India’s Budget 2023 fails to deliver on structural reforms, opting for short-term economic stimulus instead. Analysts and economists express concerns about stagnation in the economy.
India’s Budget Fails to Deliver on Reforms, Opting for Short-Term Relief Instead
India’s annual budget announcement was a significant event this year, marking the first full budget of Prime Minister Narendra Modi‘s third term. The budget aimed to address slowing growth and sagging markets in the world’s fifth-largest economy.
However, the budget primarily focused on short-term economic relief through middle-class tax cuts, rather than implementing much-needed reforms to stimulate rapid growth. This approach has disappointed analysts and markets, which were expecting a bold plan to revive India’s growth ambitions.
India aspires to achieve 8% growth, but the budget lacks a clear strategy to regain high growth rates. The government has forecasted India‘s GDP growth to slip to a four-year low of 6.4% in the current financial year and stay close to that level next year.
India's GDP growth has been steadily increasing over the years, with a notable surge in recent times.
According to the World Bank, India's GDP grew by 7% in 2020-21, making it one of the fastest-growing major economies globally.
The country's GDP growth is driven by various sectors, including services, manufacturing, and agriculture.
Factors contributing to this growth include government initiatives, infrastructure development, and a growing middle class.
As per the IMF, India's GDP is projected to grow at 6.9% in 2023-24.
Economists argue that achieving 8% growth requires deeper interventions in agricultural markets, human capital, and ease of doing business. Despite this, the budget has scaled back the government’s emphasis on capital spending and infrastructure, which are key drivers for India‘s growth ambitions since the pandemic.
The tax cuts may provide temporary relief to urban consumers, but economists see deeper problems that need to be addressed. The government’s decision to opt for short-term economic relief over reforms raises concerns about stagnation in the economy.
In the past, Modi and his Bharatiya Janata Party have failed to push through economic reforms, despite having a strong mandate. Analysts note that this is not the first time the government has prioritized electoral politics over reforms.
The case for reforms has been made by both analysts and government leaders. India‘s chief economic adviser, V. Anantha Nageswaran, recently argued that the government should ‘get out of the way‘ to push up growth. However, the budget’s focus on short-term relief may have reduced the government’s leeway to further invest in infrastructure.
The tax cuts’ 1 trillion rupee price tag has also reduced the government’s ability to ramp up spending on infrastructure. The budget includes 11.2 trillion rupees for capital expenditure in 2025-26, but this is close to the level of spending planned for the current year.
India has been investing heavily in its infrastructure development, with a focus on transportation, energy, and urban planning.
The country has seen significant growth in road construction, with over 20,000 kilometers of new roads built between 2014 and 2019.
Additionally, 'India's renewable energy sector has expanded rapidly' , with solar power capacity increasing by 50% in the same period.
“The government’s ambitious 'Smart City' mission” aims to upgrade urban infrastructure, including waste management, transportation systems, and public services.
Economists and analysts have expressed concerns about the budget’s focus on short-term relief rather than long-term growth strategies. They argue that infrastructure development will provide a longer-term boost to growth, but the government’s decision to scale back capital spending may hinder this progress.
