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Economic reform and Union Budget: Mindset change from entitlement to empowerment

By IMPRI Team 

As part of its The State of Economy- #EconDialogue series, #IMPRI Center for Study of Finance and Economics, IMPRI Impact and Policy Research Institute, New Delhi, organized the panel discussion on New India’s Economic Transformation and Union Budget 2023-24 on February 8th, 2023 as a part of the IMPRI’s third annual series of thematic deliberations and analysis of the Union Budget, fiscal year 2023-24 being organized from February 2- February 7, 2023.
Ms Zubiya Moin, researcher at IMPRI started the program by giving a brief introduction about the topic and also introducing the moderator and chair for the session, Prof Mukul Asher, Former Professor, Lee Kuan Yew School of Public Policy, National University of Singapore; Visiting Distinguished Professor, IMPRI.
She further welcomed the panelists Dr A. Amarender Reddy, Principal Scientist (Agricultural Economics), ICAR-Central Research Institute for Dryland Agriculture, Hyderabad; Dr Radhika Pandey, Senior Fellow, National Institute of Public Finance and Policy (NIPFP), New Delhi; Mr V. Ramakrishnan, Managing Director, Organisation Development, Singapore; Prof K. Seeta Prabhu, Visiting Professor, Tata Institute of Social Sciences, Mumbai; Visiting Faculty, Indian School of Development Management – ISDM , New Delhi and Prof Prabir De, Professor, Research and Information System for Developing Countries (RIS), New Delhi.
Prof Mukul Asher made some broad observations on this year’s budget, terming it as the ‘first budget of the Amrit Kaal’ (2022-47) with a vision to transform the country into a high-middle income country and making India as a global player in multiple arenas. He also analyzed the total spending of this year’s budget which is a massive 45 trillion INR package (32,000 rupees per person). He also stressed on the fact that India is one of the fastest growing economies in the world with a GDP growth rate of 6.1%.
Prof Asher also talks about the ‘mindset change’ from entitlement to empowerment and the increasing trend of Union government’s capital expenditure as a percent of GDP. He also commented on the creation of various industrial corridor projects that will further lead to formation of industrial cities. Calling the strategy as credible and flexible, Prof Asher’s preliminary remarks set the premise for the rest of the discussion.

Fine Balance between Fiscal growth and Fiscal Consolidation

Dr Radhika Pandey termed that the budget had struck a fine balance between fiscal growth and fiscal consolidation. She asserts that by quoting the government’s commitment to lower the fiscal deficit ratio to 5.9% of the GDP in the coming financial year. Furthering her analysis, Dr. Pandey said that the lowering of fiscal deficit helps in cooling the aggregate demand and aids RBI to lower inflation rates as well. She highlights the twin growth boosters which are high thrust of capital expenditure and moderation in personal taxation.
She also talked about market expectations inline with market borrowings, at 15.4 lakh crore (Gross) and 11.8 lakh crore (Net). Reiterating the higher capital expenditure, she pointed towards a growth of about 37% than the previous budget. This expenditure, she mentioned, being targeted in infrastructure related sectors will give a boost to urban infrastructure in Tier 2 and Tier 3 cities. She also talked about the various incentives presented to the states in order to increase capital spending which includes 50 years interest free loans.
She also talked about the increase in capital expenditure and the reduction in revenue expenditure. She also mentioned expenditure compression which is done by reducing the subsidies. She concluded her presentation by terming the tax rebate under the new tax regime as a good move which will boost consumption at the lower end of the spectrum.

From Global Lens

Prof Prabir De gave the perspectives on the budget from the point of view of the Ministry of External Affairs focusing Amrit Kaal Budget and how the goal of a 7 trillion dollar economy by 2030 and a 25 trillion dollar economy by 2047 can be achieved. He pointed to the positive trend of fiscal deficit numbers going down, when compared with the previous year. He also noticed the encouraging numbers of SME credit, exports and capital expenditure going considerably high every year. However, he expressed his disappointment at just half a percent’s allocation of funds from the total budget to the external affairs.
He talked about significant budget cuts in the infrastructure projects and developmental aid funds to neighboring countries except Bhutan and Nepal. He mentioned the improper allocation of funds while talking about Chhabahar port, capacity building training programs in Africa and some of the new markets that we go for in Latin America. He also highlighted the budget’s overlook on the Foreign Trade policy and not bringing reforms in issues like import duty cut or duty arbitrages.
He also noticed the repercussions of the Ukraine war triggering the energy and food crisis, exchange rate fluctuations resulting in our fiscal deficit gap. Prof De talked about India’s commitment to net zero emission by 2070 which puts the country on the global map in the area of energy transition and climate change. He also stressed on greater allocation towards healthcare infrastructure and the roads and network infrastructure too. Lastly, he talked about reducing the regional disparity between the states lying on the West coast and the East coast.

