The recent Union Budget 2023-2024 has reaffirmed the government’s commitment to the path of fiscal consolidation. As per the budget, the fiscal deficit target is expected to decrease from 6.4% of GDP in 2022-23 to 5.9% in 2023-24 and then to less than 4.5% by 2025-26. The budget projections appear more reasonable than last year, despite concerns over the macroeconomic environment.
Tax Collections and Disinvestment Target in the Union Budget 2023-2024
With respect to tax collections, the budget has estimated that the Centre’s gross tax collections will grow at 10.4%. Both direct and indirect tax collections expected to grow at a similar pace. This growth aligns with the expected nominal GDP growth of 10.5%. Therefore, the government’s fiscal policy strategy states that the tax-to-GDP ratio will remain at 11.1% in 2023-24.
However, the continuous lowering of the government’s disinvestment target is a cause for concern. In 2021-22, the budget aimed for disinvestment proceeds of Rs 1.75 lakh crore, but actual proceeds were only Rs 13,627 crore. Rs 65,000 crore was the reduced target in 2022-23. But, as of yet, collections are only at Rs 31,106 crore. For 2023-24, the budget has lowered the target further to Rs 51,000 crore, leading to scepticism over whether this target will be met.
On the expenditure side, the budget projects a 7.5% increase in central government spending in 2023-24. It is lower than the expected economic growth. As a result, total expenditure will fall from 15.3% of GDP in 2022-23 to 14.9% in 2023-24. However, the government has favored capital spending and plans to increase the Centre’s capital expenditure from 2.67% of GDP in 2022-23 to 3.3% in 2023-24. Despite the limited growth in revenue expenditure, the share of borrowing used to finance capital spending has increased significantly.
Despite this being a positive development, the government has chosen not to provide a medium-term fiscal roadmap, stating that “medium term projections amidst unprecedented global turbulence and headwinds may not be reliable.” The lack of a detailed roadmap for 2024-25 and 2025-26 is unfortunate. It would have helped align short-term measures with the goal of achieving medium-term targets.
Expenditure and Capital Spending
The budget has projected a 7.5% increase in central government spending in 2023-24, which is lower than the expected economic growth. The percentage of GDP spent on total expenditure is expected to decrease from 15.3% in 2022-23 to 14.9% in 2023-24 as a result.
The government has shifted towards capital spending. The Centre’s capex slated to increase from 2.67% of GDP in 2022-23 to 3.3% in 2023-24. The growth in revenue expenditure has been curtailed, projected to grow by only 1.2% in 2023-24. As a result, the share of borrowing used for financing capital spending has risen significantly, which is a positive development.
However, the government has failed to provide a medium-term fiscal roadmap, citing “unreliable” global turbulence and headwinds. The absence of a detailed roadmap to align short-term measures with medium-term targets is unfortunate.
The Union Budget 2023-2024 reaffirms the government’s commitment to fiscal consolidation. But the continued reduction in disinvestment targets and the lack of a medium-term fiscal roadmap are areas of concern.
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