An Analysis of India’s 2023 Union Budget

12 min readMar 2, 2023

India’s Union Budget was announced on February 1. While the budget brings focus on creating jobs, the green transition of the economy and investing in infrastructure, capital goods and materials sectors, absence of sufficient measures for the lower income and marginalised sections of the population warrants its effect diminished and inadequate. Due to its critical importance to the economy, a holistic analysis of the Union Budget is presented on how it impacts the varied sectors and diverse populations of India.

For salaried citizens:

Taxes impact a wide section of the economy and are a central revenue driver for the government. The new regime has altered the income tax slabs, which makes tax for annual incomes up to INR 3 lakh nil, and tax rate for annual incomes falling in the INR 3–6 lakh bracket 5 percent. For those in the INR 9–12 lakh bracket, it is 15 per cent, and for the INR 12–15 lakh bracket, it is 20 per cent. Finally, for annual incomes above INR 15 lakhs, it is 30 per cent. These changes compared to the previous tax regime imply greater relief for the taxpayers. For example, people with a taxable income of INR 9 lakh will now have to pay a tax of INR 45,000 as against INR 60,000 earlier. This is a reduction of 25 per cent from what the person was required to pay earlier. Moreover, the standard deduction of INR 50,000 to salaried individuals and deductions of up to INR 15,000 from family pension will continue to be in effect.

Under the new regime, the maximum tax rate has been reduced from 42.7 percent to 39 percent. The lowest tax bracket — the one earning INR 3 lakhs or less will benefit as the old regime allowed zero tax only till INR 2.5 lakhs. By mandating a INR 50,000-higher nil tax slab in the new regime, those in the lowest tax bracket will save an additional INR 2,500, which they earlier gave up as tax under the 5% slab. The next lowest tax bracket will be the one which earns up to INR 6 lakhs annually. In the old regime, they fell in 5% tax slab for incomes between INR 2.5 lakh to INR 5 lakh, and 20% for incomes between INR 5 lakh to 10 lakh. Under the new regime, their income between INR 3 lakh to IR 6 lakh will fall in 5% tax slab, which means they will ultimately save INR 17,500 which earlier went in taxes.

For the non-salaried citizens:

The low allocation of INR 60,000 crores to National Rural Employment Guarantee Act (NREGA) is distressing as the actual expenditure in 2021–22 was above INR 89,000 crores. Taking into consideration rural distress, such a sharp reduction in the allocation of money for creating workdays through NREGA for the impoverished does not do anything to alleviate the distress. Moreover, the catch is that the government must initially allocate around 90 percent of the Budget Estimate for NREGA and then pay the remainder in Revised Estimates. If the government has made less than 50 percent of the Budget Estimate, then there may exist a bit of hesitancy in spending on rural employment in the latter part of the year. As the number of households seeking employment has increased in recent times, the new allocation will be able to cover employment for not more than 17 days, as against the 100 days stipulated legally.

“Modernising” the agriculture sector:

The Finance Minister announced that agricultural and rural enterprises will receive funding from the National Bank for Agriculture and Rural Development (NABARD). Moreover, farmers will receive significant benefits from the use of Kisan Drones for digitizing land records, spraying of insecticides and assessing crops. Wheat and paddy farmers will receive direct payments worth INR 2.37 lakh crore toward Minimum Support Price (MSP) payments. The finance minister also announced the launch of the Agriculture Accelerator Fund for supporting agri-startups of young entrepreneurs. The Prime Minister Matsya Sampada Yojana is set to be introduced with a targeted investment of INR 6,000 crores for enabling stakeholders in fisheries businesses. The agricultural credit target has been increased to INR 16.5 lakh crores for ensuring availability of higher credit to farmers, and for sectors like animal husbandry, dairy, and fisheries. INR 3,737 crore has been allocated to the Ministry of Fisheries, Animal Husbandry and Dairying. Not to forget, the Indian Institute of Millet Research in Hyderabad will be grown as the Center of Excellence for sharing best practices, research, and technologies globally to make India the international hub for millets.

