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The Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman at the Pre-Budget Meeting with economists, in New Delhi on November 28, 2022

Professor Prasanna Tantri

Professor Shekhar Tomar

The Union Budget of 2023-24 could feature recommendations from two faculty members of the Indian School of Business (ISB). Their research-based suggestions are about boosting economic growth by focusing on very large cities and improving finance availability for startups in the country.  

As part of the budget preparation exercise, the union finance ministry holds pre-budget consultations with stakeholder groups from industries, service sectors, capital markets, trade groups, the social sector, labour unions and economists.  

This year, ISB faculty members Prasanna Tantri, Associate Professor of Finance and Executive Director of Centre for Analytical Finance (ISB-CAF) and Shekhar Tomar, Assistant Professor, Economics and Public Policy and received an invitation from the finance ministry to participate in the pre-budget consultation meeting with Nirmala Sitharaman, Union Finance Minister. 

With several startups from India scaling global heights, the Government of India initiated a flagship Startup India scheme in the 2016 union budget, with an outlay of about Rs 10,000 crores.  

Professor Tantri, in his suggestion, recommended ways and means to improve access to finance for startups. “My suggestions were more specifically related to improving startup equity investments,” he told ISB News, sharing the gist of his suggestion during the pre-budget consultation with the Finance Minister and top government officials involved in the budget-making process. 

During the meeting, Professor Tomar suggested that the budget should focus on selecting a few big urban centres and channelling more resources on their growth. Currently, many cities receive meagre support, which is not conducive to the growth of any of these cities. 

“Research in Growth Theory suggests large cities are the engine of growth, and firms, as well as employment seekers, prefer to relocate to these large cities. The aggregation effect dictates that having ten firms in one location generates more positive externality (associated economic activity) than having those same number of firms in multiple locations,” said Professor Tomar, sharing the outline of his suggestion presented at the Pre-Budget consultation meeting. 

His suggestion was based on research finding that youth are more likely to head to bigger cities in search of jobs. He recommended that existing government incentive schemes, like SEZ, Smart Cities, UDAN, Production Linked Incentive schemes etc., if focussed on five larger cities, could yield better economic growth for the nation.  

The meeting was held virtually on November 28 along with other invitee economists and attended by Nirmala Sitharaman, Finance Minister; Pankaj Chaudhary and Bhagwat Kishanrao Karad, Ministers of State for Finance; TV Somanathan, Finance Secretary; Ajay Seth, Secretary Department of Economic Affairs (DEA); V Anantha Nageswaran, Chief Economic Advisor; Secretaries of the Department of Investment and Public Asset Management (DIPAM), Financial Services, Ministry of Corporate Affairs, and senior officials from the Ministry of Finance.