Editorial 1. Budget 2023: An eye on the future
Recent Context:
- Recently, Government introduced Budget 2023-24 in the Parliament, the budget is regarded as innovative amalgamation.
- As, It comes in the backdrop of the impending state elections and the general election in 2024.
- Temptations for excessive subsidies and measures designed to influence the electoral psyche are inevitable. It is laudable when the short-term temptations are spurned in favour of longer-term outcomes.
The budget is a unique example of being both responsive and responsible.
- It is responsive in terms of the priorities articulated in the vision for Amrit Kaal opportunities for citizens with a focus on
- The youth,
- Growth and job creation, and
- Strong and stable macroeconomic environment; and
- The Saptarishi seven priorities, which entail infrastructure and development, green growth, financial sector, inclusive development and reaching the last mile, to mention a few. These embrace all major stakeholders.
- It is also responsible as it achieves the stipulated fiscal deficit of 6.4 per cent of GDP, and seeks a half percentage point correction primarily from an unwinding of subsidies (food and fertiliser of 0.6 pp of GDP; likely reflecting both withdrawal of Covid-related relief and global commodity tailwinds).
- A rather laudable goal, especially amid elections, and given that it is rare across economies to withdraw spending programmes at any time; yet offset by an increase in much needed capital spending, and a continued decline in the ratio of revenue to capital spending.
- A modest nominal GDP and tax buoyancy, besides other parameters, gives room and flexibility.
Budget 2023-24 on short and medium-term financial stability:
- Macroeconomic stability and growth are related to overall fiscal deficit and liabilities of the sovereign.
- Notably, the budget aims for restraint on borrowings of CPSEs (1.2 per cent of GDP).
- Still, even excluding state PSEs for which we do not have reliable estimates, and allowing for some buffer in states’ estimates, consolidated deficit for the sovereign is running at ~10 per cent of GDP (5.9+3.4+1.2), and debt/GDP at ~85 per cent. This remains high in comparison with peer groups.
- Fortunately, there is acute awareness that the draft on revenues to service debts needs downward calibration. The Centre by itself spends more than 40 per cent of its revenues on servicing its debt burden, which is way higher than the average of 10 per cent across emerging markets.
- The enhanced capex would surely have gainful multipliers; yet, executing an ambitious and credible path for fiscal and debt consolidation for the sovereign as envisaged in the medium-term statement too has positives.
- It enhances resources available for countercyclical fiscal policies in the event of negative shocks such as Covid, as well as for social spending in critical areas such as health and education where India’s public spending remains markedly low.
- Indeed, continued reforms on tax policies and administration would be needed to close the potential revenue gap.
- Fortunately, there is a recognition that the unfinished agenda of GST reforms by way of slab rationalisation and moving towards a revenue neutral rate needs upward recalibration of 3 to 4 percentage points.
- While the rationalisation on direct taxes in reducing one slab is an effort in the right direction, over a period, the slabs need further rationalisation as also the elimination of wide-ranging exemptions. If greater fiscal room emerges, preference should be to revisit allocations in the areas of health, education, and green economy.
Does Budget sufficiently address issues of the Social sectors ( Health and Education)?
- In Health Sector:
- With a hike of 2.7 per cent relative to what was originally budgeted in FY23, health expenditure is now assumed at Rs 88,956 crore.
- The 157 new nursing colleges will improve human resource capability and primary health centres. Other measures would be necessary to improve overall health outcomes. On education, given the need to improve outcomes, there is recognition that other initiatives are necessary.
- Education sector
- The enhanced allocation in school and higher education of Rs 68,804 and Rs 44,094 crore respectively, represents an increase of 8 per cent in both. This will be buttressed by improved outcomes through the National Digital Library, and revamp of teacher training, all in line with the overall vision for a digital economy.
Opening the fiscal window for state to support the economic growth:
- Budget supports the states through Rs 1.3 lakh crore for capex as a 50-year loan, tantamount to a grant, along with the extra headroom for borrowing
- state governments should utilise these resources to improve growth and development outcomes, including in critical areas like health and education are state and concurrent subjects under the Seventh Schedule respectively
- It is somewhat ironic, though, that the states over the last two years did not utilise both the fiscal headroom given to them by the Finance Commission, as well as the additional resources made available for capex.
- In fact, the inability of states to undertake capex provided fiscal space to the central government. This is unfortunate because all state governments pleaded with the Finance Commissions for higher resources.