However, such policy measures bring their own set of challenges. In India, the average farm size available with a farmer is substantially less when compared to farmers in developed nations, such as Australia, US or Europe. India is not prepared at the infrastructure front to store, compute and process the huge data that will be produced by farms with the help of agricultural sensors. Moreover, 85 percent of farmers are small and marginal ones, for whom affording drones for various applications may not be feasible or make economical sense. The average monthly income of an Indian farmer is low and doesn’t support affordability for technology solutions. In such circumstances, lowering down the cost of digital agriculture equipment becomes imperative. Moreover, farmers do not get a good amount of profit due to the role of middle men. This prevents them from effectively repaying the credit borrowed from NABARD and other organizations.

What is also of concern is the fact that the allocation for agriculture sector has been slashed from INR 1.33 lakh crores in the previous year’s budget to INR 1.25 lakh crores in the 2023 Union Budget. Only 2.7 percent of GDP has been allocated for agricultural sector, which is a decline from allocations in the past couple of years. Usually, allocation reductions are done when the sector has been performing quite well and does not need much support. However, this allocation cut has come in the backdrop of declining growth rates of agricultural output, from 5.5 percent in 2019–20 to 3 percent in 2021–22. The institutional credit allocation — which has been marginally increased for the agricultural sector to INR 20 lakh crore — will also not help much since a lot of small and marginal farmers borrow from the informal sector. Moreover, increased credit only deepens the financialisation trap and will not be of much help unless small and marginal farmers are assisted with facilities to increase their crop production. If crops fail following a credit offtake, it will exacerbate the financial woes of the farmers by trapping them in debt. In this regard, the requirement of the dispensation of a ‘no due’ certificate for small loans up to INR 50,000 to small and marginal farmers by NABARD is a welcome step, as it asks only for a self-declaration from the borrower.

Infrastructure sector gets an unneeded boost

Infrastructure sector/spending has received an allocation of INR 10 lakh crore as capital expenditure. A fourth of this allocation will be spent on building roads and highways, and another quarter for Indian Railways to enable new high-speed trains. A total of 3 percent of GDP has been allocated to infrastructure building, which, as per classical economics, must kickstart a “trickle down” effect to spur economic growth. A 2022 study by World Bank estimated that India will need to invest US$ 840 billion over the next 15 years through infrastructure projects to create a stable consumer demand and catalyze entrepreneurship in the country.

However, none of the infrastructure projects will succeed in reigniting the engines of the economy due to lack of money in people’s wallets. Unless jobs are generated, food security is ensured and public health programmes are well-funded, the infrastructure projects will continue to benefit only the elite, while the inequity gap between the rich and poor will continue to expand. A trickle-down effect will kick in only when the industry invests in job creation, which does not reflect in the way jobs have declined by 62 percent in the cement industry, 10 percent in the steel industry and 28 percent in the mining industry from 2016–17 to 2021–22, despite the impetus they have received through infrastructure spending. It is not enough to dole out financial incentives to the big infrastructure players in the cement and steel industry. The small & medium scale sector needs to be supported as well. The neoliberal policy of attracting big foreign investors alone cannot do enough. Budgetary allocations need to be diverted to improve and make the lives of the public safer through enhanced incomes and standards of living.

Education sector is still ailing

Budgetary allocation to the education sector has not been commensurate to its critical importance to society. Despite calls for the government to increase spending in education to 6 percent of Gross National Product (GNP), budgetary allocation for 2023–24 has been just 0.37 percent. This is far less than even the combined contributions of 28 states to education that amounted to 2.7 percent of GNP last year. In terms of share of total budget, the actual expenditure has dipped from 3.5 percent in 2018–19 to an estimated 2.5 percent in 2023–24. This expenditure gap between the desirable and actual spends on education is further worsened by frequent cuts when making the Revised Estimates (RE).

