Budget 2023-24 strikes a fine balance between growth and inflation, economic affairs secretary Ajay Seth said in an interview with Rajeev Jayaswal. Leading the key arm of the finance ministry, Seth was closely involved in the preparation of the budget and its presentation in Parliament. He expressed confidence in India’s robust economic fundamentals compared to other major global economies. Edited excerpts:
The Union budget assumed a 10.5% nominal growth rate for 2023-24. A day ago, the Economic Survey gave a range for real GDP forecast between 6% to 6.8% with a baseline growth of 6.5%. What is your assessment? Which direction will it move?
I’ll try to answer it in two parts. One, in my professional judgement, most likely the baseline scenario of 6.5% with an upside potential is the right estimation. But, as far as budget-making is concerned, that’s the second part of my answer, it doesn’t have to presume a real growth rate, it has to assume a nominal growth, and that assumption was 10.5%. It is a conservative estimate with an upside potential.
What about external, unknown geopolitical developments such as disruptions in the past due to the pandemic and the Ukraine war?
Can we control those factors? If we can’t, then are we building ourselves more for what if scenarios? To begin with, how much wide and deep global slowdown would be there? There are different estimates. (According to the World Bank, the global economy is projected to grow by 1.7% in 2023 and 2.7% in 2024.) But that’s a broad number. What will happen to individual economy, we don’t know at this point in time. And that has implications for us on exports.
Second, inflation in most advanced economies seems to be moderating and we have seen the US Federal Reserve going for a smaller increase in their policy rate than what they were doing in the past. That is again not something which the government of India can influence in any manner.
Third, of course, is the geopolitical event. The war going on in Europe, which direction it will go, what impact it will have on oil and gas, you don’t know. This budget tries to factor in and that’s how the target for fiscal consolidation has been chosen, so that there are enough resources available to put through the capital expenditure route.
It seems the government has kept a good cushion amid robust direct and indirect tax collections. Do you think that actual revenue growth in 2023-24 would be more than projected at 10.5%?
There is an upside potential. But we are conservative in estimation, as far as revenues are concerned, and realistic on our expenditure estimation.
What are the main thoughts behind this budget, especially in context of the economy?
I’d say that there were four broader thoughts. One, growth impulse into the economy for simple reason that we need to grow fast to make up for what we lost during the pandemic years. Second, while doing so, we should not do in a manner which would compromise the overall macroeconomic stability, especially in the context of uncertainty prevailing in the global arena. The third element was that while we go through the first two tasks, the sections of the society or the components of the economy, which required government support, should continue to get it. But we need more direct and more effective ways for that. And the fourth element was on the taxation side, that nudged people to areas where it is simpler, easy to administer, lesser exemptions, lower rate and better compliance.
What makes you confident that this budget will spur growth?
Like in Hindi, it is said: Koe shak (any doubt)?
The budget has offered many incentives to individuals to opt for the new tax regime. Don’t you think that this would affect compulsory savings through tax-saving instruments such as Public Provident Fund and National Savings Certificates?
First of all, we should be clear; are we moving in the direction of our long-term goals? What are our goals for 2047? And, are we taking definite actions in that direction? The idea being that, decisions by individual for any savings, or for any investment, including investment in physical assets, should be based on the merits of those (instruments), rather than what the government does about those instruments. But of course, that transition can’t happen overnight.
As far as immediate task is concerned, you will notice that from January 1, the government had increased interest rates on small savings that do not have tax concessions. Further, the government has announced a new scheme at a higher interest rate, Mahila Samman Bachat Patra, which is at 7.5% plus has increased the maximum limit for deposits into the schemes which otherwise have a higher interest rates.
So, these are the short-term measures. But, in the long-term, let people decide on the merits of the savings instruments or investment opportunities without government concessions.
