By: V. Anantha Nageswaran
Four Cs – continuity, correctness, conservatism and crowding-in – are the hallmarks of the budget for 2022-23 presented by the finance minister on the 1st of February.
The budget has continued with the practice started two years ago of bringing all below-the-line items above the line. Extra-budgetary resources in which the borrowing is guaranteed and serviced by the Union Government is restricted to a single transitional item of Rupees 750 crores in the current year’s revised estimates (RE). Transparency and cleaner accounting continue to be accorded the highest priority in budget-making as was the case with the previous two budgets.
In the last two years, marked by the global pandemic, the government has provided resources for the vulnerable sections of the society through Emergency Credit Line Schemes, through Emergency Food support (PM Gharib Kalyan Yojana) involving allocation of additional foodgrain over and above eligibility under Public Distribution extended multiple times, enhanced allocations to rural employment guarantee programme and PM-Kisan.
In this year’s budget, it has extended the Emergency Credit Line Guarantee Scheme to contact-based sectors that are yet to return to their pre-pandemic levels. The revamping of the Credit Guarantee Trust for Micro and Small Enterprises (MSME) and infusing additional capital into it will unlock additional Rupees 2.0 lakh crores of credit to MSME.
The government has used the pandemic crisis as an opportunity to usher in many important structural changes in the economy. Examples include the Production Linked Incentive Schemes for fourteen sectors, the ending of the uncertainty associated with retrospective taxation, privatisation, faceless assessment and reduction in corporate and personal income taxes wherein taxpayers could opt for lower tax rates with fewer or no exemptions or to file under the old method. In addition, important process-oriented measures such as the launch of the Gati Shakti dashboard, reforms to government procurement, changes to Factoring laws and the Account Aggregator framework have been launched.
The budget for 2022-23 builds on this approach of combining structural reforms and process improvements. The many initiatives under Gati Shakti, the inter-linking of many portals (Udyam, e-Shram, NCS and ASEEM) to help MSME with credit facilities, skilling and augmentation, the enabling of post-offices with the core -banking solution, the facilitation of updated returns to correct errors in the original returns for up to two years and creating a pathway for world-class foreign universities and institutions in selected fields to be set up in GIFT city are but few of the examples.
The assumption of 11.2% as the growth rate of GDP at current prices might strike many as being too conservative especially given that the Economic Survey for 2021-22 projects a figure of between 8 and 8.5% as the growth rate for GDP at constant prices. If anything, the chances of this projection being exceeded are higher than the chances of undershooting it, given that real GDP contracted q/q in 1Q2021-22. That sets up a positive base effect for 2022-23. However, depending on the impact of the omicron variant on economic activity could be weaker in the last quarter of the current fiscal year. If multiple external shocks impact the Indian economy in 2022-23 (oil price shock, Fed’s monetary policy normalisation impacting global financing conditions, etc.), then 11.2% might not appear as conservative but prudent.
Capital expenditure by the government will rise 36% over the revised budget estimate (and 35.4% over BE 2021-22), after one excludes the cash infusion of nearly Rupees 52000 crores into AIR INDIA. It includes Rupees 1.0 lakh crores of 50-year interest-free loans to state governments to undertake capital infusion. It includes incremental (over last year’s 65000 crores of Rupees) budget support of Rs. 69000 crores (provided as equity) to the National Highways Authority of India. All of this information is in the public domain.
If State governments were allowed these Rupees 1.0 lakh crore as an additional borrowing limit, they will bear an interest rate that is higher than the rate at which the Union Government borrow. Further, the money can be used for revenue expenditure. This interest-free loan, dedicated as it is to capital expenditure, incentivises it. The fact that states’ capex up to November 2021 was 67% higher than in the same eight months of the previous financial year supports this 50-year interest-free loan purely for capital expenditure purposes.
NHAI’s capital investments in recent years have been considerably financed by borrowings and this has increased its interest burden. By providing enhanced budgetary support, the government is strengthening NHAI to remain a financially viable entity while ensuring continued investment in national highways.
Once confidence and cheer crowd out the pandemic-induced concern that is currently clouding the minds of the citizens, then the various measures announced and the capital investments envisaged in the budget will succeed in crowding in private investments.
The author is the Chief Economic Advisor to the Government of India. These are his personal views.
