IN THE RUN-UP to general elections, governments have historically presented Budgets laden with vote-catching populism, short-term measures and even imprudent fiscal initiatives to make a pitch for re-election. Economists feared Budget 2023 could be one of those fiscal health-busting moves with dollops of doles and freebies that could derail India’s journey towards fiscal consolidation and lower deficits.

In the Budget presented on February 1, however, the government showed remarkable maturity by not falling for that temptation. “A strong foundation to fulfil the grand vision of a developed India” is how Prime Minister Narendra Modi described the Budget for FY24. So, does Union Budget FY24, presented by Finance Minister Nirmala Sitharman, look at a 25-year horizon (when India will be celebrating 100th year of Independence)?

The Central themes of the Budget, whether it is capital expenditure-led push for highways and railways, climate friendly actions, digital push, fiscal discipline or social welfare schemes, are all aimed at the long term. These are aligned with major transformations taking place across the world — rapid digital adoption, rebalancing of supply chains and environment sustainability. N. Chandrasekaran, Chairman, Tata Sons, believes this Budget positions India for a leading role in all three transformations that are under way across the world.


Government investments in roads and railways are always aimed at the future. During construction, they aid growth of over 200 sectors such as cement, steel, power, electricals, wires, etc, which push economic activity and job creation. “Investments in infrastructure and productive capacity have a large multiplier impact on growth and employment,” finance minister Sitharaman said in her Budget speech.

Hence, three times higher outlay for capital investment than pre-pandemic FY20 is a sure-shot bet on future growth. A big chunk of the ₹10 lakh crore allocation will go towards building highways and expanding/improving railway network and services. The capital investment has the potential to enhance growth, create jobs, crowd in private investment and build a cushion against global headwinds. “Railways and highways have adequate projects running to absorb the additional capital expenditure,” says finance secretary T.V. Somanathan.

Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey puts the numbers in perspective. “₹10 lakh crore is Central allocation to infrastructure. Over and above this, there is a grant for creation of capital assets at ₹3.7 lakh crore. What is not clearly articulated is additional ₹4.88 lakh crore infrastructure investment by central public sector enterprises through internal and extra resources. So, total commitment to capital expenditure is over ₹18 lakh crore. That makes it 6.2% of GDP,” he tells Fortune India.

“Increase in capital expenditure for roads and railways, and interest-free loans to states, would spur infrastructure investment, resulting in improved efficiency in logistics. Initiatives like creation of Infrastructure Finance Secretariat and Urban Infrastructure Development Fund will also aid in identifying alternative sources of funding and boosting private sector participation in infrastructure development. The increased emphasis on critical first and last-mile connectivity projects will have a multiplier effect,” says Manish Mathur, senior partner, Transport and Infrastructure, A T Kearney, a global management consulting firm. If one adds grants-in-aid to states for creation of infrastructure, the ‘effective capital expenditure’ allocation is ₹13.7 lakh crore or 4.5% of GDP.

The Budget also provides funds for 100 critical transport infrastructure projects for last and first-mile port connectivity to help sectors such as coal, steel and fertiliser. It has also proposed revival of 50 additional airports, heliports, water aerodromes and advance landing grounds for improving regional air connectivity.

Green Growth

India has made a commitment to reach net-zero carbon emission target by 2070. This will involve a long journey of green industrial and economic transition. The Budget proposes at least a dozen measures for moving in that direction. A National Green Hydrogen Mission (not a Budget announcement but allocations are happening now) is meant to facilitate transition to low carbon intensity, reduce dependence on fossil fuel imports and take global leadership in this sunrise sector.

The government has set a target of 5 MMT annual production by 2030. Rating agency ICRA says “use of green hydrogen in fertilisers will facilitate shift from natural gas, which will reduce dependence on fossil fuels over the longer term.” The Budget has also provided ₹35,000 crore for priority capital investments in green initiatives by Ministry of Petroleum & Natural Gas. Ankur Khurana, managing director, Corporate, Commercial and Institutional Banking, India, Standard Chartered Bank, says the Budget has clearly identified two key bottlenecks for adoption of renewable energy, storage and evacuation, by committing investments in interstate transmission system and viability gap funding in battery storage.

Other initiatives include support to battery energy storage systems, green credit programme to incentivise environmentally sustainable actions by companies, individuals and local bodies, use of alternative fertilisers and building of ‘waste to wealth’ plants under GOBARdhan (Galvanizing Organic Bio-Agro Resources Dhan) scheme. This is apart from promotion of natural farming and a plan for replacement of old polluting vehicles.

