In the present scenario of unprecedented global geopolitical and economic uncertainty, with nine State Assembly elections due this year and the general election in 2024, the Budget Speech focused on fiscal consolidation and avoided populist announcements (though it mentioned an allocation for an irrigation project in Karnataka). 

Targeting a fiscal deficit target of 5.9 per cent for FY24 and reiterating commitment to bring it below 4.5 per cent by 2025-26 is commendable. 

The 33 per cent increase in capex allocation to ₹10-lakh crore in FY24 has been lauded by most of the commentators. Of course, to gauge its actual impact on the economy, what needs to be seen is the sectoral distribution of this capex, absorptive capacity of government’s executing agencies and whether it actually leads to ‘crowding in’ of the private sector investment. 

Post-Covid, the corporates benefited from the then prevalent low interest rates and excessive liquidity regime to deleverage. They, along with the banks, have had healthy balance sheets for quite some time now. The ‘crowding in’ argument has been going on for over two years but with virtually no traction. 

The Economic Survey says that our economy has fully recovered from the Covid impact. The capacity utilisation in most of the sectors is also reportedly pretty high. The corporates are well placed to initiate the virtuous investment cycle. If the demand is a constraining factor, the Government could have instead used the fiscal space for boosting that (some effort has been made, as discussed later). 

Competing demands on resources 

For whatever reasons, ‘disinvestment’ and ‘PLI scheme’ were not mentioned in the Budget speech. If they were intentionally kept out of the speech, I would support that. In the last few years, the disinvestment revenue receipts haven’t been significant. Divesting Government share in a PSU or privatising it is a complex task with market uncertainties, and the target pressure approach hasn’t helped. The Government shouldn’t rely on divestment proceeds to meet its revenue requirements. 

 As for the PLI scheme, though there has been a lot of lobbying to increase its scope and coverage, the Government ought to be careful in choosing the sector/industry under the scheme - any industry in which India lacks the basic global comparative advantage or whose survival on its own merit is doubtful in the medium term, shouldn’t be considered. Note that there are a number of other competing demands on the scarce fiscal resources. 

  The Budget hasn’t made any attempt to rationalise and simplify the capital gain tax regime, which is much needed. 

  Now coming to the numbers and assumptions. 

What is surprising is that the Budget speech doesn’t give any estimated figures of the real and nominal GDP growth for 2023-24. Using the given fiscal deficit figure of 5.9 per cent and back working, the nominal GDP growth for 2023-24 comes out to be 10.4 per cent. But what are the estimated figures of the real GDP growth and the GDP deflator? And what are the assumptions made in estimating them? 

Considering the global slowdown, the prospects of growth in export are grim. Add to that the geopolitical risks especially the ongoing Russia-Ukraine war. The real GDP growth in 2023-24 would depend upon the pick-up in private consumption demand and investment. One can only wait and see the extent to which the Government strategy would work in this regard. 

The total Government receipts and net tax receipts are estimated at ₹27.2-lakh crore and ₹23.3-lakh crore, respectively. The presumption that the non-tax receipts would make up for the balance ₹4-lakh crore looks rather optimistic. 

Total gross borrowings are estimated at ₹15.43-lakh crore. Out of these, net market borrowing is envisaged at ₹11.8-lakh crore, with the remaining borrowings coming from National Small Savings Fund. 

 Limiting the borrowings from the market to keep a check on the bond yields and to avoid crowding out of private sector borrowers from the market is understandable. However, in the process, the Government shouldn’t try to keep low the returns on small saving schemes so as to contain their own borrowing costs. Also, this is not likely to work. The investors may move out of small saving schemes and invest elsewhere considering the ample alternative investment opportunities available nowadays. 

(The writer is former chairman of SEBI)