The Booster Budget for 2022-23

In 91 minutes—her shortest Budget speech delivered since assuming charge in 2019—the country’s first full-time woman finance minister, Nirmala Sitharaman, outlined her government’s path for solving major economic challenges. The address was business-like and bereft of the usual long quotes. In the end, the proposals enunciated by Sitharaman reiterated the central government’s Barbell strategy and Agile framework amid the uncertainty induced by the Covid-19 pandemic since early 2020. Amply elaborated in the Economic Survey released on January 31, the Barbell part comprises deregulation, reforms and addressing of legacy issues to encourage flexibility and innovation. The second or the Agile framework involves strategies like Atmanirbhar Bharat, productivity-linked incentive (PLI) schemes and investments in renewable energy to build resilience.

By keeping the fiscal deficit target for the next fiscal at 6.4 per cent, the government has tried to pull the capex lever hard to boost growth through an upward revision by a staggering 35.4 per cent, from Rs 5.54 lakh crore to Rs 7.50 lakh crore. Along with grants to states, the actual amount spent would be about Rs 10.25 lakh crore or 4.1 per cent of GDP. Although economists and experts were expecting the fiscal deficit for FY22 to be below 6.8 per cent, a tad higher deficit at 6.9 per cent shows that the government is utilising the tax buoyancy to revive the economy. The deficit target is reflective of the government’s laser-focussed approach to grab growth without bothering much about inflation and fiscal consolidation. “We appreciate the government for not being hemmed in by the neoclassical trap of fiscal conservatism and providing a very clear glide path for fiscal consolidation that is in sync with the economic realities,” says Sanjiv Mehta, President of the industry chamber FICCI and CMD of FMCG major Hindustan Unilever. Pressing the accelerator on public capex, the government will spend Rs 39.45 lakh crore in FY23, which is an increase of 4.6 per cent from the revised spending target of Rs 37.7 lakh crore in the current fiscal.

However, to finance the deficit, the government announced a borrowing of Rs 14.95 lakh crore on a gross basis from the bond market, with the rest financed through proceeds from small savings and loans from multilateral agencies. “The focus on capex will have a high multiplier impact and I am optimistic that elevated government spending will spur private sector investments,” believes Zarin Daruwala, Cluster CEO, India and South Asia markets, Standard Chartered Bank.

Thus, the Budget 2022-23 document tabled just weeks ahead of elections in five states is a bold statement. It is not about handouts but developing a robust structure that delivers on economic growth, demand creation and jobs. This is sought to be achieved by focussing on growth and inclusion, promotion of technology-enabled development, energy transition and climate action, and a virtuous cycle initiated by private investment and supported through public investment. The strategy, as announced by Sitharaman, rests on the four pillars of PM Gati Shakti; inclusive development, productivity enhancement and investment; sunrise opportunities, energy transition and climate action; and financing of investments

Focus on Infrastructure

One of the important targets in the Budget is the completion of 25,000 km of national highways, with allocation enhanced to Rs 1.99 lakh crore from Rs 1.18 lakh crore in 2021-22. In addition, Rs 20,000 crore will be mobilised through innovative financing to complement the public resources. Four multimodal logistics parks will be awarded in the public-private partnership (PPP) mode. “The Gati Shakti initiative features at the centre stage of the Budget, highlighting the importance of quality multimodal transport in achieving overall cost competitiveness. With global studies pegging India’s average logistics costs at around 14 per cent of GDP as against 8-9 per cent for advanced economies, this is a factor that needs to be addressed for attracting quality anchor investors across sectors,” observes Arindam Guha, Partner & Leader, Government & Public Services, Deloitte India.

Adds Kshitish Nadgauda, Senior Vice President and Managing Director at Louis Berger International for Asia: “The Budget is clearly in favour of increased private investment and PPPs. For citizens, it promises safe, convenient, and cost-effective multimodal transportation not only in Tier I but also in Tier II cities and towns. The ambitious expansion of national highways, and announcement of intended investment in light rail and metro lite in Tier II cities and towns, and as feeder networks in Tier I cities, will rightly increase the share of public transport in urban areas.”

The postal services and railway network will be integrated to provide comprehensive logistics and 400 new generation Vande Bharat trains will be launched. Delivery of high-tech services to farmers in PPP mode, use of drones to aid farmers and launch of a fund with blended capital to finance agriculture start-ups have also been proposed.

The proposal for green bonds for climate change and environment-focussed products was welcomed by many. “Sustainability has steadfastly become an urgent priority and the proposal to issue sovereign green bonds for building green infrastructure will go a long way in creating a low carbon future and reducing the carbon intensity of the economy. This is in line with the government’s commitment on climate action at COP26,” says Anil Chaudhry, Managing Director & CEO, Schneider Electric India.

