Expect a poor budget, not a pro-poor budget

The Budget wish list is big. Yes, the urgent needs of different social classes and the suffering of the poor with high unemployment, inflation, poor healthcare system and education in the country make them aspire for some relief on the big day.

More than that, the current malleability of the rulers in the background of elections this year in nine states – Telangana, Karnataka, Madhya Pradesh, Chhattisgarh, Rajasthan, Tripura, Meghalaya, Nagaland and Mizoram - and the Lok Sabha polls next year make people think that the government will come up with a people-friendly budget and, therefore, make them demand more.

But the likely size of the Budget itself is not going to be big enough to meet the challenges.

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The trend in previous years and the current state of the economy make it easy to guess the most probable size of the Budget and its capacity to make allocations for different sectors.

The Budget’s size, which was about 18 per cent of the Gross Domestic Product (GDP), has been gradually declining from 2009-10: it reached 12.59 per cent in 2015-16; later, with some ups and downs, it peaked to 17.1 per cent in 2020-21, thanks to Covid-aided slow growth coupled with the high expenditure need of the government. Again, the share fell, it was 15.29 per cent in the current year’s budget, and the government is likely to go beyond that level now.

So, assuming the same level of 15.29 per cent of the GDP in 2023-24, too, the Budget size would be Rs 46.32 lakh crore. This guess is based on the most likely GDP estimate of Rs 303 lakh crore for the 2023-24 Budget year.

To be clear, the 2022-23 GDP estimate, as shown in the Budget document, was Rs 258 lakh crore. This sum is going to be revised in the Budget to Rs 273.08 lakh crore based on the NSO’s first advance estimate. Now, it is being heard that the government is going to estimate an 11 per cent nominal increase over this, which means the GDP figure to be the basis for Budget 2023-24 would be Rs 303 lakh crore.

Add to this, the government wants the fiscal deficit to be under control: it wants to peg it at 5.9 per cent of the GDP or so. That limit will be necessary now to achieve its goal of reaching its FRBM roadmap of 4.5 per cent in 2025-26. So, it has no choice but to be parsimonious in fixing the Budget size.

In absolute terms, the Budget of Rs 46.32 lakh crore will be Rs 6.87 lakh crore higher than the current year’s budget of 39.45 lakh crore, which means not a big increase after factoring in the current inflation.

Measly sum for crucial sectors

The government has some compulsory spending that it cannot reduce. The essential spending during the current year - which includes states’ share in taxes (17 per cent), pensions (4 per cent), interest payment (20 per cent), Finance Commission and other transfers (10 per cent), subsidies (8 per cent), and subsidies (8 per cent) - add up to 67 per cent of budget expenditure - that is Rs 31.03 lakh crore or 10.25 per cent
of the GDP.

What is remaining is only 33 per cent, meaning 15.29 per cent, which is 5.04 per cent of the GDP.

While the available balance itself is about 5 per cent of the GDP, there are demands like 6 per cent spending on education as recommended by the Kothari Commission long ago, 3 per cent on health (of course, this one by states and the Centre together) as per the Planning Commission or the Srinadha Reddy Commission recommendation and so on.

So, the government will not be able to spend on various sectors at desired levels. Also, it cannot spend enough on capital investment. So, it will depend on other schemes that it might introduce with an eye on the coming elections.

Yet, the government cannot ignore the middle classes totally because the ruling party has high hopes for support from this class. So, it looks like it may tinker with the income tax rates.

The peak in personal income tax may be brought down from the present 42.74 per cent since it is 25.20 per cent higher than that of the corporate tax. Also, the standard deduction may be increased from its 2019 set limit of Rs 50,000 to Rs 75,000 or Rs 1.0 lakh. There will be some concessions under Section 80 C, housing loan deduction and relief on the interest on these loans.

Although the government is likely to announce newer schemes for the benefit of the poor, the allocations may not be enough to give any tangible benefits to anybody, whereby they remain as token gestures. The economic policy the government is following, which restricts the government’s role in the economy, constrains it from increased spending.

Finally, the Budget will end up as everything to everybody but nothing enough for anybody.

(The author is a development economist and commentator on economic and social affairs)