India: What To Expect In The Upcoming Union Budget

Abstract: The Budget for 2023-24, the last before the General Elections of 2024, will be presented in the backdrop of a critical geopolitical set-up internationally, clubbed with rising inflation and loss of job creation internally, and slashed growth forecast of India's GDP by several institutions, including the Reserve Bank of India. This write-up is an overview of what one may expect in India's energy, telecom, private investment and export sector.

Introduction

The Union Budget, or the Annual Financial Statement as under Article 112 of the Constitution of India, is presented by the Union Government on February 01, ahead of the new fiscal year starting in April in India. Finance Minister Nirmala Sitharaman asserted that the upcoming Budget would "follow the spirit" ¹ of earlier budgets.

The economy of India has not had the privilege of being left untouched by the uncertainty and slowdown in the international markets due to critical geopolitical situations ranging from the Russia - Ukraine war to the Covid aftermath (and fresh surge of Covid in certain parts of the globe). The RBI slashed the country's growth forecast for the current fiscal year to 6.5%.² The upcoming Union Budget will have to tackle global factors and national concerns such as rising inflation, interest rates and unemployment, in addition to growing civil unrest.

Energy Sector

The Russian invasion of Ukraine disrupted the demand and supply of global energy markets. As a result, there hangs a possible and immediate threat of recession in the US and Europe, forcing them and the world to rethink their energy sources.

The Confederation of Indian Industry (CII) has put forward its demands to the government to include petroleum products within the ambit of Goods and Services Tax (GST). A recommendation to this effect in the Budget of 2023-24 will be taken as a positive signal by the GST Council, CII believes.³

Demands to include petroleum products under the GST are not new. It has now been a long-standing contention among industry members, taxpayers and the government. Currently, the price of petrol varies in all States and UTs, with central excise duty on base price and state VAT on dealer's commission, which causes a price differentiation in the revenue of States.

Currently, taxpayers pay as high as 40-50% of petrol prices in taxes.⁴ A uniform tax in India on petroleum products will relieve the taxpayers. However, it will also mean a loss of revenue that States enjoy due to price differentiation. Accordingly, this issue has been a significant factor in a lack of unanimity among States to bring petroleum under GST.

Private Investment

It is crucial that the Union Budget for 2023-24 map out specific steps to enhance economic growth in the country by and for domestic means of development and production. It is required to ensure stability in the domestic market against rising inflation and slow economic activity globally. To achieve the same, the PHD Chamber of Commerce and Industry (PHDCCI) suggested a 5-pronged strategy to revitalize private investments⁵.

One such suggestion by PHDCCI was to enhance consumption in the economy. Improving consumption in the economy will enhance demands, providing more employment creation and bringing in more private investments. If the benefits of tax rebate on consumption expenditure are widened, it will improve consumption in the economy.

Emerging to be the third largest consumer market in the world by 2030[7], any policies that support consumption expenditure should be a welcome move. It has been found that tax rebate policies do have "a role in increasing consumer spending" ⁶. Even if temporary, such policies are found to have caused an upward shift in nondurable expenditures.

Reduced Costs of Doing Business - from the cost of labour, land, and logistics to the cost of capital - is a significant incentive for businesses to invest. Enhanced production possibility leads to enhanced capacity utilization in the economy.

As of 2019, India ranks 62nd globally in the World Bank's Ease of Doing Business Index.⁸ While one may choose to take this ranking with a grain of salt, after World Bank effectively discontinued the Index citing ethical reasons and manipulation of figures under the pressure of funding⁹, it is no surprise that there is indeed very little ease in doing Business in India.

While PHDCCI rightly highlights the same, it must be noted that any reforms in labor and land laws, and in logistics to cost of capital needs intensive market study. It requires a more in-depth involvement from India Inc collectively.

Export Sector

In the face of a decline in demand from the global economy, exports have taken a hit. The industry hopes that the impact on exports may be balanced by leaving more disposable income in the hands of the domestic consumer through cuts in the direct tax. The Confederation of Indian Industries, or the CII, has been heard to lobby the government to reduce direct taxes. The government, however, may be persuaded by the strong trends in the collection of direct taxation and the inflationary environment that such a move may not be admissible. Therefore, one may expect few insignificant tax cuts next year.

Cutting any taxes, even as demands for fiscal spending remain strong as ever, will have cascading effects on the economy in other spheres. It will likely disturb the FRBM targets for the government yet again. Moreover, the economy may spook investors away and surrender the capital flow dividends it reaps as one of the few remaining bright spots in an otherwise tanking world economy.¹⁰

Telecom Sector

With affordable smartphones and mobile internet rates now growingly accessible in more remote parts of the country, the last two years have been revolutionary for the Indian Telecom sector. The recent auction of the 5G spectrum in August saw a record bid of Rs. 1.5 lakh crores.¹¹ Today, 70% of the data traffic of telecom services is driven by OTT platforms in India. This surge in data consumption by OTT platforms and affordable internet rates are both cause and effect, the phenomenon being instigated by the lockdowns during Covid.

The 5G rollout in sight now raises concerns about the complicated RoW policy at play in India. Increased Fiberisation is needed to facilitate a faster 5G rollout. The government released a draft seeking recommendation on the simplification of the RoW policy. The telecom industry looks to the Union Budget 2023-24 with anticipation for a simplified RoW policy unified across governments of different states and the central government.

The Department of Telecommunications (DoT) released a draft of the Indian Telecommunication Bill, 2022, that sparked debate over its proposal to include OTT platforms within the ambit of telecommunication services. Such inclusion shall oblige the platforms to share their revenues with the government through license fees. OTT platforms stand firm in their demands against inclusion, at the same time looming the fear of spiking the tariff rates.¹²

Viewpoint

Across sectors and industries in the country, what remains consistent is the dual pressure of an upended market both globally and nationally. The geopolitical turbulence from the Russian invasion of Ukraine has strained the economy globally, causing a significant slowdown in market activities.

Indian markets have been weighed down by the domestic pressure of rising inflation and low job creation over the last decade. Taxpayers and businesses alike wait for the Budget of 2023-24 in anticipation of strong measures to bring relief from the turbulence in the market.

There is an expectation that since the Budget of 2023-24 is the last Union Budget of the present government before the 2024 polls, one can expect a taxpayer-friendly budget.

Footnotes

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