Union Budget 2023 presentation: Tax cuts, manufacturing incentives expected
Finance Minister Nirmala Sitharaman will present the Union Budget for 2023 in Parliament on Wednesday as people are hoping for reduced taxes, better social security, and financial incentives to boost production. This time, income tax slabs might be tweaked to maximize disposable income as a relief to the middle class, while spending on the poor is expected to be increased through rural employment programs.
Why does this story matter?
The Union Budget is an annual financial statement that estimates state expenditures to run the affairs of the country. The Union Budget 2023-24 will mark the last full budget presentation of the Narendra Modi 2.0 government, as the next General Election is slated for April-May 2024. The spotlight is on the government to address the challenges of inflation and unemployment besides ensuring economic growth.
Tax relief could boost consumption demand
The budget allocation would focus on social welfare schemes as "the gap between have and have nots has widened," said India Ratings and Research's economist Devendra Kumar Pant. Moreover, consumption has slumped owing to reduced spending power catalyzed by inflation and unemployment. Tax relief could provide the much-needed impetus to the consumption demand in the backdrop of rising interest rates and sluggish global growth.
Recent reports said Centre mulling over reducing income tax rates
Reports earlier this month suggested that the central government is mulling over lowering income tax rates in order to make the new direct tax regime more attractive. Economists say any concessions in the lower brackets will be compensated by increasing cess/surcharges on high-income slabs. Import duties on private jets, high-end electronics, and jewelry could be increased to encourage domestic manufacturing.
At 8.3%, unemployment rate reached 16-month high last month
Last month, India's unemployment rate shot up to a 16-month high of 8.3%. This has prompted experts like DBS Group economist Radhika Rao to believe rural employment schemes will attract the largest allocation from the budget, exceeding the 2022 Budget's Rs. 73,000 crore. Besides this, significant portions of the budget will be allocated to crop insurance, low-cost housing, and rural road infrastructure, Rao said.
Manufacturers expect budget incentives
While India is being touted as a rival to China in the manufacturing sector, the country still lags behind considerably. So, manufacturers looking to set up factories expect incentives from the government as a boost to the industry. Analysts at Yes Bank said that sectors linked to production, such as shipping containers and toys, might get some benefits.
Fiscal deficit could fall from 6.4% to 5.9% of GDP
Meanwhile, a Bloomberg survey forecasted that the fiscal deficit could fall to 5.9% of the gross domestic product (GDP) from this year's 6.4%, which could see another year of heavy borrowing. The manufacturing sector and the poor are expected to be the biggest gainers this time. The Budget Session began Tuesday in Parliament with President Droupadi Murmu addressing a joint sitting of both houses.
