How does this year's Budget plan to drive India's growth?

Hello everyone, this week I will be examining India's budget 2023/24, which has been lauded for its growth plans by many across the country.

Finance Minister Nirmala Sitharam presented the Budget for 2023 on 1st February in the Lok Sabha. This year's budget has been lauded by many across the country majorly because of the benefits it offers to the middle class of the country due to the increase in rebate of personal income taxes to 7 lakhs, allowing people with income up to 7 lakhs with tax relief. On the other front, the government also increased its green energy investment by about 40% in comparison to last year. The government has also cracked down on demerit goods such as Cigarettes, which have experienced an increase of 16% in duty, as the government plans to reduce their use. A key focus in the budget has also been the defence sector, which has seen growth in its investment by 13% from last year as the nation faces a two-front threat from both Pakistan and China. A key focus was also on reducing India's fiscal deficit and bringing it down to 4.5% of the GDP.

The new Income Tax regime-

In the old income tax regime, there was no income tax to be paid for an income up to 5 lakh rupees, however, in the revised rule, this limit has been raised to 7 lakhs providing a massive benefit to the middle-class of India. On the other hand, those earning between 12-15 lakhs have been taxed at 20% and people with income more than 15 lakhs annually will be taxed at 30%.

Hike in Capital Spending-

The investment for capital spending has gone up by 33% and $122 billion has been allocated to these assets. The Finance Minister also announced that the Central government will continue with its 1.3 trillion rupee loan to the State for long-term investment thus helping boost growth in this sector.

Much-needed increase in Defence Budget

India's defence spending has seen a whopping increase of 13% to around $70 billion. The government has been pushing to make India 'Atmanirbhar' in the defence sector and this budget will greatly push the government's future plans. The nation has seen clashes and standoffs on its Eastern border with China and frequent cross-border terrorism from the Pakistan side and this increases the importance of hiking defence spending even more.

Aggressive policy towards Green Energy-

The government seems to be concerned a lot about green fuel as the Finance Minister laid out the 'National Green Hydrogen Mission', which supports the transition of the economy towards low carbon helping reduce its dependence on fossil fuel imports and making it independent in the energy sector. This mission will not only speed up the country's transition to green energy but also boost growth for startups in India and lead to massive job production in this sector.

What becomes expensive and what is cheaper?

This year's budget eyes to increase India's domestic manufacturing and boost economic growth and for this, the government has introduced a number of key changes to the Customs Duty on various goods. Machinery for lithium-ion cells, aircraft equipment, mobile phones, EVs and televisions are expected to get cheaper whereas products like articles made from gold, cigarettes (hike in tax by 16%), bicycles, toys and imitation jewellery are expected to experience high prices.

Analysis-

This year's budget can be hailed as a budget that supports India's economic growth and plans to achieve a higher standard of living for the Indian people. The tax breaks as promised by the government for the middle class in the new regime, if implemented as they have been formulated can help reduce India's widening income inequality in the long run. As we know, India is the world's fastest developing economy and to help India 'reach the last mile' as quoted by the Finance Minister, India got the much-needed increase in its capital expenditure which will help increase the level of private investments in the economy, help produce more jobs for people and lead to India's economic growth.

The hike in the defence budget was much needed and may help provide our armed forces with the necessary equipment to help fight our adversaries. As our Prime Minister outlined India's vision of becoming dependent on green energy for 50% of our energy needs by 2030. The budget presented by the Finance Minister included a lot of policies that provide provisions that can help the nation reach this goal on time. As far as goods that are expected to get pricier after the budget include goods like cigarettes, which is a demerit good for society and thus should be discouraged through high taxes, which will help reduce the loss and cost that society has because of the use of cigarettes. However, other products like gold are also expected to get dearer given the hike in import tax on gold and as India meets the majority of its gold needs through imports, this will have a major impact on the price level of gold in Indian Jewellery markets. On the other hand, products like EVs and lithium-ion cells are expected to get cheaper which will help India fasten its growth towards developing into a green economy.

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References-

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Reuters. “India 2023/24 Budget Raises Capex Spend to 10 Trillion Rupees.” Reuters, 1 Feb. 2023, https://www.reuters.com/world/india/india-202324-budget-raises-capex-spend-10-trillion-rupees-2023-02-01/. Accessed 9 Feb. 2023.

Desk, HT News. “Budget 2023: What Are the Changes in New Tax Regime? Expert Explains.” Hindustan Times, 3 Feb. 2023, https://www.hindustantimes.com/business/budget-2023-what-are-the-changes-in-new-tax-regime-expert-explains-101675442871378.html. Accessed 9 Feb. 2023.

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