Comprehending the numbers in union budget 2022

This Budget will go down as being one of the more pragmatic ones that balances various objectives in a decisive manner, while providing incentives and a push in the areas that require attention and keeping an eye on prudence. Budgets, we should remember, are not a panacea for the problems of the economy, which have been addressed quite aggressively by the government through various schemes and policies in the last two years.

To begin with, it must be stated that while budgets are exercises in both revenue generation and expenditure, this one should be looked at more from the point of view of the expenditure side where the aim has been to get more bang for the buck. The revenue options are limited given that commodity tax gets subsumed under the goods and services tax (GST) and there are limited options presently in changing direct tax rates.

No significant change has been made here and the assumption is that the buoyancy in growth will cascade into revenue. The assumption is that revenue will grow by around 6.5% which is therefore realistic particularly given that last year it was 27%.

One major pain point in the economy has been low levels of investment. It should be remembered that investment is really in the realm of the private sector and the government can at best support the effort by targeting special areas majorly in the infra space. Besides, state governments also need to provide support to this effort as their outlays are typically at least 20% higher than that of the Centre. Here, the continued focus on roads and railways, which are the forte of the government, will be useful. The capital expenditure target of ₹7.5 trillion for FY23 against ₹6.02 trillion in FY22 is a significant jump.

The areas of focus are interesting. Railways was granted ₹1.37 trillion while roads account for ₹1.87 trillion. Defence has an outlay of ₹1.6 trillion and here the goal is to have 68% procurement from domestic sources. Therefore, 65% would be in three sectors. Another ₹1.11 trillion will be transferred to states for investment. We can see that the backward linkages that are forged would be strong with steel, cement, machinery, chemicals and so on. But for this to change the investment cycle, we do need the private sector to contribute in a big way. It may be expected that policy initiatives such as a push provided over the years will finally trigger the private capital investment cycle this year.

Alongside, the government has given a push to targeted sectors which require support—the hospitality sector has been included under ECLGS and with ₹50,000 crore being reserved, it should help the industry significantly given that the outstanding credit here is around the same amount.

The continuous emphasis on digitization has again found its imprint here where the FM has spoken of setting up 75 digital centres in different districts and here the banks can fund a big opportunity. Furthermore, the introduction of a digital rupee will open new possibilities in the we transact. Other industries included in various proposals are telecom, solar power, defence and housing, among others. Hence the push on the supply side is quite strong and broad-based.

On the taxation side, there has not been any major giveaway which may have been expected. It does look like individuals will have to wait for one more year before there can be any further tax concessions. Right now the focus has been on improving the supply side. In a way it can be said that the demand side has been side stepped, but understandably so in the context of inflationary pressures and rising bond yields.

Quite interestingly the government has excluded the divestment proceeds of LIC from the revised numbers of FY22 as well as FY23 though it has been stated that the plan will be implemented this year. This can be interpreted as one of prudence where the actual realization will help moderate fresh borrowing.

The big takeaway, however, is that the government is on the path of fiscal consolidation albeit in a gradual manner. This is a good signal considering that we can expect fiscal deficit to move towards the 4.5% level. This should support growth in the short term while making a strong case with global rating agencies in the medium term.

Views are personal.

 Sanjiv Chadha MD and CEO, Bank of Baroda