Nirmala Sitharaman’s fifth, and the last full Budget, was expected to be high on populism and the Finance Minister has met those expectations to quite an extent. With an eye to the forthcoming elections in three North-Eastern States and, of course, the general elections next year, the Union Budget for 2023-24 has plenty on offer for the key constituencies.
These include the middle class who should have plenty to cheer about from several changes that have been proposed in the Income Tax Act.
However, notwithstanding the immediate electoral compulsions, the major task before the Finance Minister was to ensure that the Indian economy was able to sustain a growth of at least 7 per cent, which, more importantly, was inclusive in nature.
Growth projections
If the projections of the National Statistical Office are any indication, the current fiscal year could see a growth of exactly 7 per cent, though the RBI’s projected growth rate was a tad lower. But in its World Economic Outlook Update released earlier this week, the IMF has indicated that in the calendar year 2023, India would grow at 6.1 per cent. In other words, uncertainties about getting onto a sustained growth path loom large. A larger problem is to ensure inclusivity, especially during a phase when joblessness has become pervasive.
PLI cuts
Two years back, the government seemed to have had the answer to the syndrome of jobless growth when it had launched the Atma Nirbhar Bharat Abhiyan with much fanfare. This programme was intended to serve three key objectives: first, to put the domestic manufacturing sector on track, secondly, to create jobs, and thirdly, to help reduce India’s import dependence in critical sectors.
For this purpose the Production Linked Incentive (PLI) Scheme was initiated by carefully selecting a set of industries that would meet all these objectives. Thirteen major sectors, including textiles, automobiles and components, pharmaceuticals and their active ingredients, large scale electronics manufacturing, and telecom and networking products, were selected.
But more than two years after the launch of this scheme, manufacturing sector is struggling and India’s import dependence has increased in many of the key sectors, the latter causing the current account deficit to rise to 4.4 per cent of GDP by the end of the second quarter of this fiscal.
The expectation from the Finance Minister was that the PLI Scheme would be rejigged, and greater emphasis laid on addressing its deficiencies. Surprisingly, budgetary allocations on the PLI Schemes in almost every sector have been reduced in the 2023-24 Budget, some being subjected to heavy cuts. This includes some of the critical industries.
The most significant reduction was in the case of PLI Scheme for large scale electronics manufacturing. Against the budgeted allocation of ₹5,300 crore for 2022-23, the revised estimate is only ₹2,300 crore, and for the next financial year the sector has been promised ₹4,600 crore.
The PLI scheme for producing telecom and networking products, which was allocated nearly ₹530 crore in the previous year’s Budget, has been discontinued. A new Scheme, Domestic Industry Incentivisation Scheme, has been proposed in this Budget, though it is not clear whether the new Scheme would meet the objectives of the PLI Scheme.
India’s large import dependence on active pharmaceutical ingredients (APIs), and that too, on China, has long been identified as an area of concern for the domestic pharmaceutical industry. The PLI Scheme for the promotion of domestic manufacturing of critical key starting materials, drug intermediates and APIs was a vital step for weaning away from China. This Scheme was allocated ₹390 crore for the current fiscal year while the allocation for the next year is ₹100 crore.
These trends in government’s support for the PLI Schemes seems to reflect its lack of interest in addressing the structural weaknesses in the country’s manufacturing sector. The working of these Schemes, especially their inability to make the domestic manufacturing sector to assume centre-stage by replacing imports, had to be reviewed extensively, possibly with additional budgetary support.
Instead, the PLI Schemes for reviving the manufacturing sectors seem to have slipped down the list of priorities of the government, and at a juncture when the unemployment rate, according to the CMIE, is nearly 9 per cent.
The writer is Professor, Centre for Economic Studies and Planning School of Social Sciences, JNU