Defining India’s growth trajectory – Ajay Mahajan

By Ajay Mahajan

Around this time two years ago, the world was still warming up to the term Covid-19. Some warned of the turmoil it could cause, some just rubbished it by terming this invisible virus a propaganda of one nation. The turns of events ever since have potentially changed the world in ways we could never predict. And in times like these, it’s only natural to look to the governing authorities to lead the country to a promising future. Nirmala Sitharaman’s Union Budget for 2022-23 might just have done that.

Despite the state elections being just around the corner, the Budget treads the path of fiscal prudence at the expense of populism. It refrains from subsidies and splurging on unproductive measures. Given the financial and sociological disruption caused by the pandemic, it’s imperative to spend resources in ways that could boost the economy in a stable manner.

Sitharaman took many by surprise by wrapping up the document in about 1 hour 32 minutes after having famously delivered India’s longest Budget speech of 2 hours 40 minutes two years ago. But the shorter length by no means indicates lesser announcements in the direction ahead. Laying the blueprint to Amrit Kaal of the next 25 years – from India at 75 to India at 100, the Budget depicts a firm and forward-looking approach.

Expecting the country to grow at 8-8.5% in the coming financial year, the finance minister’s Budget focuses primarily on three elements — infrastructure, sustainable development, and all-inclusive welfare. All need of the hour.

As we still struggle under the pandemic’s pressure, a higher-than-expected Rs 7.5-trillion allocation in the infrastructure sector in public investment for asset creation will likely crowd-in private sector investments and uplift sentiment. Drones in agriculture, organic farming, and wasteland development with an outlay of Rs 3 trillion will help build ‘Bharat’ and lead to transformation of life in rural India. The extension of ECLGS scheme by one more year and Rs 5 trillion of guarantee cover is an excellent step to support the MSME sector that took the brunt of the second wave of pandemic.

Taking learnings from the past few years, the government’s bid to spearhead digitisation and take technological benefits to as many people as possible across the country is laudable.

Plans to create portals for health care and education will go a long way in shaping the country’s future and ensure inclusive growth.

All this will consume a larger dose of Rs 7.5 trillion of capital expenditure next year. The flip side to which is a much larger-than-expected gross borrowing programme of Rs 14.3 trillion, adjusting the announced number of Rs 14.95 trillion down by Rs 0.65 trillion switch of short-term with long-term securities with RBI.

While this does spoil the sentiment for fixed-income markets in the short term, a similar issue cropped last year, and the Reserve Bank and the government managed incremental borrowings very well through a slew of innovative measures. We also expect the government to collect far more tax revenues than budgeted, thus having a back-pocket to fund its programmes without having to push issuances at very high yields.

The additional outlay of Rs 0.195 trillion towards solar PLI, with priority to fully integrated manufacturing units is likely to boost the domestic solar manufacturing ecosystem. Further, the government’s plan on issuance of sovereign green bonds for mobilising resources for green infrastructure will enhance the finance availability and will also aid the investor participation in the Indian renewable sector.

The Budget has also laid out a roadmap to improve upon ease of doing business and ease of living. Strengthening the ecosystem for the electric vehicles through battery-swapping policy, and enhanced PLI allocation for solar power related manufacturing are set to help achieve climate targets and ensure a better environment for future.

Though the FM touched upon most aspects expected, the inclusion in global bond indices and clarity on tax exemptions found no mention. This left the fixed income and forex players disappointed. Rupee took a little hit, bond yields certainly much higher.

The unpredictable world of cryptocurrencies finally made its way to the FM’s speech and a hint of acceptance, with the government proposing to tax the gains from crypto trading at a steep rate of 30%.

Overall, the Budget couldn’t have been better given the current situation. There are challenges all around, but the FM has put forth a forward-looking plan of action. Be it increased push on digitisation, commitment to build infrastructure or putting technology to use for a greener and cleaner future – the measures announced today will likely ensure sustained growth in the coming months and years.

The author is MD & CEO, CareEdge (CARE Ratings)