The Union Budget of 2023-24 has sufficiently shown that the Government is now in election mode. Obviously, this is the last full budget of this government before the general elections of 2024. As per convention, there will be a vote on account next year, where there is no scope to go for implementation of any new schemes.

The finance minister has listed about 185 schemes of which six are “core of the core” schemes; 32 are core schemes and the remaining 147 are major central sector schemes. In the first category, there has been a drastic cut of funds to the tune of 33 per cent in respect of the MGNREGA programme from the current year’s revised estimate of Rs 89,000 crore to Rs 60,000 crore for 2023-24. Another notable reduction has been made in respect of the Umbrella Programme for the development of minorities where the current year’s BE of Rs 1,800 crore has been revised downward to Rs 530 crore and a fresh allocation of Rs 610 crore has been made for 2023-24.

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There are also few continuing schemes targeted at the poor which have been reduced drastically e.g., fertiliser subsidy has been reduced from Rs 2.35 lakh crore to Rs 1.75 lakh crore, food subsidy from Rs 2.87 lakh crore to Rs 1.97 lakh crore, PM Health safety scheme from Rs 8,270 lakh to Rs 3,365 lakh, and Atmanirbhar Bharat Rojgar Yojana from Rs 5758 crore to Rs 2273 crore etc. Fund constraints undoubtedly have hit these allocations and in future unless the receipts position improves substantially, this shortage may also lead to non-implementation of even some new schemes.

A look at the estimated receipt and expenditure position of Budget 2023-24 would make it clear that the Government is consciously ignoring the fiscal consolidation measures enunciated in the last year’s budget. The recessions caused as a fallout of lockdowns during 2020-22 and the subsequent inflationary disruptions of the macro-economic variables have now become a forgotten chapter for the Government. The finance minister during her budget speech talked only once about the fiscal consolidation programmes referring to her budget speech of the year 2022-23.

As per the budget estimates, Rs 27.20 lakh crore are proposed to be collected from various tax sources of central Government as against the estimated expenditure for the year of Rs 45.03 lakh crore thereby leaving a huge gap of Rs 18 lakh crore as a deficit. The FM proposes to collect this deficit amount through borrowings, much of which will come from market borrowing. (69 per cent). This would inevitably lead to huge fiscal deficits of 5.9 per cent of GDP in excess of the ceiling limits (i.e., 3.5 per cent of GDP) as fixed by the Fiscal Responsibility and Budget Management Act.

One notable feature of Budget 2023-24 is the allocation of enhanced outlay for capital expenditure. Capital expenditure (CAPEX) is looked upon as a long-term growth engine contributing greatly towards investment in infrastructure and creation of employment in an economy. In her printed budget speech, the FM has added a full-page note describing the government’s success story of increasing capital expenditure in the last two years. Budget 2023-24 has allocated an enhanced capital outlay of Rs 10 lakh crore, a 33 per cent jump from the budget estimate (RE) of Rs 7.2 lakh crore in 2022-23. This would undoubtedly be a quantum jump if even 75 per cent of this allocation is spent.

Our common experience shows that every year government budgets provide more amounts for capital expenditure enthusiastically, but at the fag end of the year it is either not spent or revised downward. In fact, outlay from capital fund is the most reluctantly and slowly spent fund. In the current year itself (2022-23), the total budgetary provision on the capital account of Rs 7.50 lakh crore has already been revised downward to Rs 7.28 lakh crore. The actual expenditure figure when received, will be much lower than this. This is the normal scenario in the case of Government spending from capital outlay.

If we look at the percentage share of capital expenditure to total expenditure, the data reveals that the proportion of capital expenditure to total expenditure in actuality revolved around 12 to 15 per cent from 2015-16 to 2020-21. In the year 2021-22, the government gave incentives to the States for expanding their infrastructure expenditure from the budgetary fixation of Rs 10,000 crore which was later revised upward to Rs 15,000 crore. Marginal improvement could be noticed as a result of this additional incentive, with an increase in share of capital expenditure to total expenditure from 14.4 percent in 2020-21 to 15.62 percent in 2021-22.

This was encouraging for the Government and assuming that the same normal conditions would also prevail throughout the year 2023-24, Government is expecting a multiplier effect of the proposed increase in capital expenditure. In India, the effect of the capital expenditure multiplier is calculated at 2.4. In simple parlance, if one dose of capital expenditure is increased, it keeps the capacity to transform the economic activities 2.4 times.

Enhancement in economic activities always generates income which finally adds up to GDP. This is for the short term only; as per the calculation made by the National Institute of Public Finance and Policy (NIPFP) for seven years from 2013, the multiplier effect for the whole seven years together comes to 4.5. This indeed is more theoretical than practical because government spending on capital is always budget-dependent while the budget is dependent on the receipts side. Natural calamities, monsoon failures, other disasters, war, etc. always are there to play their roles. Moreover, not all government spending on capital is employment generating and last but not the least, unless the government invested funds from capital outlay fail to attract private investment in the capital account, the whole premise of multiplier effect will fall apart. So smooth sailing is not easy. The abovementioned factors are to be neutralised to achieve expected growth.

It appears that the government has already decided to take the challenge and therefore came up with the proposal of borrowing as much as 40 per cent of the total amount to meet the expenditure requirement for 2023- 24.

The result of this borrowing would be expansion of fiscal deficits further from 5.9 per cent. Because with every increase in capital expenditure, there is a corresponding increase in revenue expenditure. Considering this, allocation on revenue account could have been enhanced further. But the Government did not do so. The amount allocated for revenue expenditure, Rs 35.02 lakh crore is only 1.2 percent more than the current year’s revised allocation of Rs 34.59 lakh crore. This being the penultimate year of general elections and the last budget of the present Government, revenue expenditure is bound to increase. So, the government will be pushed to the wall and will have no alternative but to borrow further.

(The writer is a former IAS officer and retired as Secretary, Finance, Government of Assam.)