A Digital-Revolution Budget

The allocation for the education sector, which grappled with a major disruption owing to the pandemic, has also been raised to Rs 1.04 lakh crore from Rs 93,224 crore (Budget Estimate). To bridge the digital divide and universalise quality digital education, the Budget proposes establishing virtual labs and a digital university. “This is a digital revolution Budget. We welcome the government’s emphasis on creating new digital touch points to empower multiple aspects of our society and supercharge the start-up ecosystem,” says Kunal Bahl, Co-founder & CEO, Snapdeal, on the proposals to use enlarged technological interventions to drive synergies. “New initiatives across currency, banking, education, skilling, health, passports, and logistics will enable a large part of the country to benefit from India’s growing digital revolution.”

The health sector was, however, left disappointed. “The budgetary estimate of Rs 86,200 crore is just an increase of Rs 200 crore over Rs 86,000 crore (Revised Estimate) in FY21-22. When adjusted for inflation, GDP growth and population growth, the allocation is less than the allocation made last year,” says Dr Chandrakanta Lahariya, trained epidemiologist and health systems specialist.

With an eye on welfarism and an intent to boost consumption indirectly, the Budget with an allocation of Rs 60,000 crore proposes to cover 38 million households under the Har Ghar, Nal Se Jal programme to provide tapped water.

In addition to this scheme, Sitharaman announced eight million new houses for the identified eligible beneficiaries of PM Awas Yojana in rural and urban areas, with an allocation of Rs 48,000 crore.

A series of relief measures for the distressed micro, small and medium enterprises (MSME) sector was also proposed. These include interlinking of various portals, expansion of the Emergency Credit Line Guarantee Scheme (ECLGS) to Rs 5 lakh crore, revamp of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), and the rollout of Raising and Accelerating MSME Performance (RAMP) programme. “It is a good move to revamp the CGTMSE and provide an extension for ECLGS until March 2023. However, whether this will promptly enable financial inclusion will depend on the execution of these schemes and if the funds are readily made available to last-mile lending organisations,” opines Hardika Shah, Founder & CEO, Kinara Capital.

To further promote the ease of doing business, central and state-level systems will be integrated using technology, while other measures include an animation, visual effects, gaming and comics promotion (AVGC) task force, support of Rs 4,000 crore to build a strong 5G ecosystem under the PLI scheme, and opening up defence R&D to industry, start-ups and academia.

Another notable announcement was about the Reserve Bank of India (RBI) introducing the digital rupee. “India would be one of the first countries in introducing digital currency. The digital currency using blockchain is expected to systematically bring down the circulation of black money and help rotate currency faster, resulting in growth,” remarks Deven R. Choksey, Managing Director, KRChoksey Holdings. On the other hand, in some bad news for investors in virtual assets like cryptocurrencies, income from their transfer will be taxed at 30 per cent.

The Budget has also tried to provide greater fiscal legroom to states by enhancing the Scheme for Financial Assistance to States for Capital Investment to allow them a fiscal deficit of 4 per cent of GSDP, with 0.5 per cent tied to power sector reforms.

No Revision in Income Tax Slabs

The country’s 600 million-strong middle class was left disappointed with the finance minister again belying expectations of a revision in the income tax slabs. “On the consumption front, there is a bit of disappointment as there is no direct stimulus to spur growth and no major announcement on privatisation, and the overall divestment targets are underwhelming. Finally, from a taxation perspective, no news is good news,” says Ashish Gumashta, CEO, Julius Baer India. A finance ministry insider defended the decision by suggesting that pumping money into the economy at this stage could lead to the kind of inflationary environment that is currently being witnessed in the US and Eurozone.

The Budget also mentions replacing the Special Economic Zones (SEZ) Act, 2005 with new legislation, to make states stakeholders in their development. “This will enable states to become partners in the development of enterprises and service hubs, and this would include all large existing and new industrial hubs to implement optimal utilisation of the available infrastructure and increase the competitiveness of their exports. This will help in an increase in foreign investment,” says Mrinal Kumar, Partner, Shardul Amarchand Mangaldas & Co.

Meanwhile, rising inflation in advanced economies may cause a global liquidity squeeze, resulting in capital outflows to exert downward pressure on the Indian rupee. “India must brace for higher inflation with a strong possibility of pent-up demand exceeding supply, and geopolitical tensions resulting in higher commodity prices. Disruptions in the global supply chain will further add to the challenge,” Rumki Majumdar, Economist at Deloitte India, cautions. Thus, high oil prices, shortage of critical raw materials such as semiconductors, and a decline in exports may lead to economic growth projected at 8-8.5 per cent for FY2022-23, moderating.

How much of the Budget proposals get implemented would be known only by March next year. But what was interesting was that other than stray attempts at heckling, the finance minister’s speech largely went off smoothly, with opposition benches listening to her in rapt attention.

Was that a one-off or a sign of things to come, where the Modi government goes ahead full steam with its reforms agenda?

@manishpant22, @RajatMishra9518