Interim Budget must continue capex-led growth strategy, says CII DG Chandrajit Banerjee

The interim Budget is coming at a time when despite the global disruptions and uncertainties, India has continued to be the fastest growing major economy in the world. We expect the upcoming interim Budget to sustain this growth momentum.

With the global backdrop in mind, we would also want the Budget to continue its focus on fiscal prudence and sustainable, broad-based and inclusive growth, that keeps India on track to becoming a developed nation by 2047.

So we are expecting a Budget that balances fiscal prudence with inclusive, sustainable growth.

With clouds of uncertainty looming over the global economic horizon, sound fiscal management is essential. In 2023-24, we expect the government to maintain the fiscal deficit target of 5.9 per cent of GDP. For 2024-25, it can be further reduced to around 5.4 per cent.

We do not believe there will be a large trade off between fiscal consolidation and government capex if there is a concerted thrust to pushing revenue receipts by bringing in greater tax efficiency along with rationalisation of revenue expenditures on non-merit subsidies.

CII has suggested that the government increase its capital expenditure by 20 per cent to ₹12-lakh crore. While this will be a moderation in the very high growth from the last two years, it compares well with 12 per cent growth in the pre-pandemic period (2015-16 to 2019-20).

Incipient signs of government capex crowding in private investments are visible.

There has been a noticeable improvement in capacity utilisation of some sectors, and this is clearly reflected in multiple CII industry surveys.  

CII has always been appreciative of the government’s move to maintain stability in tax rates despite the tumultuous economic and political developments in the last three years. To further boost investor confidence by providing tax certainty for businesses, the corporate tax rates should be maintained at the current levels. This will go a long way in infusing fresh investments in the economy.

We expect the goal of maintaining fast, sustainable, broad-based inclusive growth, to guide the push to sectors in the Interim Budget. Thus, infrastructure is likely to remain a focus with higher capital expenditure.

Another area of focus will be boosting the rural economy including agriculture.  We expect higher allocations for programs like the Pradhan Mantri Gram Sadak Yojana (PMGSY), Pradhan Mantri Awas Yojana – Gramin (PMAY-G), and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).

We would also like to see higher spends on programmes related to education, healthcare, technology and R&D. 

Further, given the emerging global opportunities and demand for job creation, manufacturing units especially MSMEs are likely to be supported, with sustainability in mind.

We expect the support to these sectors to be prudently balanced with fiscal consolidation. 

While many expect so, given the track record of this government, CII believes that the forthcoming interim Budget will continue to have prudent proposals focussing on inclusive and resilient growth.

Even at the peak of the pandemic, while the whole world was pursuing a strategy of fiscal stimulus, the government. despite pressures, focussed on targeted fiscal support to the most vulnerable sections of the society. It pursued a capex led growth strategy with the right balance between fiscal prudence and growth-oriented expenditure.

We expect the thrust to be on fiscal prudence, capex-led growth and programmes and schemes to support the most vulnerable in a manner which has an overall positive impact on India’s long-term growth, resilience and inclusion.

PLI is giving the thrust needed to propel Indian manufacturing especially as global value chains are shifting and opening up newer opportunities for India. The government could extend the PLI to labour intensive sectors which also have high export potential like apparel, toys, footwear.

The other area where PLI could be extended are capital goods and chemicals including food additives, where India has domestic capabilities but still imports high volumes.

To encourage a larger segment of MSMEs to benefit from the PLIs, the scheme could be modified in terms of lower capital investment thresholds and production targets for these enterprises, when compared with larger corporates, so that MSMEs can scale up operations and move up the value chain.

On the tax front, the sunset date of concessional rate of 15 per cent tax for eligible manufacturing units, under Section 115BAB should be extended to March 31, 2025.