The Budget is a political statement and a blueprint of the government’s economic strategy. However, essentially, it is the government’s ex-ante balance sheet for the year ahead where its receipts and spending must balance to maintain the deficit levels on an ex-post basis. What are the basic pillars of the budgetary arithmetic for the 2023-24 Budget? Here are three things that matter the most for the 2023-24 Budget.
Nominal GDP growth
The budget has assumed a 10.5% nominal GDP growth for 2023-24. This is 50 basis point lower than the 11% figure given in the economic survey, which projected real growth to be in the range of 6% to 6.8% with a baseline value of 6.5%. IMF and World Bank projections for India’s GDP growth in 2023-24 are 6.1% and 6.6% respectively. The common thread in all GDP projections – the Budget’s is perhaps the most conservative of them – is that real growth will slow marginally and a significant moderation in inflation will pull down nominal growth significantly.
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The difference between nominal and real growth in 2022-23 is expected to be 8.4 percentage points as per the first advanced estimates released by the National Statistical Office (NSO). This will likely halve in 2023-24. To be sure, unless real growth ends up being significantly lower than existing forecasts due to unforeseen shocks, the budget is very unlikely to err on the wrong side on its nominal growth projection. A higher nominal growth, as has been the case this year, will only ease the budgetary constraint by potentially bringing higher revenues.
{{/usCountry}}The difference between nominal and real growth in 2022-23 is expected to be 8.4 percentage points as per the first advanced estimates released by the National Statistical Office (NSO). This will likely halve in 2023-24. To be sure, unless real growth ends up being significantly lower than existing forecasts due to unforeseen shocks, the budget is very unlikely to err on the wrong side on its nominal growth projection. A higher nominal growth, as has been the case this year, will only ease the budgetary constraint by potentially bringing higher revenues.
{{/usCountry}}Subsidies
₹1.47 lakh crore is what the government is hoping to save in subsidy spending in 2023-24 compared to 2022-23. To put this amount in perspective, it is more than half of the expected increase in gross tax revenue collection (GTR). GTR is expected to increase from a Revised Estimate (RE) value of ₹30.43 lakh crore in 2022-23 to Budget Estimate (BE) value of ₹33.6 lakh crore in 2023-24. It is more than clear that the relief on subsidy burden has played an important role in the government’s budgetary calculations.
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What is important to note is the fact that the RE number ( ₹5.2 lakh crore) for government’s subsidy spending in 2022-23 has ended up being significantly higher than the BE figure which was ₹3.2 lakh crore. While almost half of the reduction in subsidy spending is due to of rationalisation of the food subsidy, the government is also expecting a relief in the fertiliser subsidy burden. Given the fact that both food security and affordable fertilizer prices are critical for the Indian economy, any reversal on these two fronts – it will take a crop failure or sharp hike in petroleum driven fertilizer prices to cause one – can upset the budgetary math. It is important to note that if subsidy spending has to increase significantly, the chances of a significantly higher nominal GDP growth bailing out the budget’s underlying math is lower in 2023-24.
Tax buoyancy
With nominal growth expected to fall significantly -- the budget assumes a five percentage point fall – it was almost a given that GTR growth will come down. However, a comparison of RE and BE numbers for 2022-23 and 2023-24 GTR numbers shows that the slowdown in tax collections is of a smaller magnitude than nominal growth. GTR growth, which was 12.3% in 2022-23 has been pegged at 10.4% in 2023-24. The 2023-24 Budget has been able to achieve this by assuming a higher tax buoyancy – it measures change in tax revenue per unit change in GDP – than in 2022-23. Overall tax buoyancy number is expected to increase from 0.8 in 2022-23 to 0.99, which suggests that tax revenues will increase proportionately to GDP growth. An increase in tax buoyancy, despite the government announcing relief under the new income tax regime in the budget suggests that it is hoping to increase tax buoyancy in indirect taxes, most of which will have to be driven by Goods and Services Tax (GST). This could be a result of the government’s confidence that its efforts to improve compliance in the GST system have brought in long-term gains.