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Budget 2022-23: Cautious, with a growth-impetus

A slightly more ambitious revenue-raising effort was perhaps called for.

budget 2022, union budget 2022, indian economy, indian revenue
The middle class, battling soaring inflation and high medical expenses, will be disappointed and with good reason.

Realistic would be a good way to describe finance minister Nirmala Sitharaman’s budget for 2022-23. By pegging the fiscal deficit for 2022-23 at 6.4% of the GDP, compared with 6.9% in 2021-22, the government is consolidating the fisc. At the same time, the finance minister has neither compressed the balance sheet too much nor expanded it beyond her means. It is a fine balance, and the government will still have some room to give growth an impetus, which is much-needed in an economy where the post-pandemic recovery has been rather uneven. To be sure, the government plans to spend just 4.6% more next year than it will in the current year, in what could be called a very conservative effort. However, it is an extremely pragmatic one given the many potential headwinds—high oil prices, the global tightening cycle and slowing local growth in H2FY23—that could blow away the estimates. Indeed, there are those who would argue the budget is somewhat expansionary and that the fiscal deficit is much higher than might be warranted. After all, it would necessitate a huge jump in market borrowings, not prudent at this juncture, when interest rates are moving up and the public debt is already at uncomfortable levels. One had hoped the FM would give the small taxpayer some relief, and also provide extra support to MSMEs, by raising the tax rates for large corporations who are doing extremely well. The middle class, battling soaring inflation and high medical expenses, will be disappointed and with good reason.

The extra resources would have come in handy. Against an unfavourable base and a waning of the formalisation effect, tax revenues next year will increase at a more modest pace of just under 10%, nowhere near the 24% jump seen in 2021-22; it is a drop in the buoyancy from 1.4% to 0.9%. Also, non-tax revenues will be smaller by about 14% next year, with the divestment target projected at just 65,000 crore. Under the circumstances, a slightly more ambitious revenue-raising effort was perhaps called for. That would have helped the government spend a little more and help lower the substantially higher market borrowings—a net11.2 lakh crore, which is a jump of a whopping 44% over the 7.8 lakh crore in 2021-22. It is possible the government is counting on foreign portfolio investors (FPIs) to invest in bonds and there has been talk of India joining one of the global bond indices. Should this materialise soon, it would take the pressure of local bond investors. In the meantime, however, one should not be surprised if the government moves somewhat cautiously on the expenditure front, at least in the initial months of the year. Should there be no more pandemic waves, there could be an upside to the 11.1% GDP growth estimate. To the FM’s credit, she has made some well-thought out allocations.

Also Read: Budget 2022-23: Bold and imaginative

Apart from a chunky48,000 crore outlay for affordable housing, the 50,000 crore for the ECLGS is welcome. The capex outlay has been increased by a good 25%, to7.5 lakh crore, over the revised estimates. The focus on creating modern infrastructure is right, and there are, no doubt, synergies to be exploited from the multi-modal approach being envisaged. However, the success of the infra build-out, especially where PPPs are being visualised, will depend on the schemes being properly framed. We all know how the plan to privatise the operations of passenger trains ended; it went nowhere. A national infrastructure pipeline and the Gati Shakti programme sound good, but need to effectively implemented. Also, one is not sure the government will be able to commit the resources needed to roll these out. What it needs to do is to make the terms and conditions of the projects attractive enough to entice the private sector to implement them on its own.

Indeed, the FM spoke of this in her speech, saying public investments would need to be complemented by private capital on a “significant scale”. One does not see that happening unless the projects are well thought out and remunerative for the concessionaire. There are funds to be sourced from multilateral agencies, and the states, who have got themselves an additional 1 lakh crore in interest-free loans to spend on capex, must tap this. The investments should help create urban jobs, direly needed given there is no urban equivalent of the MGNREGS. Over the next few years, the government must pass on the infrastructure investment baton to the private sector, which must pick it. It is important that private investment is ‘crowded in’. Meanwhile, the government must make sure the asset monetisation scheme makes headway so that the resources it frees up can be recycled. While encouraging local production, the government must also encourage the creation of globally-competitive companies; leaving import duties high so as to protect local manufacturers will stymie the growth of large, efficient producers. One area where the government needs to get its act together is the disinvestment programme; the process has not progressed as fast as is needed.

While the taxpayer will no longer be footing the bills of Air India, she will continue to support other PSUs like BSNL, in which the Centre plans to infuse nearly45,000 crore next year. It must try and raise more than the budgeted `65,000 crore next year. The reserve price for the 5G auctions must be reasonable so that telcos participate in them. The budget numbers are credible and there could be an upside in the revenues. But it is critical the government focuses on raising resources so that it is not forced to scale back expenditure.

The writer’s views are personal.

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