Union Budget 2023 - 24: Impact on Employment Creation

S P Sharma & Manpreet Kaur

India has entered into Amrit Kaal that involves journey to India@100 with a vision which is technology-driven and know[1]ledge-based economy with strong public finances, and a robust financial sector. To service these focus areas in the journey to India@100, the government believes that four opportunities can be trans[1]formative during the 'AmritKaal' - (i) Economic empowerment of women (ii) PM Vishwakarma Kaushal Samman (PM VIKAS) (iii) Tourism (IV) Green growth. The Union Budget 2023-24 seeks to enhance support to these four focus areas in order to propel the long-term vision for the Amrit Kaal. The Indian economy recovered quickly from the COVID pandemic with essential economic markers returning to pre-pandemic levels during the FY (financial year) 2022-23. The drivers of economic growth such as solid demand, private investments and capital expansion are now performing well above the pre-pandemic levels. The total capex of the Central Government increased more than 60% in the first eight month of FY 2022-23. Consistent increase in private capital expenditure was also visible. The MSMEs witnessed a credit growth of more than 30%, indicating that MSMEs are also in the expansionary mode, enhancing their production capabilities. The recovery in employment creation with increasing growth of Government capex and revival of Private capex indicate that economic resilience of the country would be more robust in the coming quarters. The mitigating strategies of the Government to tackle the impact of Russia-Ukraine conflict have helped the economy perform well above the pre - pandemic level. Despite the global headwinds, the economy is projected to grow at around 6.5% during 2023-24. Despite increased interest rates, the inflation trajectory is significantly diminishing with headline inflation expected to fall below 5% during FY 2023-24. Hence, countering the existing macroeconomic challenges, a more resilient, strong and sustained economic growth trajectory is expected in the coming years.

Key Indicators

·         The Central Government capex increased by 63.4 per[1]cent in the first eight months of FY 2022-23

·         A sustained increase in private capex is imminent with the strengthening of the balance sheets of the corporates and the consequent increase in credit financing.

·         A much-improved financial health of well-capitalised public sector banks has increased the prospects of a better and increased credit supply.

·         The growth in credit to Micro, Small, and Medium Enterprises (MSMEs) sector has been remarkably high, over 30.6 percent on average, during Jan-Nov 2022, supported by the extended Emergency Credit Linked Guarantee Scheme (ECLGS) of the Union Government.

·         India has now become the 5th largest economy of the world. In light of the encouraging growth projections and lower fiscal deficit target for FY 2023- 24, the economy is expected to sustain the growth momentum with a controlled inflation trajectory in the year ahead. With these indicators at the backdrop, Finance Minister Smt Nirmala Sitharaman presented a demand-sustaining, investment[1]inducing and growth-oriented Union Budget 2023-24

Key Takeaways of Budget 2023-24

·         There is a 33 percent increase in Government capex amounting to Rs 10 lakh crore. This will have a multiplier effect on employment creation, aggregate demand trajectory and private investments

·         Budgetary allocation for PLI (Production Linked Incentive) has been significantly increased to Rs 8083 crore for FY 2023-24. This is a positive indication for crucial sectors of the economy i.e. electronics, pharmaceuticals, automobiles and auto components

·         The Prime Minister Awas Yojana has seen a remarkable 66% increase in its funding from Rs 47,500 crore in the previous year to Rs 79,000 crore. This will provide the much-needed financial assis[1]tance to countless low-income households. The generous fund allotment will allow for the improvement of existing resources and provide improved urban housing options to a large portion of the population.

·         The Size of the budget has increased from Rs 26.8 lakh crore in 2019 - 20 to Rs 45 lakh crore in 2023 - 24.

Bouquet of Benefits for MSMEs

The large number of measures to support the MSME sector is very timely given the significant role of this sector in the country's GDP and exports. Infusion of Rs 9000 crore for credit guarantee scheme would spur the flow of institutional credit for MSMEs. This would lead to an additional collateral free guaranteed credit of Rs 2 lakh crore and soften the burden of high interest rates for MSMEs. The rise in threshold limit to claim presumptive taxation from Rs 2 crore to Rs 3 crore will benefit small businesses and MSMEs. Vivad se Vishwas scheme has been rolled out which will return 95% of the forfeited amount relating to bid to MSMEs who have failed to execute the contracts during COVID period.

Nurturing Startups

India currently holds the presidency of G-20 and Startup[1]20 Engagement Group. Under the endeavour to create a global ecosystem conducive for startups, major tax-friendly announcements have been made that include extension of the date for availing tax benefits by startups to 31st March, 2024. This will provide the much needed boost to budding entrepreneurs. The benefit of carry-forward of losses on change of shareholding has also been extended from 7 years to 10 years. The announcement of agriculture accelerator fund will promote agri-startups in rural areas and help farmers to yield more with enhanced productivity vis-à-vis innovative farm techniques.

