India’s Union Budget - 2023-2024 – An Analysis

Table of Contents

Introduction

India’s Union Budget 2023-24 was presented by the Finance Minister Nirmala Sitharaman on 1st February, 2023. This article will analyse some of the main aspects of the Budget. For Flipbook View (click here: Union Budget)

Before delving into the analysis it is important to understand some important concepts of budget. The Budget documents shows both receipts and expenditure of the Government.

Other than these it shows Revenue Deficit (RD), Fiscal Deficit (FD), and Primary Deficit (PD). Here are the Definition of all the three deficits.  

  1. Revenue Deficit: Revenue Deficit means there is an excess of revenue expenditure over revenue receipts (i.e. Revenue Expenditure – Revenue Receipts)
  2. Fiscal Deficit: Fiscal Deficit means difference between total revenue and expenditure of the Government (i.e. Total Revenue – Total Expenditure = FD). When Total Expenditure of Government exceeds Total Revenue of Government then it is fiscal deficit. This does not include total borrowings. Rather, it is an indication of the total amount of borrowings needed by the government.
  • Primary Deficit: Primary deficit means Fiscal Deficit without Interest payments. (i.e. Fiscal Deficit – Interest Payments = PD)

Other than these three deficits it is pertinent to know the following concepts before we go for analyses of the budget, so that one can understand the article better and easily. They are

  1. Capital Expenditure:

An expenditure incurred for the creation of assets like roads, railway lines, airports, seaports, colleges, schools and hospitals is called Capital Expenditure. It also includes the acquisition of equipment and machinery by the government along with the investment made by the government that yields profits or dividend in future.

In simple, an expenditure which is incurred (or) occurred for the Development purpose is known as Capital expenditure. The sum of Capital Expenditure and Grants-in-Aid for Creation of Capital Asset is known as Effective Capital Expenditure.

  1. Interest Payments:

Interest payments are the payments on government borrowings to the creditors.

  1. Subsidies:

Subsidy is a benefit given by the government to an institution, individual or a business entity. It may in form direct benefit like money transfers or indirect benefit like tax cuts. By providing subsidies the price of subsidized product falls or comes down.

Amrit Kaal Budget

The Notion of Amrit Kaal was proposed in the last year Budget. This has evolved more into the full Amrit Kaal Budget at the present year budget. The vision of Amrit call are  i) Opportunities for Citizens with focus on the Youth ii) Growth and Job Creation and iii) Strong and Stable Macro-Economic Environment.

The four pillars of Amrit Kaal was articulated in the last year’s budget. Now, this has been evolved into seven pillars with introduction of three more pillars this year. This seven pillars is now known as Saptarishi Priorities.  

The seven pillars are beautifully depicted in the following diagram:

7 Priorities

Source: Key Features of Union Budget 2023-24.

Union Budget 2023-24 Highlights

A strong commitment to boost economic growth by investing in infrastructure development is one of the main motto of this Budget.

Total Receipts:

The Total Receipts for the year 2023-24 is budgeted with an increase of 14.15% (rounded) compared to Budget Estimates (BE) of 2022-23. The estimated amount for this fiscal year (i.e. BE 2023-24) is Rs. 45,03,097 crore.

The total receipts (excluding borrowings) for the year 2023-24 are expected to be to Rs 27,16,281 crore.  This is an increase of 18.94% compared to BE of 2022-23 and 16.48% compared to Revised Estimates (RE) of 2022-23

Total Expenditure:

The Total Expenditure for the year 2023-24 is budgeted with an increase of 14.15% (rounded) compared to Budget Estimates of 2022-23. The estimated amount for this fiscal year (i.e. BE 2023-24) is Rs. 45,03,097 crore. This is an increase of 7.54% compared to RE of 2022-23

Capital Expenditure (Capex) and Effective Capital Expenditure (Eff-Capex)

The total capital expenditure for 2023-24 is budgeted at Rs.10,00,961 crore. This is an increase of 33.42% compared to BE of 2022-23 and 37.44% compared to RE of 2022-23.  

The Effective Capital Expenditure is budget at Rs. 13,70,949 crore in BE 2023-24. This is an increase of 28.38% compared to BE of 2022-23 and 30.10% of RE 2022-23.

Revenue Deficit

For the Financial Year 2023-24, the Revenue deficit is targeted at 2.9% of GDP.

Fiscal Deficit

Fiscal Deficit is targeted at 5.9% of GDP for the Fiscal Year 2023-24.

Primary Deficit

Primary deficit is targeted at 2.3% of GDP for the Financial Year 2023-24.

QrAAAAAElFTkSuQmCCSource: Budget at a glance, 2023-24. Figure in parenthesis are as % to GDP.

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Source: Union Budget 2023-24 Infographics, PIB

Interest payments and Subsidy – A Small Analysis

The Interest payments and Subsidies together constitutes a major portion of the budget. Therefore, it is important to understand the Interest payment and Subsidies over the years, so that the allocation of budget resources can be made prudent.

The following table shows both Interest payments and Subsidies in India as a percentage of Actual Expenditure over the years.

Source:

  1. Trends in Expenditure (till 2014-15), Budget at a Glance, and Statement 7, Expenditure Budget, Union Budget Document;
  2. CSO-for GDP data from First Advance Estimates (FAE) of National Income at both Constant (2011-12) and Current Prices, for the financial year 2022-23. 
  3.  *: RE for Actuals interest payments and Subsidies for 2022-23.      

It is clearly visible form the above table that the Interest payment as a percentage of Actual Expenditure has decreased in 2019-20 and 2020-21. However, it has increased in 2021-22 and 2022-23 (though 2022-23 is a RE figure).

The Subsidies as a percentage of Actual Expenditure has increased in
2020-2021
. Though it has started declining from the 2021-22 and 2022-23 (though 2022-23 is a RE figure). 

It is also important to know Interest payments and Subsidies as a percentage of GDP, so that we may get clearer picture of how prudently we use our budget resources. The following table shows both Interest payments and Subsidies in India as a percentage of GDP.

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Source:

  1. i) Statement 7, Expenditure Budget, Union Budget Document
  2. ii) CSO-for GDP data from First Advance Estimates (FAE) of National Income at both Constant (2011-12) and Current Prices, for the financial year 2022-23.
  3. *: Third Revised Estimates;
  4.  #: Second Revised Estimates;
  5. @: First Advanced Estimates, Totals may not tally due to rounding off & RE for interest payments and Subsidies           

When it comes to percentage of GDP the Interest Payments is consistently above 3% of GDP for many years now. For the past three years Subsidies also staying above 3% of GDP.  

Conclusion

These are some important highlights and analysis of Union Budget 2023-24.  Many would have expected about tax discussion on this analysis – unfortunately they may not witness the same. This analysis and article is only on important economic indicators.

Interest Payments and Subsidy has to be kept low as we can see from the above analysis that interest payments are above 5% of GDP for third year (excluding the BE for 2023-24).

Capex for this year has increased drastically which is a good sign for the economy as a whole. This is also reflected in the increase in Effective Capex. Hopefully, it should crowd in private investments which is important for economic development.

One of the most worrying factor from an economist’s point of view would be Fiscal Prudence. Fiscal deficit is still comparatively high but, since the most of the investment are going for Capex this is acceptable, from an economist view.

Overall, this year budget is more on infrastructural development from economic indicators point of view.