Allocation for the Samagra Shiksha Abhiyan (SSA) has marginally increased from INR 37,383 crores in 2022–23 to INR 37,453 crores in 2023–24. The SSA — as proposed in Union Budget 2018–19 — is an overarching programme for the school education sector to treat school education holistically without segmentation from pre-nursery to Class 12. The programme has been prepared with the broader goal of improving school effectiveness measured in terms of equal opportunities for schooling and equitable learning outcomes.

Such a callous approach to education spending has resulted in 5.6 lakh pending vacancies of public school teachers for grades 1 to 8, while only 30 percent of the staff positions in Block Resource Centers have been filled. Thirty-three percent of schools in India lack a functional electricity connection whereas 66 percent lack internet connectivity. The disparity in government spending across different schools is widening the socioeconomic inequity gap, with 26 percent of budgetary allocations for school education going to Kendriya Vidyalaya, Navodaya Vidyalaya and PM Shri Model Schools, where only 1 percent of India’s school students study. Such disproportionate allocation of the budgets across different schools and lack of basic infrastructural facilities in educational institutions affects the development of an active and empowered society. Education is critical for poverty reduction, technological advancements, women empowerment, social development, and health awareness.

Healthcare allocations are unhealthy

Despite a marginal increase in the allocation to the healthcare sector, it still remains conspicuously lower than the minimum desirable share of 2.5 percent of the GDP. In 2019, a high-level group constituted by the Government of India had submitted a roadmap to the 15th Finance Commission for achieving 2.5 percent expenditure share of GDP by 2025, and it also accounted for the anticipated growth rates of GDP and inflation. What is surprising to find is that in 2021–22, the health budget of the union government should have been INR 1,78,000 crores, whereas it was just INR 86,830 crores in reality. The gap between desirable and actual spending got further widened in 2022–23, when the actual allocation was marginally higher at INR 89,251 crores, while the roadmap demanded INR 2,17,000 crores. For 2023–24, the report had recommended INR 2,65,000 crores, while the union government has allocated INR 92,803 crores. In short, only 35 percent of what the roadmap recommended has been allocated over the past 3 years.

Meanwhile, the state governments have been doing a good job at approaching their targets, despite resource constraints. The union government needs to do a major course correction, especially when the economy is still recovering from pandemic-induced disruptions. Community Health Centers in rural India have witnessed a shortfall of 79.5 percent in specialist posts, whereas in Primary Health Centers, there is a shortage of 74 percent of health assistants.

Marginal increases in budgetary allocation in the healthcare and family welfare sectors will not mean much after accounting for inflation. Department of Health and Family Welfare witnessed a marginal increase of allocation from INR 83,000 crores in 2022–23 to INR 86,175 crores in 2023–24. With regards to healthcare schemes, the allocation for the National Health Mission has been reduced to INR 36,785 crore in 2023–24 from INR 37,159 crore in 2022–23. The allocation for Pradhan Mantri Ayushman Bharat Health Infrastructure Mission (PM-ABHIM) is almost the same as the previous year. However, in 2022–23, the Union Government had drastically cut the Budget Estimate from INR 4,176 crore to only INR 1,885 crore. Budget Estimate of Pradhan Mantri Swasthya Suraksha Yojana (PMSSY) was also cut from INR 10,000 crore to the Revised Estimate of INR 8,269 crore in 2022–23, which has now been further reduced to a much lower allocation of INR 3,365 crore in 2023–24.

Implementation of PMSSY since 2006 has been slow, with many of the upgraded medical colleges and new AIIMS-like institutions not yet entirely operational. Despite aiming at increasing the availability of healthcare personnel, we find a shortage of doctors, nurses, and healthcare workers in many regions of India. Healthcare quality offered in some of the medical facilities established under PMSSY is suffering due to inadequate staffing and outdated equipment. The scheme has also faced challenges in reaching remote and underserved areas, with limited transportation and lack of awareness about the scheme among the population.