Infrastructure: the Back[1]bone of Progress

Capital outlay of Rs 2.40 lakh crore for railways, Rs 75000 crore for hundred critical transport infrastructure projects and Rs 10,000 crore per annum for Urban Infrastructure Development Fund (UIDF), 50- years interest-free capex loan worth Rs 1.3 trillion will be continued for one more year to aid States to build infrastructure. This would not only enhance state-of-the-art infrastructure development in the country but will also generate opportunities for the skilled and unskilled workforce

Sustaining Green Growth

The recent launch of National Green Hydrogen Mission with an allocation of Rs 19,700 crores to build a solid ground for Green Hydrogen ecosystem would kick-start the green growth participation in India's GDP trajectory. The Union Budget 2023-24 has given a further push to it by announcing several additional measures in this direction. The outlay of Rs 35,000 crores for priority capital investments, viability gap funding for battery energy storage systems would strengthen the green growth initiatives in the country. These initiatives have opened the gates for green jobs and opportunities in green talent development.

Enabling Education, Empowering the Economy

It is encouraging that the budget 2023-24 has announced a number of provisions for the education sector. National Digital Library for Children and Adolescents will be opened to cover-up the academic loss incurred by children during the pandemic-induced lockdown. 30 Skill India Centres will be established to make the youth more competitive and market[1]ready. New courses on medical devices will be launched. 157 new nursing colleges will be opened in India. The NEP (National Educational Policy) will focus more on job creation and skilling of the youth through Pradhan Mantri Kaushal Vikas Yojna. This will prepare them for jobs in Industry 4.0 by providing training in new technologies like AI (Artificial Intelligence) and machine learning, robotics and other new age courses.

Cultivating a Brighter Future with Tech Support to Farmers

An Agriculture Accelerator Fund will be set up to encourage agri-startups by young entre[1]preneurs in rural areas. The fund will aim at bringing innovative and affordable solutions for challenges faced by farmers. It will also bring in modern technologies to transform agri[1]cultural practices, and increase productivity and profitability. Digital public infrastructure for agriculture will be built as an open-source, open-standard and interoperable platform for public good. This will enable inclusive, farmer-centric solutions through relevant information services for crop planning and health; improved access to farm inputs, credit, and insurance; help for crop estimation and market intelligence. It will support the growth of the agri-tech industry and start-ups operating in the space. The excise duty exemption given to compressed bio-gas (CBG) as part of the Rs 10,000 crore Gobar Dhan programme is also an encouraging measure.

Leveraging Technology for Financial Resilience

A resilient economy is built on strong public finances and a robust financial sector. The Union Budget 2023-24 proposes to make innovative use of technology, better and faster service delivery, and easier access to credit and participation in financial markets in order to achieve widespread financial inclusion. The budget has proposed amendments to the Banking Regulation Act, the Banking Companies Act and the Reserve Bank of India Act to improve bank governance and enhance investors' protection. Further, SEBI will be empowered to develop, regulate, maintain and enforce norms and standards for education in the National Institute of Securities Markets and to recognize award of degrees, diplomas and certificates.

Igniting Growth in IT & Electronics

It is very inspiring that the custom duty cuts on key components of IT and electronics i.e. camera lens in cellular mobile phones (2.5% to Nil up to 31st March, 2024) and specified parts used in open cell of TV panel (5% to 2.5%) will boost the domestic manufacturing of mobiles and unleash the full potential of domestic TV manufacturing industry. The exemption of custom duty on capital goods for manufacture of lithium-ion cells to be used in electronic vehicles will boost the battery ecosystem and encourage adoption of Electronic Vehicles (EVs). Though the strenuous efforts for manufacture of affordable batteries used in mobiles, laptops and EVs are already put in place, the recently announced exemption of custom duties will further provide a big push to the battery ecosystem

Encouraging Consumption, Enhancing Employment

There has been reduction in tax slabs for enhancing con[1]sumption expenditure in the economy. It would revive aggregate demand which is crucial to put the Indian economy on higher growth trajectory; raised income tax rebate for salaried class earnings up to Rs 7 lakhs from its previous limit of Rs 5 lakhs will provide substantial relief to millions of individuals and enhance aggregate demand trajectory in the country. Enhancing consumption expenditure increases the total demand for goods and services, which in turn drives up the production and supply of these goods and services. This leads to an expansion in the economy and creates employment opportunities across various sectors, as businesses require additional labour to keep up with the increased demand. Additionally, as more people are employed, they have more disposable income to spend, further boos[1]ting consumption and creating a self-sustaining cycle of economic growth and job creation. In a nutshell, Budget 2023-24 has been announced at a time when Indian economy finds itself in the bright spot among the leading economies of the world. Going ahead, more and more focus on ease of doing business particularly for the MSMEs, easier compliances for small businesses and exploring the opportunities in the Global Value Chains (GVCs) would go a long way in strengthening India's growth trajectory and mitigate the impact of global shocks on the economy.

(Dr. S P Sharma is Chief Economist, DSG, PHDCCI and Ms Manpreet Kaur is Research Associate, PHDCCI. They can be reached at spsharma@phdcci.in).

Views expressed are personal.