ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

Articles By Union Budget 2023–24

India’s Fiscal

How was Union Budget 2023–24 able to simultaneously consolidate the defi cit and increase capital expenditure? Where did the fiscal space come from? And where is the capex going? Stepping back, how are broader public sector dynamics evolving—both borrowing and capex? As debt has surged post pandemic, focus will turn to medium-term fi scal imperatives. What is India’s debt-stabilising nominal GDP growth? And if defi cits must be reduced in the coming years but health, education and infrastructure spending must simultaneously go up, where can the fi scal space come from? And why is it important to focus on direct taxes—instead of indirect taxes—on the revenue side, while increasing absorptive capacity to spend on the expenditure side? This essay seeks to answer these questions.

Concerns about Balancing Growth and Stability

Union Budget 2023–24 attempts to strike a balance between accelerating growth and achieving fiscal consolidation. The increased allocation to capital expenditure is important to crowd in private sector investment. However, the allocation to the Food Corporation of India and Bharat Sanchar Nigam Limited under capital expenditures is not likely to yield returns. On fiscal deficit reduction, more front-loading it’s adjustment in 2023–24 would have eased the problem of achieving the target of 4.5% of gross domestic product by 2025–26. Furthermore, the budgeted reduction is predicated on the assumption of significant compression in subsidies and transfers. Ultimately, the success of the intentions depends upon implementation.

Electoral Cycle and the Union Budget 2023–24

The fiscal deficit and expenditure composition in terms of revenue and capital expenditure in a pre-election budget capture the net effect of the compulsion of reducing taxes and levies, and spending more, particularly on welfare measures, partly to attract votes. An analysis of the 2023–24 budget before the 2024 Lok Sabha elections shows that the current National Democratic Alliance government has managed such compulsions better than not only the two previous United Progressive Alliance governments but even the preceding NDA government.

An Introduction and Overview

The fiscal consolidation effort of the union government reinforces the fact that a sustained reduction in debt and deficit at the union level is critical for a fast improvement in the general government fiscal balance. As the economic growth has improved, a medium-term debt path for a targeted reduction of debt ratio would help sustain the gains achieved in 2022–23.