Editorial 2. India’s G20 Presidency: LiFE lessons for global markets
Recent Context:
• The past year has seen the onset of the world’s first truly global energy crisis, with turbulent markets and sharp price spikes creating difficulties for citizens, businesses, and governments.
• Although India has been more insulated from the crisis than many countries, it has still been affected. With the world also contending with the major challenges of climate change and air pollution, the latest crisis has prompted many people to look again at how they use energy.
• Efforts to improve the energy efficiency of items of everyday use — from home appliances to cars — along with changes in habits and behaviour will play a crucial role in making the world’s energy use more sustainable.
India’s Lifestyle for Environment (LiFE) initiative:
• Prime Minister Narendra Modi launched the LiFE initiative in October 2022 to nudge individual and collective action to protect the environment.
• It is an important platform that could help lower energy costs, carbon dioxide emissions, air pollution and inequalities in energy consumption.
• This includes making informed personal choices such as using public transport more, buying electric rather than petrol or diesel vehicles, adopting energy-efficient appliances in homes, and much more.
• Therefore, LiFE demonstrates India’s leadership on global issues by promoting sustainable lifestyles and consumption choices worldwide. The programme could potentially help put developing and advanced economies alike onto a more sustainable path.
• New IEA analysis shows that if all countries were to adopt the kind of measures recommended by LiFE, it would reduce global carbon dioxide emissions by more than 2 billion tonnes by 2030.
• This alone would deliver around one-fifth of the emissions reductions needed this decade to put the world on a path to net zero emissions. The measures would also save consumers globally around $440 billion in annual energy bills.
Goal of using energy more efficiently is at the heart of LiFE
• The programme supports the strong policies to accelerate the expansion of clean energy technologies such as solar, wind and hydrogen.
• As, we need to do many things at once to tackle the world’s environmental challenges while ensuring secure and affordable energy supplies for all.
• That is why LiFE’s recommendations can be a valuable complement to more traditional policies
o For instance, hard-to-decarbonise industries like steel and cement can take a leaf out of LiFE’s book by adopting approaches that use energy and other resources more efficiently. Increasing the volume of steel that is recycled can reduce the amount of steel production that needs to be decarbonised. It helps make the scale of the challenge more manageable.
o The strength of India’s initiative is that it combines individual accountability and policy actions. This is critical. We all need to make the right choices when it comes to the environment and sustainability, but often these choices are not supported by appropriate infrastructure, incentives or information.
o For example, public transport in many cities must become more efficient and readily accessible to encourage citizens to leave their cars at home.
o Urban planning needs to be optimised so individuals can live closer to work and to amenities that reduce commute times and encourage walking and cycling.
o Policies are important here to enable sustainable choices by actively supplying alternative options. India’s Ujala scheme to provide affordable and hyper-efficient LED bulbs is a good example.
o It has transformed the Indian lighting market by educating consumers on the benefits of the environmentally-friendly option.
LiFE will help in improving the standard of living of people:
• In the IEA’s analysis, energy demand in developing economies will continue to increase as people strive to improve their living standards.
• This requires a range of measures to ensure countries prosper in tandem with advancing their decarbonisation efforts. LiFE’s recommendations can help support this.
• However, LiFE certainly shouldn’t be seen as only relevant to India and developing economies. Its lessons are applicable globally and could make the biggest difference in advanced economies.
• Evidence suggests the global energy crisis is sparking renewed interest in behaviour change and energy efficiency, particularly in advanced economies that have been heavily affected.
• For instance, the European Union set a goal of reducing its natural gas demand by 15 per cent in response to the crisis. It ended up overachieving, with gas demand in buildings falling around 17 per cent in 2022 even as the economy grew.
• Technology can also help stimulate businesses and citizens into action. While the circumstances were extreme, it shows consumers are willing to take responsibility for the energy they use for the greater good.
Conclusion:
• India’s G20 Presidency represents a unique opportunity to globalise the LiFE initiative providing a knowledge-sharing platform for other leading economies to realise the impact that LiFE’s recommendations can have in the fight against climate change, air pollution and unaffordable energy bills.
• Since the G20 makes up nearly 80 per cent of global energy demand, meaningful changes by its members can make a big difference. This is why the IEA welcomes such initiatives and hopes that all countries will learn some LiFE lessons from India.