Budget 2023-24: How FM Sitharaman Checks Fiscal Deficit, Addresses Key Blocs In Run-Up To 2024 Polls

Union Finance Minister Nirmala Sitharaman presented her fifth Budget on Wednesday that sought to balance between fiscal responsibility with political imperatives. 

The year 2023 has eight assembly elections, including in the battleground states of Rajasthan, Chhattisgarh, and Karnataka. These elections will set the tone for the 2024 general elections in which Prime Minister Narendra Modi is set to seek reelection for the second time. 

Therefore, Sitharaman risked sliding into populism with the Budget 2023-24 but she checked the fiscal deficit. At the same time, she also appears to have targeted key electoral blocs. 

Here we explain how Sitharaman sought to balance fiscal responsibility with political compulsions in a crucial political year.

Budget 2023-24 checks fiscal deficit

Union Finance Minister Nirmala Sitharaman has set the fiscal deficit target of 5.9 per cent of GDP for the financial year (FY) 2023-24. 

The fiscal deficit refers to the situation where the government spends more than it earns. As the Budget is basically a statement of the government's income and spending, the fiscal deficit means how much it intends to spend in excess of its earnings. The deficit amount is seen in relation to the GDP.

The fiscal deficit for the current FY 2022-23 is set to close around the expected figure of 6.4 per cent. 

Following the Covid-19 pandemic's outbreak in 2020, the fiscal deficit reached the all-time high of 9.2 per cent of the GDP for FY 2020-21 because of rise in government spending and steep fall in revenue because of Covid-induced economic shut-downs.

However, the fiscal deficit came down to 6.7 per cent in FY 2021-22.

In the Budget 2023-24, Sitharaman said the Union government intends to bring the fiscal deficit down to 4.5 per cent by 2025-26.

While checking the fiscal deficit, Sitharaman has made significant announcements that also carry a political stamp. 

However, experts have highlighted that the tight fiscal deficit figure is not without cuts. Journalist Nitin Sethi highlighted that Sitharaman has cut some welfare spending in the Budget 2023-24.

Sethi tweeted, "In real terms, serious cuts or stagnation in funding for social welfare and food + fertiliser subsidies that go to the poor. Even on nominal terms in several cases.  Thats how the capex is being funded in a tight budget and higher fiscal deficit."

Welfare measures, relief for key blocs

Union Finance Minister Nirmala Sitharaman also addressed some of the core constituencies of the Bharatiya Janata Party (BJP), such as tribals, women, and the middle class. 

The BJP in recent times has pushed its engagement in the tribal regions. The BJP and the Hindu Right see the tribal communities as part of the Hindu fold and while the Budget does not mention this ideological agenda, the push for scheduled tribes in the Budget 2023-24 can be seen in this context. 

Rs 15,000 crore for tribal welfare

Sitharaman dedicated Rs 15,000 crore in Budget 2023-24 for "particularly vulnerable tribal groups (PVTGs)" and announced a separate initiative for it. 

She said, "To improve socio-economic conditions of the particularly vulnerable tribal groups (PVTGs), Pradhan Mantri PVTG Development Mission will be launched. This will saturate PVTG families and habitations with basic facilities such as safe housing, clean drinking water and sanitation, improved access to education, health and nutrition, road and telecom connectivity, and sustainable livelihood opportunities. 

"An amount of ` 15,000 crore will be made available to implement the Mission in the next three years under the Development Action Plan for the Scheduled Tribes."

Sitharaman gave a further boost to Eklavya schools and announced that the Union government will recruit 38,800 teachers and support staff for the 740 Eklavya Model Residential Schools that serve 3.5 lakh tribal students.

Affordable housing scheme

Sitharaman's largest push came for PM Awas Yojana whose allocation she hiked by a whopping 66 per cent to Rs 79,000 crore. 

With the push for affordable housing, Sitharaman has addressed a large bloc across India. Forbes noted that Sitharaman's push for affordable housing comes at a time when home loans are getting expensive, thus providing a relief to home-seekers.

It notes, "Over the last 18 months the average home loan rate has gone up 200 bps from 6.5 to 8.5 percent resulting in an increase in borrowing costs for home buyers. Under the scheme buyers in the Economically Weaker Section (buyers making under Rs3 lakh a year) got a subvention of 6.5 percent on their loan."

Shishir Baijal of Knight Frank told Forbes, "It was a great measure to increase outlay towards PMAY which will help continue the momentum towards affordable housing. The outlay will help in expediting the housing-for-all programme."

12% hike in Ayushman Bharat

Sitharaman provisioned Rs 7,200 crore to Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana (AB-PMJAY), reported Moneycontrol. This amounted to a 12 per cent hike over the last year. 

The report added that Rs 646 crore has been allocated for the Ayushman Bharat Health Infrastructure Mission (PM-ABHIM).

CNN-News18 noted that this is part of the broader push to address the Indian poor's concerns.

"Nearly 4.5 crore poor people in the country have availed free health insurance under the scheme so far. Rs 60,000 crore has been allocated for the PM Kisan Samman Nidhi scheme for this financial year, after a cash transfer of Rs 2.2 lakh crore so far to over 11.4 crore farmers under PM-Kisan," noted CNN-News18.

Income tax relaxations

While the above measures targeted the rural or needy sections, the middle class too found a reason to cheer as Sitharaman extended income tax exemption to Rs 7 lakh under the new income tax regime. 

Sitharaman also readjusted the income tax slabs which also provided a relief to those with higher incomes. Announcing the new slabs, she said, "This will provide major relief to all tax payers in the new regime. An individual with an annual income of 9 lakh will be required to pay only 45,000. This is only 5 per cent of his or her income. It is a reduction of 25 per cent on what he or she is required to pay now, ie, 60,000.

"Similarly, an individual with an income of 15 lakh would be required to pay only 1.5 lakh or 10 per cent of his or her income, a reduction of 20 per cent from the existing liability of 1,87,500."

Sitharaman also brought down the maximum tax rate, after reducing surcharges, from 42.74 to 39 per cent.

A growth-oriented Budget: Report

Despite such relief measures to various sections to the society, the Budget 2023-24 remained fiscally prudent and laid a roadmap for growth and investment, noted Forbes.

Forbes noted, "The BJP government—in its last full year Budget—checked all the boxes with measures and incentives to boost investments and consumption, without straying from its fiscal consolidation path, to fast-track economic growth."

However, the longer term fiscal target that Sitharaman has set is challenging, according to the report.

Forbes noted, "While the fiscal roadmap for FY23 and FY24 is on anticipated lines, the target of 4.5 percent for FY26 is challenging. Given the many moving parts, such as the pace of global economic recovery and geopolitical concerns, it is hard to predict to what extent this is realistic. Of course, the government is pinning its hopes on rapid and sustainable domestic growth to meet its lofty targets amid ambitious capex and populist social reforms."

Nilesh Shah, managing director, Kotak Mahindra AMC, tells Forbes, "This Budget is a Baahubali budget. With one arrow, multiple targets are shot. Fiscal prudence is achieved with lower deficit and the path is set till FY26. Consumption is supported through tax cuts and the investment outlay has been enhanced."

Chirag Mehta of Quantum AMC speaks on a similar note. He told Forbes, "Overall, this Budget’s push on capex will ensure that the private capex green shoots really sustain, help inclusive growth, and make the economy become more resilient in light of the global slowdown. Both equity and bond markets have reacted positively to the Budget, as the thrust to maintain the cyclical recovery and largely maintain fiscal prudence has helped lift sentiments."