A budget to balance the books

NEW DELHI: On Wednesday, Finance Minister Nirmala Sitharaman will table the Union budget as the government prepares for the general elections a year away. It will be interesting to see how Sitharaman manages to juggle the macro and microeconomic demands placed by the country. While attempts will be made to rein in the fiscal deficit to under 6 per cent, the Minister has a tall order on hand. The headroom to offer significant tax breaks to the salaried class is minimal and the efforts to push through any more divestments may not succeed. The unpopular idea of selling State-run companies may not be the bullet the government might like to bite at this stage. Analysts foresee that sops for individual taxpayers could include a tax break of up to Rs 1.5 lakh for investing in savings instruments like provident funds and senior citizens’ savings schemes. Perhaps the income tax exemption limit of Rs 2.5 lakh could be raised marginally. As many as nine States are bound for polls before the general elections in May 2024.

The BJP-led NDA government has projected itself as an advocate of self-reliance in India, when it comes to manufacturing. That it sees itself as an alternative to China was reflected in the PLI or Production Linked Incentive schemes rolled out in the last budget, where the emphasis was to produce goods indigenously. Indian manufacturers have done well to capitalise on the PLI benefits. So, in this budget, there is an expectation that the umbrella of sectors covered under PLI would be expanded. Emphasis on exports has been positive as electronics manufacturing is expected to contribute Rs 1.28 lakh crore to the GDP.

Mobile phone exports are also estimated to touch Rs 1 lakh crore in 2023-24. On the security front too, the preparedness to indigenously manufacture defence equipment has received impetus with encouraging allocations in the last budget. ‘Make in India,’ ‘Start-up India’ and other venture-friendly initiatives have contributed to an ecosystem that has spurred digitalisation and the growth of new-age companies.

IMF Deputy MD Gita Gopinath said at the recently-concluded World Economic Forum at Davos that India is in a relatively bright spot in the global economy. In the last two terms, the government has been successful in pushing through with the GST, disinvestment of Air India and the PLI scheme. But, it has also met with backlash owing to repealing the farm laws and the misfiring of Life Insurance Corporation listing on the bourses. Demonetisation remains a sore point as it crippled the crucial MSME sector, devastating the economy. Although the Centre has been projecting itself as a pro-reform regime, the average voter might not be swayed by macroeconomic indices. Therefore, the fiscal consolidation journey will need a Herculean effort over the next few years, opine economists, who believe cutting budget deficits is imperative to control inflation.

The government has already stopped the pandemic-era free food programme and is expected to cut subsidies for food and fertiliser by nearly $17 billion. As current expenditure falls, capital expenditure will probably grow but at the slowest rate seen in three years. Can the Budget shore up public and market sentiments with a potentially populist please-all budget? Will the economic exercise win plaudits adequate to ensure a record third term for PM Modi? Things will get clear as Sitharaman sets the stage for unveiling yet another Bahi Khata on Wednesday.