Digitisation Push

The Budget recognises that digitisation is an integral part of economic activity right from agriculture and health to financial services and governance. One of the most important measures announced for farmers and agriculture was not a freebie but digital public infrastructure for agriculture, to be built as an open source, open standard and interoperable public good. While a freebie or subsidy would have ensured instant gratification from a politician’s perspective, this measure is expected to provide farmer-centric digital solutions in coming years. The benefits cited by Sitharaman include information services for crop planning and health, improved access to farm inputs, credit and insurance and support for growth of agri-tech industry and start-ups. The Budget also plans three centres of excellence for artificial intelligence (AI) in top educational institutions. Government expects leading industry players to partner in conducting interdisciplinary research and developing cutting-edge applications and scalable solutions in areas of agriculture, health and sustainable cities. “This will galvanise an effective AI ecosystem and nurture quality human resources in the field,” Sitharaman said.

“The focus on improving access to credit and creating digital public infrastructure for agriculture along with the existing Agri-stack (India Digital Ecosystem of Agriculture) will unlock new growth opportunities for agri-tech SMEs and entrepreneurs as well as farmers. “Access to granular data via these digital initiatives will enhance access to agri-credit and create new business models for banks as a result of better credit discovery and risk management. The extension of DigiLocker facility to enterprises and MSMEs, KYC reforms, more integrated approach towards identity management processes and ongoing innovations to India Stack will help banks, NBFCs and fintechs underwrite better,” says Sonali Kulkarni, lead, financial services, Accenture in India.

Expansion of successful fintech services using public digital infrastructure such as Aadhaar, PM Jan Dhan Yojana, Video KYC, India Stack and UPI has been accounted for. E-court project, Entity DigiLocker for use by MSMEs, large business and charitable trusts, 100 labs for developing applications using 5G in engineering institutions, data embassies for countries looking for digital continuity solutions in GIFT City…the list is long.

Fiscal Health

While pursuing long-term growth through Budget is up to the government of the day, there is a medium fiscal policy plan mandated by the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, which government needs to adhere to. Covid-19 pandemic had forced government to deviate from fiscal deficit reduction targets mandated by the FRBM framework. However, Budget 2023 has shown that it is serious about improving the quality of expenditure and pursuing the fiscal consolidation path even though it may not be able to set medium-term fiscal deficit reduction targets. The fiscal deficit target for FY23, 6.4% of GDP, has been met in spite of global headwinds, mainly on account of higher-than-expected nominal GDP growth, buoyant tax collections and better expenditure targeting. The finance minister has set 5.9% fiscal deficit target for FY24 and reiterated the commitment made in FY22 Budget speech that government would pursue a broad path of fiscal consolidation to take fiscal deficit below 4.5 per cent of GDP by FY26.

Fitch Ratings, which gave a ‘BBB-’ rating with ‘Stable’ outlook in December last year, says in its post-Budget analysis that while India’s fiscal deficit and government debt are high relative to peer medians, government’s emphasis on reducing the deficit will help stabilise the debt ratio over the medium term. “This Budget sought to maintain a balance between growth-oriented focus through further increase in capex and deficit reduction. The government is aiming at modest fiscal consolidation, while accommodating a higher capex spend and changes to income tax slabs, largely by substantially reducing subsidies in the coming year,” says Jeremy Zook, director and primary sovereign analyst for India, Fitch Ratings. He adds the Budget’s nominal growth and revenue assumptions are broadly credible, though risks remain tilted towards the downside given the uncertain global outlook.

The quality of spending (focus on capital expenditure) has helped, too. “India is well-placed to sustain higher growth rates in the medium term than many of its peers, with the capex drive helping underpin this view. We still believe it will likely be challenging for the government to reach 4.5% of GDP deficit by FY26 as achieving this target implies additional 0.7% of GDP consolidation in each of the subsequent two fiscals. Nevertheless, the commitment to reduce fiscal deficit is a positive signal for debt sustainability,” says Zook.

No Shortsighted Moves

Thankfully, social welfare measures in the Budget also do not have a populist hue, though it may have an impact on voter preferences. Thus, a new Pradhan Mantri Particularly Vulnerable Tribal Group Development Mission, which looks to improve socio-economic conditions of Particularly Vulnerable Tribal Groups (PVTGs), is designed as a three-year programme. An allocation of ₹15,000 crore to saturate PVTG families and habitations with basic facilities such as safe housing, clean drinking water and sanitation, improved access to education, health and nutrition, road and telecom connectivity and sustainable livelihood is serious business.

The PM Vishwakarma Kaushal Samman offers not just financial support but advanced skill training, knowledge of modern digital and green technologies, brand promotion, linkage with local and global markets, digital payments and social security to traditional artisans and craftspeople. Similarly, the Mangrove Initiative for Shoreline Habitats & Tangible Incomes will strengthen mangrove plantations along coastlines and on salt pan lands through convergence of existing schemes like MGNREGS.

Given the challenging macro backdrop of slowing global growth and tightened financial conditions, it’s a no-nonsense Budget with a lot of plans which, if implemented well, can accelerate India’s economic growth and strengthen its fiscal stability in the long run.

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