From Lens Of Social Services

Prof K. Seeta Prabhu talked about high inequality and unsustainability as the two major challenges that the country faces and how high capital expenditure has affected the revenue expenditure. She pointed towards the tendency of equating physical infrastructure with development and neglecting the social services which means neglecting the capabilities of the people. She believes that there should not be a trade off between physical and social infrastructure and there should be an enhancement of the capabilities coupled with empowerment.
She talked about the shrinking capacity of the government’s ability to spend which has gone down since 2022. The ideal situation as mentioned by her should be that the public expenditure ratio shall be at 15% and the social expenditure ratio should be at 40%, where the current public expenditure ratio has come down to 15% and the current social expenditure ratio continues to hover around 26% of the total expenditure. She stated India is struck in middle income trap because of the inability to deliver services that reach the poor directly.
She briefly talked about the aspects of equity and sustainability themes in this year’s budget. Further, she pointed towards the low allocation towards education and health sector. She emphasized on the need to improve the quality of secondary education and sternly said that the allocation of 6 percent of GDP to the education sector still remains a distant dream. Regarding life expectancy, she compared our dismal numbers with that of Bangladesh and commented that the infant mortality rate and child mortality rate, though declining, are not enough to reach SDG targets.
She pointed out various problems like duplication of efforts, non-utilization of funds and inadequate support to States on social services’ spending which hinders India’s commitment to achieve social attainment. In her concluding remarks, she spoke about green finance, India’s net emissions targets, National Hydrogen Mission and much more.

Focus On Manufacturing Sector

Mr V. Ramakrishnan talked about the three percent of GDP in capital expenditure and how it was approaching the saturation levels thus highlighting the downside of the capex boost. He stressed on the need to increase manufacturing and scale it from 16% of GDP to 25% of GDP. He talked extensively about creating a competitive manufacturing sector, improving export opportunities and skill development along with focusing more on sectors like defense and railways.
He stated that the manufacturing sector is not given the due focus even though it employs almost half of the entire labor force and pointed towards the abysmal numbers of factor productivity, and the poor gross value added which is at a marginal 3.7 % in the industrial sector. He also talked about inadequate employment generation, poor quality of jobs and lack of innovation in the sector.
Mr. Ramakrishnan emphasizes on the need for clean and reliable energy generation. He also focused on the gargantuan quantities of water required by electronic industry, which is clean and of a particular pH and hardness level. He also spoke regarding the absence of battery backups in public institutions. He lauded the power generation capacity but emphasized on the quality of transmission and distribution of electricity.
He brought his focus on waste and water management, sewage water treatment, absence of a circular management of water and lack of investments in the sector. He referred to surveys to show the dismal state of MSMEs in productivity and operational areas, working capital management and process efficiencies and their inability to compete globally.
He also talked on the EV sector and their massive energy requirements. While concluding, he mentioned that MSMEs are the backbone for transforming the manufacturing sector and there is an urgent need for having effective power generation and water and waste management systems in place.

Emphasis On Agriculture

Dr A. Amarender Reddy focussed his presentation on inclusive development and infrastructure largely in the rural and agricultural arenas. Dr. Reddy talked about the transition in the type of schemes wherein earlier the human touch was involved but in the current era of direct benefit transfers, it has gotten lost. He talks about the backward states like Bihar, Chhattisgarh and Assam who do not have adequate technological advancement and for them, DBT does not prove to be extremely beneficial. He stressed on the need to improve the quality and competitiveness of our agricultural exports. He mentioned a few features of the budget which focuses on having more hiring centers, mechanized machinery, agro-based startups and the emergence of digital platforms for farmers.
However, Dr. Reddy was concerned due to the over emphasis of technology and undervaluing of the human capital at the grassroots level whereas these institutions are decentralized and people-driven in nature. He believes that the digital public infrastructure will regulate the cooperatives and mandis and will reduce corruption especially with the e-NAM. He also mentioned the problems faced by tenant farmers in accessing these digital interfaces as they are linked to land ownership and not to cultivation. He also talked about the goal of converting 10% of total farmers into natural farming with the creation of 10,000 bio-input centers to aid in this goal.
He further emphasized the need to increase spending on R&D owing to the low productivity levels, and the inability to meet international standards. He recognized the importance given to fisheries, local and dairy farming. He also positively commented on the focus given to millets especially when this year is being celebrated as the ‘International year of millets.’ He listed down some of the important initiatives like the emphasis on Biomass, Tribal Welfare, Free Food Subsidy and Skill Development. He noticed a 32% budget slash in MGNREGA but also identified its flexibility in budget increase as it is demand-driven. While concluding, he said that the schemes might have a crowding effect and thus generate rural employment.
While summing up, Prof Asher lauded the diversity of the panel and made some important observations on the responsibility of the state governments. In the closing statements, the panelists made remarks on multifarious issues right from MSP to loss of GDP due to poor power, and even skill-based education, innovation, import duty reduction and implementation of fiscal consolidation.
Prof Asher concluded the session by saying that the budget provides so many puzzles and opens gateways to interesting discussions and deliberations in academia. The event was concluded with a final vote of thanks by Ms Zubiya Moin on behalf of the IMPRI Center for Study of Finance and Economics.
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Acknowledgement: Manush Shah, a researcher at IMPRI

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