By KG Narendranath

Adhering to fiscal restraint and openness, finance minister Nirmala Sitharaman on Tuesday used the Budget for 2022-23 to reassert the view held by the Narendra Modi government in the face of the ongoing pandemic that elevated public capex would herald a virtuous cycle of investment and income generation. She voted against a consumption booster, defying many an expert opinion. The Budget acknowledged that the seemingly spectacular growth in tax revenue in the current fiscal – up nearly a quarter on year – is an exception rather than a continuum, since it is greatly aided by a shrunk base and a rapid, one-time shift of business from small to big industries.

The Centre’s gross tax revenue is seen to grow by a rather modest 9.6% in 2022-23 (buoyancy under 0.9, given the nominal GDP expansion seen of 11.1%).

The stock markets cheered the budget but the bond markets reacted negatively given the larger-than-expected market borrowings. The BSE Sensex closed 1.5% higher. The yield on the new benchmark 10-year government securities hit 6.83%, up from the previous close of 6.67%.

Giving the Budget a context and displaying the ruling coalition’s confidence in the electorate ahead of key state assembly polls, Sitharaman drew a blueprint for India 25 years from now — “India at 100” – and set four priorities to make the so-called ‘Amrat Kal’ real: PM GatiShakti, inclusive development, productivity enhancement and financing of investments. A conservative disinvestment target of Rs 65,000 crore for FY23 is further proof of the Budget’s verity, as in none of the recent years the ambitious targets on this front have been approached even remotely. The Budget reveals that 5% of the Life Insurance Corporation stock will be sold to the public in the March IPO; also, BPCL sale would be the sole incidence of privatisation of a large government firm even in FY23. The Budget doesn’t provide for the planned privatisation of the two public sector banks in the next fiscal year.

The Centre’s Budget capex for next fiscal is pegged at Rs 7.5 lakh crore, up nearly a quarter from the (upwardly) revised estimate (RE) for the current year, but its total expenditure is budgeted to grow by a very modest 4.6%, signifying a desire to improve ‘quality’ of spending. The fiscal deficit in FY23 is projected to be 6.4% of the GDP, down from 6.9% in the current fiscal against 6.8% originally budgeted. This is in sync with the plan to bring the deficit down to 4.5% by FY26. Just 59% of the fiscal deficit would be revenue deficit in FY23 against 68% in FY22 and 79% in FY21, a mark of credible fiscal consolidation. Official sources indicated that this year’s fiscal deficit could be lower than the RE if market sentiments allow LIO IPO size to be larger.

Gross market borrowings at Rs 14.95 lakh crore is seen in FY23 against revised estimate of Rs 10.47 lakh crore FY22, when the NSSF was tapped much more than budgeted to part-finance the fiscal deficit.

Given that states are in for a revenue shock once the five-year GST compensation period ends on June 30 this year, the Centre sought to mitigate it by a generous 50-year interest-free capex loan of Rs 1 lakh crore to them in FY23, against Rs 15,000 crore (RE) in FY22. This is clear signal that the Centre has no intention to extend the compensation period. In both the current year and the last, the Centre supported states with special back-to-back loans to bridge the shortfalls in the GST compensation cess pool. Just to service these loans, the relevant cesses need to continue much beyond the compensation period.

Unlike in recent years, the Centre’s gross and net tax receipts and the state’s share of taxes are estimated to grow at roughly the same pace of a little over 9% next year, a move that would help allay the states’ concerns over the Centre ‘usurping’ their fiscal space through higher cesses and surcharges, especially on auto fuels.

On the taxation front, the Budget opted for stability with no major change in either personal or corporate income tax rates. It sought to tax income from transfer of all digital assets — read crypto currency — at a deterrent rate of 30% with no loss set-off facility, 1% tax on transactions themselves and other stringent conditions. But the move might still be welcomed by those who deal in such assets, as it allayed fears of a complete prohibition of such trade, lucrative at times. The RBI, the minister said, would issue ‘digital rupee’ from 2022-23 onwards, a move aimed at giving a further fillip to digital economy.

The surcharge on long-term capital gains tax would be capped uniformly at 15% for all types of assets including unlisted securities. Though the move is ostensibly for the benefit of start-ups, it would also give relief to individuals with income above Rs 2 crore. Given that the pandemic hasn’t allowed many businesses to start new ventures and avail the concessional 15% corporate tax rate for new manufacturing set-ups introduced last year, this relief would be made available for units starting production by March 31, 2024.

A rather large-scale restructuring of customs duties including withdrawal of concessional rates under Project Import Scheme and removal of exemptions for scores of items including farm goods and medicines are broadly aimed at incentivising indigenous manufacturing. On a net basis, these rate tweaks are not expected to raise India weighted average import tariff as such steps did in recent years.

Apart from the conviction that investments precede consumption, the Centre’s disinclination to give tax breaks to the middle class and low-income population is clearly influenced by the rising public debt — the Centre’s own debt was as high as 55.3% in 2020 and must have risen much since.

Interest payments in 2022-23 is budgeted at Rs 9.4 lakh crore, or 41% of total non-debt receipts, as against under 35% prevailed until 2020-21 when it topped 40%. Many states also have their debts at over 40%, while general government debt is seen to have well crossed 90%.

Among social-sector schemes schemes, outlay increases are significantly higher than overall Budget’s pace in 2022-23 only for a few schemes – affordable housing (allocation of Rs 48,000 crore for PM Kisan against 2021-22 BE of Rs 27,500 crore), rural drinking water (Rs 60,000 crore for Jal Jeevan Mission against 2021-22 RE of Rs 50,011 crore).

PM Kisan, an income support scheme for farmers and the rural employment guarantee scheme have been given outlays, in line with the Budget.

Government financing support to highway construction has been stepped up by 73% to Rs 1.88 lakh crore but the overall capital availability seen for the sector is not very ambitious. This is because no borrowing by the NHAI is envisaged for 2022-23 while its market mop-up in the current year is Rs 65,000 crore, again a move to clean up budgeting.

Railway’s capex funds via all sources including from the Budget are seen to grow by 14% to Rs 2.45 lakh crore.