Capex bet and a welfare miss: Story of Budget in nine charts



In 2023-24, which is likely to see a global growth slowdown, the Centre has budgeted a record capital expenditure of 10 trillion, up nearly 37% from the revised estimate of the ongoing year. Capex will thus make up 22% of the total spending, the highest share in nearly two decades. Revenue spending will rise just 1%.

Chart 1

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Chart 1

A breakdown of capex numbers shows that the Centre plans to do the heavy-lifting in the big impetus. In 2022-23, the 1.5-trillion increase in capex was heavily reliant on a component that would go to states. But this time, the Centre’s own share in capex is set to rise to 8.6 trillion, from 6.4 trillion, and this increase constitutes 80% of the total capex jump. The high capex is expected to aid economic growth through a multiplier effect.

Meanwhile, changes in the tax structure will provide relief to the public, meeting the long-pending expectations of the middle class. The government is hoping to generate more revenues from goods and services tax (GST) collections, with its growth pegged at 12%. If that happens, GST collections would outpace the nominal GDP in 2023-24. Corporate and income tax collections are pegged to grow 10.5%, same as the GDP.

Chart 2

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Chart 2

With this, GST is once again expected to be the highest tax revenue source, at 3.2% of GDP, and corporate tax, which was once the leader, slightly lower at 3.1%. Many experts have criticized the heavy reliance on GST as it puts undue burden on the poor, while lower corporate taxes have failed to revive private investments. The key question will be whether the tax relief is able to offset the impact that the 35,000 crore foregone revenue will have on consumption.

Sticking to the fiscal consolidation path, the finance minister set the fiscal deficit target at 5.9% of GDP for 2023-24 (see chart 3) and reiterated the goal to bring it down to 4.5% of GDP by 2025-26. The government has set the ambitious fiscal deficit aim by reprioritizing spending from revenue to capital, which experts say is a better spending mix to support growth.


Will the generous capex be socially inclusive enough? Lacklustre allocations, or even cuts, for some key welfare schemes and sectors could be a major miss. In 2022-23, the government was conservative in its budget revenue expenditure target but is now set to overshoot it by 8.3% mainly due to the growing needs of the slow-recovering rural economy. But in 2023-24, any much-needed boost was absent.

The overall allocation for rural development is set to decline 2.1% from the revised estimates of 2022-23 to 2.4 trillion. (It has, however, seen an increase of nearly 16% over the last budgeted numbers.) Outlays on the crucial rural jobs scheme, the Mahatma Gandhi National Rural Employment Guarantee Scheme, were at a six-year low, sharply down by nearly a third, or by 30,000 crore, compared to the revised estimates for 2022-23. The National Social Assistance Programme, also a centrally sponsored scheme, remains unchanged in allocation.

The budget spending on sectors primarily benefiting weaker sections saw a marginally slower hike—6.4% as compared to 6.9% in 2022-23. Agriculture and related sectors lost focus, with the outlay down from 1.5 trillion to 1.4 trillion.

Meanwhile, following an increased outflow on account of higher payments towards fertilizer and food subsidies compared to the initial budget, a substantial cut in the subsidy bill also provides the leeway for capex investments. Altogether, the burden on major subsidies eased by 28% from the revised estimates of 2022-23 to 3.7 trillion. Hence, the share of the Centre’s subsidy bill in the revenue expenditure for 2023-24 has dropped to a four-year low of 11.5%. The budget was a disappointment for women as the share of the gender budget declined to 5% from 5.2% in the revised estimates of 2022-23.

Overall, the Centre appears to have shunned populism while maintaining a conservative approach. “The boost to capex has come partially at the cost of rural and welfare spending,” said Ranjani Sinha, chief economist at CareEdge. “However, capex has been found to have a strong multiplier effect on growth through jobs generation and indirect demand boost.”

Other Matters

Finally, moving beyond the headline figures, it’s the sharing of revenue that has often been a point of contention between the Centre and the states. While the tension may not be as palpable as it was two years ago when the pandemic hit states’ earnings, the declining share of states in the Centre’s gross tax collections could reignite the debate. The share of states is budgeted at 30.4% of the Centre’s gross tax collections, the lowest in three years, and substantially lower than the 35-37% between 2015-16 and 2018-19.

This may not sit well with some states, especially those with Opposition-led governments, which have been demanding a continuation of the GST compensation guarantee for two more years. (The compensation, in lieu of the losses the states expected due to the imposition of the new regime in 2017, came to an end last year.)

Giving disinvestment targets a miss again, despite the public listing of Life Insurance Corp. of India in May, the government’s stake sale plans have been revised downwards to 60,000 crore in 2022-23 from 65,000 crore pegged earlier. The budgeted target for next year is 61,000 crore, which is 6% lower than the last budget estimates. Despite the lower expectation, this would still require some large disinvestments for the government to be able to meet the goal.

Lastly, a bit about the list of items where the Centre expects to have overshot its budget in the ongoing year. (The year is expected to end with a total expenditure of 41.9 trillion, compared with a budgeted 39.4 trillion.) The Centre saw the maximum pressure from fertilizer subsidies as the Russia-Ukraine war pushed up prices. The continuation of the free foodgrain programme also led to higher food subsidy costs than budgeted.


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Apart from subsidies, the government has also seen an overspend owing to a one-time grant to oil marketers towards meeting under-recoveries in domestic LPG. Despite the additional spending, the Centre still expects to meet its fiscal deficit target of 6.4% of GDP, thanks to higher-than-expected tax collections as well as higher-than-expected GDP. All in all, resisting the populist temptations, the budget prudently appears to be a determined push for growth.

[Story and data by Niti Kiran, Pragya Srivastava, Manjul Paul, Nandita Venkatesan and Shuja Asrar; Graphics by Paras Jain.]

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