The government’s focus on capital expenditure in the latest Budget is aimed at not just stirring the supply side but also stimulating demand without dumping fiscal prudence, Sanjeev Sanyal, principal economic advisor in the finance ministry, told FE.
Sanyal, who was the lead author of the latest Economic Survey, said its forecast of a real GDP growth rate of 8-8.5% for FY23 is realistic and factors in risks emanating from the new Covid strain and global liquidity tightening. The government, however, has admittedly been more conservative in its approach in the Budget and predicted nominal growth of just 11.1% in FY23. Of course, the government expects the GDP deflator, used to compute real growth from nominal, to moderate sharply in FY23.
Countering the criticism that fiscal weariness has prevented the government from extending adequate demand booster in the Budget, Sanyal said in an interview: “We are aggressive on the demand side as well but we have a particular way of going about it. We will support demand but we will do it through capex.”
It makes more sense to raise capex substantially because it has a much higher multiplier effect (in terms of creating jobs, spurring consumption, etc) than revenue spending. “So, from purely demand perspective, too, capex is more desirable. Similarly, it also creates productive assets. So, even from a supply-side perspective, its’s a good idea,” he said. “And of course, from a fiscal perspective, when we are adding to debt, we are also creating durable assets for future generations,” he said, adding capex is the best way out.
The Centre’s budgetary capital spending is estimated to rise 36% to a record `7.5 lakh crore in FY23 from the revised estimate for FY22 (excluding capital infusion into Air India). Its capex next fiscal will more than double from the pre-pandemic (FY20) level.
The principal economic advisor highlighted a slew of reforms undertaken by the government in recent years to improve productive capacity of the economy, boost jobs and ensure greater ease of doing business. These include factor market reforms; deregulation of sectors like space, drones, geospatial mapping, trade finance factoring; process reforms like those in government procurement and in the telecommunications sector; removal of legacy issues like retrospective tax; privatisation and asset monetisation, and the creation of physical infrastructure.
Sanyal highlighted the liberalisation of the telecom regulations in the IT-BPO sector (for ‘other service providers’) since November 2020 as one of the most crucial reforms. It granted freedom to firms from a complex maze of archaic rules, including the need for registration certificates for centres of ‘other service providers’ (OSP) or that of bank guarantees. Consequently, in a Nasscom survey, as many as 92% of the participants stated that OSP reforms had substantially reduced their compliance burden.
At the same time, Sanyal called for further, next-generation reforms in the patents and intellectual property rights regime to bolster innovation.
The number of patents granted in India went up from 7,509 in FY11 to 28,391 in FY21. But it’s still a fraction of what is granted in China (5.3 lakh), the US (3.52 lakh), Japan (1.79 lakh) and South Korea (1.35 lakh), according to the World Intellectual Property Organization.
Apart from lower-than-expected R&D spending, procedural delays and complexity of the process is a crucial reason for low patents in India. The average pendency for final decision in acquiring patents in India was 42 months in 2020, much longer than in the US (20.8 months), China (20 months), Korea (15.8 months) and Japan (11 months). This was brought down sharply in India from 64 months in 2017 to 42 months in 2020 and this process needs to be expedited further, Sanyal said.