Neeraj Jain

We have shown in considerable detail in the previous articles that even two years after the pandemic ended, the Indian economy continues to be in crisis. The effective growth rate of the economy is just 2.8%. And all indications are that the economy is further slowing down. On top of it, inflation is at its highest level in 8 years. The economy is thus in stagflation. Further, the people are facing a colossal unemployment, poverty and hunger crisis. Within the framework of welfare capitalism, the most effective solution to this crisis is that the government greatly increases its spending on the people, by making a huge increase in the budget outlay.

An analysis of the components of the GDP also points to the same conclusion.

GDP in any economy equals private consumption + private investment + government expenditure (we are ignoring net exports as they are a relatively minor factor). Private investment depends upon growth of demand, so for a sustained recovery, there must be an increase in private consumption. 

From Table 13, it can be seen that India’s GDP growth is not based on any significant recovery in the condition of the people. Increase in private consumption is low, it is barely 3% above the 2019–20 level. This is the average for both the poor and the rich. Since the rich have not really suffered during the pandemic years — Oxfam reports show that their wealth has zoomed during the past 3 years (we discuss this in greater detail in a later article in this series) — this means that this increase in consumption basically reflects the rising consumption of the rich. A report in the Business Standard also bears this out: it quotes analysts as saying that the increase in private consumption shown in the GDP figures basically reflects goods and services consumed largely by households falling in the upper-income bracket.[1] At the same time, another report says that this small rise in private consumption has taken place despite the fact that financial savings are at a 30-year low: this only means that the condition of the poor is worsening, and they are spending their savings for buying basic necessities.[2] All this only means that the consumption of the poor is either still at the level of 2019–20 or even lower than that.

Table 13: GDP and its Components, 2019–20 to 2021–22 (Rs cr)

	2019–20 (1)	2020–21	2021–22  (2)	2022–23 (3)	Growth rate (3 over 2), %	Growth rate (3 over 1), % (CAGR)
GDP at Constant Prices (at 2011–12 prices)	145,15,958	135,58,473	147,35,515	157,60,363	6.95%	2.78%
Private Final Consumption Exp.	82,59,704	77,63,734	83,77,854	90,21,583	7.68	2.98%
Govt Final Consumption Exp.	14,84,272	15,37,603	15,77,132	16,26,279	3.12	3.09%
Gross Fixed Capital Formation	46,11,021	41,31,279	47,84,054	53,35,627	11.53	4.99%

The table also shows that the 7% growth rate in 2022–23 is mainly due to a large increase in private investment, which has gone up by more than 11% over the previous year. It is also the most important component driving the little increase in GDP since 2019–20. However, without a significant increase in private consumption of the people, this increase in private investment is clearly not sustainable. And that is what is happening; as discussed in the previous article, the economy is slowing down.

Therefore, for the economy to have a sustained recovery, it is important that the government greatly increases its expenditure. So far as the ordinary people are concerned, even if this does take place, they will only benefit from it if the government increases its spending in such a way that it leads to an increase in domestic consumption and puts purchasing power in the hands of the people. That would lead to an increase in domestic demand, and fuel an increase in private investment.

Has the Budget 2023 done anything towards this? 

Budget 2023: No Attempt to Increase Revenues

Paltry Increase in Gross Tax Revenue

From the detailed discussion in Part 3 of this article, it follows that one eminently feasible way in which the FM can significantly increased the budgetary outlay is by increasing the gross tax revenue, by increasing direct taxes on the rich. We have explained there that there is a huge scope for increasing the country’s tax revenues, as on the one hand, the share of our direct taxes in total tax revenue, and on the other hand, our tax-to-GDP ratio, both are not only way below that of the developed countries, they are also considerably less than our Emerging Market peers. Even if the FM increases taxes on the rich to increase the Gross Tax Revenues by Rs 25 lakh crore (that is, from Rs 30 lakh crore in 2022–23 RE to Rs 55 lakh crore in the 2023 Union Budget, an increase of 80%), our tax-to-GDP ratio would only increase to around 25%.[3] It would still be around 10 percentage points below most developed countries (the tax-to-GDP ratio is above 40% for Austria, Belgium, Italy, Denmark, and many other OECD countries).[4] However, instead of increasing taxes, the FM has given yet more tax concessions to the rich in this budget: 

• The tax surcharge rate on the very rich — those with incomes above Rs 5 crore — has been lowered from 37% to 25%;
• Some tax concessions have been given to the middle classes.

The FM admits in her budget speech that these proposals will lead to a revenue loss of Rs 35,000 crore!

Therefore, the Gross Tax Revenue in the 2023–24 budget has gone up by only 10.44%. 

Even within this limited increase in Gross Tax Revenue, increase in GST (12%) contributes more than increase in direct taxes (10.5%) (Table 14). The burden falls more on the poor than the rich.

