Modi government’s final full year budget: What can we expect??

Latest Analysis
30 Jan 2023

Finance Minister Nirmala Sitharaman is all set to present Modi government’s final full year budget on 1st February, 2023, as markets have been abuzz with probable policies that the government may introduce to achieve its economic goals.

Starting off with Defence, the defence sector saw a 10-14% growth in the funds it received last year as the government has improved spending on the sector and also promoted participation from the private sector. With the ongoing issues with China on the LAC border followed by the government’s aim of ‘Atma Nirbhar Bharat’, greater spending on defence to improve private participation and take advantage of foreign defence tech seems plausible.

Moving on to cryptocurrencies, the government had levied a capital gain tax of 30% on cryptocurrencies last year. However, there is a greater need for regulation in the decentralised sector. RBI Governor Shaktikanta Das has been outspoken about his criticism of cryptocurrencies. In a recent interview, he expressed how he considered crypto to be a form of ‘gambling’. Moreover, FM Sitharaman had spoken in favour of regulations in a G20 summit last year as the budget may also announce greater restrictions on cryptocurrencies.

Recently, the Finance Minister spoke about the middle class of our country wherein she stressed about the current government’s support for the same. She also stressed that the government will continue to “work for the middle class” in the upcoming budget. However, existing conditions may not support any tax rebates so the chances of any additional tax cuts appear to be slim.

The main focus of the upcoming budget, however, will be on two things: Railways and PLIs. Firstly, Railways. Last year, FM Sitharaman announced plans to launch 400 semi-high speed Vande Bharat trains. This year, the government is expected to introduce more plans to improve the production and launch of these trains as the government has expressed two main plans regarding the same: 1] To replace all existing trains with the Vande Bharat trains, & 2] To manufacture trains and export them out to other countries like Europre by FY26.

Secondly, PLIs. The government is expected to introduce several Production Linked Incentives (PLIs) to bolster India’s manufacturing capabilities and make the country the ‘Manufacturing Hub’ it wants. Two of the main items which will be under the focus this Budget will be Semiconductor Chips & Smartphones (particularly Iphones). With China’s production affected by another Covid outbreak, India stands to gain as Iphone exports from India over 100% in April to December 2022! 

However, the country has witnessed a significant decline in exports: a 12.2% YoY decline while the imports declined 3.5%, resulting in an increase in the trade deficit which came in at $23.8 billion. Moreover, the current account deficit surged to $36.4 billion, the all time highest in absolute terms.

A Goldman Sachs report stated that the government could reduce welfare spending and subsidies while keeping a push up on infrastructure and defence spending. Since global headwinds are persisting throughout the world, the government must be planning to take certain conservative growth initiatives which will promote economic growth while ensuring economic stability. This budget will be crucial to the Modi government since it will be the final full year budget for the government since general elections are set to take place in 2024 which will end up messing with the economic affairs of our country.