Budget 2023-24: Setting the tone for the next 25 years of sustained growth

Budget 2023-24 will mark the tenth budget of the NDA government and has the opportunity to set the tone for the next 25 years of sustained growth in the run-up to the century of Indian Independence. Crucial points include settling long-standing taxation issues, ensuring full coverage of all social schemes and completion of existing projects, and strategic investment in atma nirbharta, job creation, urban development and indigenous innovation.

India is today the fifth largest economy globally and third in purchasing power parity. The economy has recovered strongly from the effects of the pandemic. Budget 2021-22 estimates a nominal GDP of INR 276 lakh crore in FY23. The economy could grow by 6-7% in real terms and 11-12% in nominal terms in FY24 – translating to around INR 32 lakh crore in added GDP, a significant amount.

Tax revenues are doing exceptionally well and may exceed budget estimates (BE) to reach INR 32-33 lakh crore in FY23. Tax buoyancy occurred in FY22 as well when revenues exceeded BE by INR 5 lakh crore. Continued tax buoyancy in FY 24 could increase revenues to INR 37-38 lakh crore. Capital expenditure (CapEx) of INR 7.5 lakh crore is expected to be reached at the end of FY23. A targeted CapEx of INR 10 lakh crore in FY24 will build on the momentum for further growth in the country. Consistent CapEx growth will improve the country’s productive capacity and provide large-scale employment.

The government must seize the opportunity to resolve long-standing taxation issues in Budget 2023-24. IT rates have remained almost the same despite high inflation for a continued period. The current structure is rife with deductions for housing, savings, interest, etc., aimed at individuals aged 25-55 who are building houses and saving for the future. This structure is of little use for people aged above 55 and retirees. Now, expectations are high that the government will streamline the tax slabs with something like – no tax on income up to INR 5 lakhs; 10% tax for the INR 5-10 lakhs bracket; 20% for INR 10-20 lakhs; 30% for above INR 20 lakhs; and a nominal surcharge of 12% above that. The rearrangement will simplify the tax structure and do away with all exemptions except 80G for donations and 80D for health insurance. This can be an alternative, and the government can evaluate the new structure’s utility by comparing its adoption rate with the existing structure’s retention rate.

Reducing the corporate tax (CT) rate to 25% (15% for new manufacturing)  was a boon for the industry, made the Indian industry globally competitive, and increased gross CT collections. The government must undertake similar moves to improve India’s Ease of Doing Business (EoDB). Suggestions include abolishing the buyback tax and resolving the multiple issues raised over GST. The specific tax issues faced by startups must be resolved, including ESOPs and GST. Capital gains taxes on comparable assets must be on par; for example, on listed and unlisted securities, and on tangible assets like gold, land, and buildings.

FY24 must be treated as a tax litigation settlement year, as tax litigation has become a significant problem. Budget documents show INR 12 lakh crore worth of tax disputes are pending, compared to INR 4.5 lakh crore in 2014. Every effort must be made to deal with this speedily and tackle the fundamental causes of this problem. The Supreme Court has constituted two benches to hear tax cases, a welcome development. The Department must take full advantage of this and ensure tax litigation and disputes are reduced to the maximum extent over the FY.

Tackling tax terrorism is one of the NDA government’s few unresolved significant promises. The trend of tax officials making high tax assessments which are then reduced or overturned in tribunals or courts is worrisome and stems from a long-standing system of assigning annual tax collection targets. Though the extent of tax terrorism has reduced, it remains a significant issue, resulting in a waste of taxpayer money and time, as well as the courts’ time, and impairs India’s EoDB.

Budget 2023-24 must also set the tone for continued atma nirbharta. The various PLI schemes and indigenous defence manufacturing plans must be fully funded. Plans to deepen indigenous R&D efforts must be kickstarted, like funding the National Research Foundation (NRF) with the first tranche of INR 10,000 crore as part of the new National Education Policy 2020. Funding indigenous innovation is key to India’s technological and socio-economic leadership, and the NRF will be crucial in supporting this in the nation’s academic and research laboratories.

The budget must also recognize that sustained economic growth comes from urban India and allocate funding accordingly to increase urbanization and improve urban mobility, productivity and quality of life. A budget of at least INR 1 lakh crore to fully fund the Metro in all cities, procure 30,000 electric buses and fund urban development across 1,000 census towns all over the country will provide a stable foundation and create an economic growth engine beyond just the ten major cities.

Budget 2023-24 must also focus on large-scale job creation. A scheme that creates Special Employment Zones (SEZs) in 300 disadvantaged districts and 1,000 tier 2/3/4 towns, particularly in labour-surplus regions, is the need of the hour. The Budget can support the scheme by providing a tax deduction to entities registering in these SEZs, covering 130% of salaries and wages paid for employees residing in those towns and districts for ten years. These salaries and wages can be verified by payment towards EPF and ESI, as applicable. The Kaushal scheme can be incorporated here as well as for skills development. This will promote massive job creation in the smaller towns of India and enable backward districts to grow faster than their states.

Budget 2023-24 comes at the tail end of a successful decade of governance. The NDA government has architected the most prominent step function in development seen in Independent India and demonstrated outstanding leadership during a global pandemic. By focusing on job creation, sustainable urban development, innovation and indigenous manufacturing, and instituting citizen-friendly taxation structures, this Budget will create a comprehensive roadmap for India for the coming decades. It will also set the tone for the 2024 Lok Sabha elections to be contested on the pillars of growth and development by reminding the citizenry that the NDA government is continuing the march along the lines of Sabka Saath Sabka Vikas Sabka Vishwas.

Originally published in Times of India