Table 14: Gross Tax Revenue, Fiscal Deficit and Budget Outlay, 2021–22 to 2023–24 (Rs cr)

	2021–22 A	2022–23 RE (1)	2023–24 (2)	Increase, 2 over 1, %
Gross Tax Revenue	27,09,315	30,43,067	33,60,858	10.44
Within this:
Direct Taxes	14,08,293	16,50,000	18,23,250	10.5
GST	6,98,114	8,54,000	9,56,600	12.01
Fiscal Deficit	15,84,521 (6.7)	17,55,319  (6.4)	17,86,816 (5.9)
Budget Outlay	35,09,836	41,87,232	45,03,097	7.54

(Note: Figures in brackets are percentages of GDP)

Reduction in Fiscal Deficit

The other way in which the FM can increase the budgetary outlay is by increasing government borrowings, that is, by increasing the fiscal deficit. That fiscal deficit is bad for the economy, and governments should not raise money for increasing welfare expenditures by indulging in deficit financing, is bunkum! This fraudulent theory is a part of the neoliberal ideology. It had been debunked long ago by John Maynard Keynes, one of the greatest economists of the 20th century. He had argued that in an economy where there is poverty and unemployment, the government can, and in fact should, expand public works and generate employment by borrowing, that is, by enlarging the fiscal deficit; such government expenditure would also stimulate private expenditure through the ‘multiplier’ effect. All developed countries, when faced with recessionary conditions, have implemented Keynesian economic principles and resorted to high levels of public spending and high fiscal deficits — such as during the 2007–09 financial recession and now during the pandemic crisis.[5] The reason why Nirmala Sitharaman harps on the need to reduce India’s fiscal deficit is because it is a condition imposed on the Government of India as a part of the World Bank-dictated SAP, whose sole aim is to run the economy for the benefit of giant foreign and Indian corporations. And so states in her budget speech 2023: “The fiscal deficit is estimated to be 5.9 per cent of GDP. In my Budget Speech for 2021–22, I had announced that we plan to continue the path of fiscal consolidation, reaching a fiscal deficit below 4.5 per cent by 2025–26 with a fairly steady decline over the period. We have adhered to this path …”

Budget Outlay Stagnant

All this only means that the FM and the Modi Government are not concerned about increasing the budget outlay and public investment. The FM is not willing to raise taxes on the rich and greatly increase the gross tax revenues, and is also not willing to significantly increase the fiscal deficit. Therefore, as we can see from Table 14, the budget outlay is just 7.5% above last year’s revised estimates. Which means that in real terms, there is no increase. 

The FM and the Modi Government are not at all concerned about the multiple economic crises facing the country and the people. In fact, the FM in her budget speech does not even take cognisance of any of these problems. On the contrary, she brushes all these problems under the carpet, and claims that the “Indian economy is … on the right track” and “heading towards a bright future”. 

Budget Expenditure as % of GDP in Decline

The regressive nature of the budget is much more worse than that suggested by the above figures.

As compared to the absolute figure for budget expenditure, budget expenditure as compared to GDP gives a better picture of how much the government has increased public investment in the economy. 

Table 15:  Budget Outlays, 2018–19 to 2021–22 (Rs cr)

	2019–20 A	2020–21 A	2021–22 A	2022–23RE	2023–24BE
Budget Expenditure	26,86,330	35,09,836	37,93,801	41,87,232	45,03,097
Budget Exp as % of GDP	13.38	17.73	16.03	15.33	14.92

During Modi’s first term, this ratio was between 12–14% of GDP, then during the corona period it went up to 17.7% in 2020–21 Actuals, but has started falling again and has come down to 14.9% for this year (Table 15). 

Both the above comparisons, budget outlay as compared to last year’s outlay, and budget outlay as a percentage of the GDP, only point to one conclusion — that the FM is gradually rolling back whatever little stimulus she had given to the economy in FY 2020. For the FM, ALL IS WELL!

Bowing to Imperialist Dictates

The reason why the government is keeping budgetary expenditure at such low levels was outlined by the Finance Minister Nirmala Sitharaman while speaking at a function organised by the Bangalore Chamber of Industry and Commerce. She said that the government’s perspective towards the Union Budget was that the government should be a facilitator and the private sector should be the key driver of economic growth.[6]

That is precisely what is desired by international finance capital. It wants the government to keep its expenditures low. The Modi Government is bowing to its dictates because of India’s worsening external debt and external accounts situation, as discussed in Part 1 of this budget series. The reason why global financial capital wants the Government of India to keep its budgetary expenditure low is because that creates the conditions for private capital, particularly international capital, to take control of the economy and mould it according to its desires. For all Modi talk of ‘nationalism’, in reality, the Modi Government is only meekly bowing to imperialist dictates.

Notes

1. Cited in: “’India’s Workforce Not Rising, Quality of Jobs Very Low’: CMIE’s Mahesh Vyas”, 2 May 2023, https://thewire.in.

2. “High Inflation Likely Pushed Household Financial Savings to 30-Year Low in H1 of FY23: Report”, 13 January 2023, https://thewire.in.

3. Our calculation; while calculating this, we assume that the state’s own tax revenues would increase in the same proportion as the previous years, and the bulk of the increase would be in the Centre’s Gross Tax Revenues.

4. “Brochure: Revenue Statistics 2022”, OECD, https://www.oecd.org.

5. We have discussed this in greater detail in our booklet: Is the Government Really Poor, Lokayat publication, Pune, 2018, http://lokayat.org.in.

6. “To Be World Leader, Private Sector Must Be Key Driver of Growth: Sitharaman”, 21 February 2021, https://www.business-standard.com.