Will the budget help ringfence India from global turmoil?
The budget builds on the ongoing reforms of the government, including the Production Linked Incentive (PLI) scheme, goods and services tax, Insolvency and Bankruptcy Code, and national logistics policy, among others. It will not only help strengthen the economy by focusing on incentivising capital expenditure, augmenting research & development and greater technology adoption, but also promote fiscal discipline and foster greater financial stability – thereby providing the needed buffer from global economic challenges.
With a continued focus on good governance, the budget aims to simplify systems with the help of initiatives such as Jan Vishwas Bill, which will enhance the reforms already taken under the Ease of Doing Business. More than 39,000 compliances have been removed and over 3,400 legal provisions decriminalised. This will provide a further fillip to industry and encourage MSMEs, startups, agritech and other entrepreneurs to start, scale and sustain enterprises and positively contribute to economic growth.
There is a massive bump up in capex? But there are still absorptive capacity issues in states and select ministries. What can be done for better absorption?
The increased capex in the recent budget, a 33% increase over the current year, is a very positive development. Most importantly, the increase in budget allocation of capex has predominantly occurred in the ministries of road transport and highways and railways with ₹2.7 lakh crore and ₹2.4 lakh crore allocations, respectively. Both these ministries have had a proven track record in executing projects and meeting targets. Hence, I don’t see an issue in terms of the absorptive capacity of central government ministries.
The states in turn are being incentivised to deliver on their capex targets through an extension and 30% increase in allocation of the special assistance to states for capital investment scheme, where financial assistance is provided in the form of 50-year interest-free loan. NITI Aayog continues to work closely with the states through the State Support Mission to build their capacity and speeding up delivery.
There are early indications of private investment revival. Can this budget give it a push at a time when global environment remains uncertain?
The budget has the potential to revitalise private investment through comprehensive measures aimed at promoting growth and attracting investment such as tax breaks, procedural simplification, digitalisation and skilling. All these will provide a positive ecosystem for increased private investment. The Economic Survey states capacity utilisation in factories is close to the 80% mark, an indication that there is growing private capex build-up. It also mentions that private capex in absolute terms has grown from ₹2.8 lakh crore in first half of FY20 to ₹3.3 lakh crores in H1 of 2023. Both these data points indicate that the green shoots of private investments are already becoming visible.
The survey has spoken about India being in a suitable position to become part of the global supply chains? Does this budget provide for that push?
India’s vision is to be a major hub in the global value chain. We also perceive this as a strategic opportunity in the geopolitical context. Being a core part of the global supply chain across sectors can bring many benefits, such as increased exports, improved competitiveness, and more opportunities for businesses and workers. A great example is the PLI scheme for large-scale electronics manufacturing, with 97% of mobile phones sold in India now being made domestically.
The budget has also made specific announcements that would strengthen our endeavours in this area. For example, the finance minister has announced a customs duty exemption on import of capital goods and machinery required for the manufacture of lithium ion cells for batteries used in electric vehicles.
While the government thinks a capex push will spur employment creation, the budget has reduced allocation to job schemes like PMRPY and ABRY. Why?
Job creation remains a top priority for the government. While the big capex push will itself trigger jobs, particularly in peri-urban and rural areas, initiatives such as the establishment of 10,000 bio-input resource centres or continued fiscal support to digital public infrastructure (UPI etc.) will give great momentum to new avenues of jobs. The budget will incentivise job creation in technology, research, agriculture, tourism and other sunrise sectors.