The Union Budget for the 2023-24 financial year will be presented by the Finance Minister, Nirmala Sitharaman, on February 1, 2023. As it is the final full budget before the 2024 Lok Sabha elections, much speculation has arisen regarding its potential contents. However, it must be noted that the budget will be tabled in the context of global economic slowdown and significant geopolitical uncertainty.

Here are the four things you can look for in the budget.

Infrastructure and capital expenditure

It is anticipated that the Finance Minister will maintain a strong focus on substantial public investment in infrastructure. The government, under the leadership of Prime Minister Narendra Modi, believes that investing in capital expenditures with high multipliers is crucial for maintaining India’s growth, increasing job opportunities, and stimulating consumption.

It is expected that the central government’s capital expenditure (capex) outlay for FY24 will see a significant increase, though not as much as the previous two fiscal years (FY23 and FY22). Policymakers believe that private sector investment is recovering after being impacted by the COVID-19 pandemic. The estimated capex budget for the central government could surpass 9 trillion rupees compared to the current year’s budget of 7.5 trillion rupees. The central government will also persist in providing long-term, interest-free loans to states for their capex needs.

In alignment with the focus on Prime Minister Gati Shakti-National Master Plan, the government will prioritize and expedite a maximum of 18 crucial road infrastructure projects during the 2023-24 financial year. Additionally, as part of the PM Gati Shakti initiative, announcements regarding multi-modal logistics, ports, and railways are expected.

Tax collection

Regarding revenue, the government is likely to maintain modest expectations for growth in direct taxes for FY24, following strong tax receipts in the previous two fiscal years (FY23 and FY22). This is mainly due to the high base effect and the impact of recessions in developed economies on India’s a trade and tax collections. The government predicts that direct taxes for FY23 will be revised upward, as they are expected to significantly surpass the estimated budget by at least 1 to 1.5 trillion rupees.

According to sources, the budget estimate for FY24 projects a growth of 12-14% in direct taxes, compared to the FY23 budget estimate of 14.2 trillion rupees.

Policymakers may revise the alternative personal income tax system, which was introduced two years ago, to make it more appealing. Currently, taxpayers are exempt from paying income tax if their taxable income is less than 2.5 lakh rupees. Raising the threshold would reduce the tax liability for taxpayers, allowing them to retain more funds for investment.

Presently, a limited number of taxpayers have chosen the alternative tax system, as a majority of them find the previous personal income tax system to be more beneficial, due to their ability to take advantage of deductions under Sections 80C and 80D. The Budget is expected to announce a hike in customs duty for around 40 items, including luxury items such as private jets, high-end electronics, and jewelry.

Social structure 

In the education sector, while there may be an increase in funding, it is unlikely that new initiatives will be introduced. The most significant announcement in the 2022 budget was the establishment of digital universities, and the central government’s focus continues to be the implementation of the National Education Policy with the participation of the states.

In the health industry, the stakeholders are advocating for additional tax simplification for diagnostics, standardization of certain medical procedures, and increased funding for mental health initiatives. In the social sector, there may be a stronger effort to ensure last-mile water connectivity through the Nal se Jal program.

A review of prior budgets reveals some intriguing patterns. One might expect that the Covid-19 pandemic would result in a substantial increase in funding for the health and social welfare sectors. However, this has not been the case.

Fiscal Consolidation

It is expected that the Ministry of Finance will adhere to its plan for fiscal consolidation and aim for a fiscal deficit target of 5.5-6% of the nominal GDP in the 2023 Union Budget for fiscal year 24. The objective of the fiscal consolidation roadmap is to attain a fiscal deficit goal of 4.5% of GDP by the fiscal year 2025-26.

A high-ranking government official stated that despite having an internal fiscal consolidation plan, there may be deviations due to external factors such as a potential recession in developed economies, conflict in Europe, and ongoing inflationary pressures. These factors could affect the government’s revenue and spending in fiscal year 24. It is important to note that fiscal deficit refers to a situation when a government’s expenses exceed its revenues.

Despite the expected robustness of the Indian economy, officials predict continued strong direct tax collections in the fiscal year 24. However, global challenges persist. The International Monetary Fund’s latest World Economic Outlook suggests that a significant portion of the global economy, including many of India’s main trading partners in the West, will enter a recession in 2023.

According to authorities, the slowdown could impact the manufacturing and allied industries, therefore it is crucial for policymakers to stay alert. As for the budget, those in charge are preparing for another year of substantial expenses for prominent welfare and subsidy programs. It is believed that the effort to cut back on non-essential spending will result in greater savings in the upcoming year.