- Prelims: Indian Economy(GDP, GVA, fiscal policy, budget, economic survey, budget, GST etc)
- Mains GS Paper III: Fiscal policy, Monetary policy, GDP, Issues related to planning etc.
ARTICLE HIGHLIGHTS
- Budget for 2023-24 has been presented.
INSIGHTS ON THE ISSUE
Context
Budget:
- The government’s blueprint on:
- expenditure
- taxes it plans to levy
- other transactions which affect the economy and lives of citizens.
- Article 112 of the Indian Constitution: Union Budget of a year is referred to as the Annual Financial Statement (AFS).
- The Budget Division of the Department of Economic Affairs in the Finance Ministry is the nodal body responsible for preparing the Budget.
- Components of the Budget:
- expenditure
- receipts
- deficit indicators.
- Depending on the manner in which they are defined, there can be many classifications and indicators of expenditure, receipts and deficits.
Key highlights of budget speech:
- India has successfully overcome the troubles that came with the COVID-19 pandemic.
- Ensuring the free food distribution scheme for 800 million people and other ongoing food security programmes.
- India has fully recovered from the output contraction after one year to emerge as one of the world’s fastest growing economies.
Reversal in aggregate parameters:
- Real average annual GDP growth rate in the 2010s, that is, net of inflation, had decelerated 5%-6% from 7%-8% in the previous decade, that is, the 2000s.
- GDP estimates: annual growth rate is perhaps lower at 4%-5% than official estimates.
- India has de-industrialised prematurely: with a steep fall in annual output growth rates, from 1(thirteen point one)% in 2015-16 to negative 2.4(two point four)% in 2019-20 even before the pandemic struck.
- Falling aggregate fixed investment rates and domestic savings rates by 4 percentage-5 percentage points of GDP, compared to that of the previous decade of the 2000s.
Role of infrastructure and public investment
- Investments crowd-in private investment.
- The Budget seeks to raise capital investment outlay to 3(three point three)%, the highest during the last three years.
- The Budget’s extension of the interest-free loans of a 50-year tenure to States for infrastructure investment.
- Capital expenditure on railways is proposed to be enhanced to ₹2.40(two point four zero)lakh crore(nine times what it was in 2013-14).
- Agriculture and industry: The government favored infrastructure investment over directly productive investment in agriculture and industry.
- Its share in gross fixed capital formation (GFCF) rate (that is, as a proportion of GDP) has
Issue:
- It is not clear on what specific sectors and schemes this is to be spent.
- Utilization of interest free loans has been mixed at best, as the conditions seem onerous on poorer States.
- Evidence shows that the share of infrastructure real GVA and GFCF has hardly improved over the decade of the 2010s(estimates by the Reserve Bank of India)
Challenges to India in following an independent path of national development:
- Premature deindustrialisation
- Growing dependence on Chinese imports
Steps taken by government:
- ‘Make in India’ (launched in 2014)
- Aatmanirbhar Bharat Abhiyan (launched in 2020)
- The “Production Linked Incentive (PLI) Scheme (launched in 2021).
Issues:
- Budget has hardly furthered these efforts, or had an assessment of how they have performed.
- Imports of the kits of mobile parts or (kits) have also gone up proportionately as domestic value addition is minimal.
- Backward integration to produce components and sub-assemblies has made little progress.
- Growing trade deficit with China: going up from $4(fifty seven point four)billion in 2018 to $64.5(sixty four point five)billion in 2021.
- The Budget has little to say about the growing threat of structural dependence on China.
Bank credit growth:
- The Budget mentions rising bank credit growth as a positive sign of investment revival.
Issue:
- The share of the credit accruing to industry has barely inched up, with most increase accruing to personal loans, which may add to luxury (imported) consumption, and not boost the economy’s productivity capacity.
Reason for private long-term investment lagging:
- Lack of access to long-term credit.
- In 2021 the government promoted The National Bank for Financing Infrastructure and Development (NBFID) with substantial equity investment.
- Unfortunately, the Development Financial Institutions seem to have made modest progress in boosting industrial and infrastructure investment.
Way Forward
- If the railway investment is on much-needed modernisation of rail tracks and rolling stock, it would enhance efficiency.
- However, if the spend is on station modernisation or other such ‘glamorous’ projects, it may add little to productivity.
- If the Budget is serious about boosting private investment it has to ensure better performance of the NBFID.
- However, the Budget has little to say about the much publicized initiative
- The Budget’s renewed commitment to investment-led growth is well taken. However, the investment magnitudes mentioned (without details) seem to come up short.
- The Budget seems to fail to grapple with the problem of:
- growth deceleration in the 2010s
- the unprecedented fall in investment
- savings rates
- premature deindustrialization since the mid-2010s.
- Without appreciating these longer-term constraints and finding their solutions, it is perhaps hard to make India Atma Nirbhar Bharat.
QUESTION FOR PRACTICE
Q. Is inclusive growth possible under market economy ? State the significance of financial inclusion in achieving economic growth in India.(UPSC 2022) (200 WORDS, 10 MARKS)
