach suggests lower spending on subsidies that may have been a fallout of the exceptional last three years due to COVID-19 and a switch towards spend that generates economic activity. The extension of the support to states through 50-year loans and the linking of state deficit to reforms in the power sector will also support the aim for sustainable growth.

Even the seven priorities that have been articulated to guide India through its Amrit Kaal are in sync with the past thrust from this government on areas such as infrastructure, development, financial sector, unleashing the potential of the youth, green growth, and inclusive development that reaches the last mile. To illustrate, in the case of the financial sector, there has been an announcement that aims at taking an engagement-centric and market-friendly approach, which is a clear shift towards a more principles-driven regulation that reduces the pressure on compliance. Once implemented, this will ensure that all financial sector regulation becomes more customer and market friendly too.

Similarly, there is continuity in the government’s approach towards the vehicle scrappage policy, focusing on job creation through sectors such as tourism and infrastructure.

The rating agencies and global investors will draw a lot of comfort from India’s consistency in sticking to its fiscal targets without shrinking the space available for growth. A good example is the change in the new tax regime to allow rebate up to an income of 7 lakh rupees. This will incentivise those wary of switching from the old to the new tax regime to consider the benefit of such a switch. The government is showing that despite demands from various sectors for exemptions under the old tax scheme, it is committed to making the new tax regime more attractive. The ultimate aim is for India to keep transitioning towards a tax regime that is simple and easy to comply with, and today’s announcement will provide enough food for thought to those who are still on the old tax regime. At the same time, for a sector such as general insurance, where the industry has sought tax support for increased spend on home insurance or health, there is a message that they will have to strive for growth beyond tax-saving-driven sales. Insurance, especially general insurance, is a push product, but the government is asking the sector to look at other means to fuel future growth.

Even announcements such as the set-up of 157 new nursing colleges, focusing on lab-grown diamonds with a green perspective and the creation of three centres of excellence for Artificial Intelligence showcase an India that is thinking for the future. These announcements aim to train a population ready to help leapfrog India into its rightful space as a global superpower based on its demographic dividend.

India has the advantage of a talent pool, especially in technology, that, combined with an unparalleled digital public goods framework and data privacy framework, can be the natural source of growth and innovation for our country and the world. The budget acknowledges and attempts to support this national ambition.

The 2023-24 budget keeps the long-term vision for the Amrit Kaal firmly in focus when it looks at spending and prioritising as it continues to support India’s transition into a global superpower.