The society needs a robust public healthcare system, one that is not expensive for the most marginalized and excluded populations. Private hospitals do not have reach in the remote and rural parts of the country and, therefore, public healthcare facilities need to be expanded with good quality healthcare infrastructure to improve the wellbeing of marginalised populations.

Social sector ignored

The budget should have endeavored to stimulate spending on the social sector to provision essential services and amenities for citizens. However, the Budget has fallen short of achieving a higher spending in the social sector. For instance, foodgrain stocks lie unused with the Food Corporation of India (FCI), and yet people are reeling under the impact of hunger because of lack of purchasing power after they have paid exorbitantly for basic healthcare, housing, education and other such pressing needs. There has been a slight increase in allocation for the midday meal scheme — PM POSHAN — compared to last year’s budget. However, it’s still a sharp decline against the revised 2022–23 budget figure. In real terms, the Union budget allocation for midday meals is 40% lower today than it was in 2014–15, and the same applies to Integrated Child Development Scheme (ICDS). The Mid Day Meal Scheme helps to avoid classroom hunger; increase school enrolment and increase school attendance. The programme supplies free lunches on working days for children in government primary and upper primary schools, government-aided Anganwadis, Madarsa and Maqtabs. ICDS is equally important for the welfare of children in India. It aims to improve the nutritional and health status of children in the 0–6 age-group, to lay the foundation for proper psychological, physical and social development of the child and to reduce the incidence of mortality, morbidity, malnutrition and school dropouts. However, instead of prioritising the social sector, the government has squeezed expenditure in the social sectors.

Critical ministries’ coffers are empty

Some ministries have seen major cuts in budget allocations for 2023–24. For the Ministry of Tribal Affairs, the budget estimate of INR 8,451 crore has been reduced to a revised estimate of INR 7,301 crore. The Ministry of Women and Child Development witnessed a cut from INR 25,172 crore to INR 23,912 crore. The Department of Empowerment of Persons with Disabilities has experienced a cut from INR 1,212 crore to INR 1,015 crore. The Department of Drinking Water and Sanitation also had a cut from INR 67,221 crore to INR 60,029 crore. The Ministry of Environment, Forests and Climate Change, too, has seen an allocation cut from INR 3,030 crore to INR 2,478 crore, despite its increasingly important role in today’s era. We can aptly visualize how such budget cuts will impact India’s endeavors in the areas of population welfare, climate action and health.

These departments are crucial for citizen welfare. Ministry of Tribal Affairs offers financial assistance to state governments and other ministries through ‘Grants-in-Aid’ to fill critical gaps in health and nutrition provisioning in tribal areas. It is also responsible for overall policy, planning and coordination of programmes of development for Scheduled Tribes. The Ministry of Women and Child Development helps to ensure development, care and protection of children through cross-cutting policies and programmes, spreads awareness about their rights and facilitates access to learning and nutrition. The Department of Empowerment of Persons with Disabilities offers rehabilitation services to people with disabilities and runs educational programmes for rehabilitation professionals. Such initiatives empower the marginalized sections of society. These welfare measures will be negatively affected due to cuts in budgetary allocations made to them.

Closing remarks

There are gaps and low budgetary allocations in critical sectors that need immediate attention from the government. The low allocations to the healthcare and education sectors will have long-term implications on the Indian economy, Spending on education and health empowers society and makes people self-dependent and able to lead a good life. Moreover, we need more gender accounting in the planning of the budget to ensure women and children get due focus in the planning process. The existing public sector schemes need to be revamped and challenges faced by them need to be ironed out, and they fundamentally require greater spending.

This article was written by Arijit Goswami, a writer with the editorial team of Rethinking Economics India Network. He is a research professional in the Financial Services space and is an alumnus of Indian Institute of Management Kozhikode. He is keen on exploring the intersection of economics, geopolitics and technology.

References:

An Analysis of India’s 2023 Union Budget

Written by Rethinking Economics India Network