Prime Minister Narendra Modi has recently requested not to link the Union Budget with the elections as, according to him, the budget “transcends our (political) differences”. The Union Budget for 2022-2023 presented by Finance Minister Nirmala Sitharaman seems to have been inspired by the Prime Minister’s vision. And there is no doubt about that also as even though it is time for elections in Uttar Pradesh, Punjab, Uttarakhand, Manipur and Goa, the budget has refrained from any of the appeasement measures like putting more money in the people’s pocket. To count a few, it has not resorted to cash transfers to farmers under PM-Kisan which currently stands at Rs 6,000 per year. It has also not provided any form of income tax relief to the middleclass. Interestingly the outlay on MGNREGA, which was Rs 1,11,700 crore in 2020-21 and whose revised estimate (RE) for 2021-22 was Rs 98,000 crore, has been slashed to Rs 73,000 crore.
The budget has, instead, emphasised on public sector spending. The Centre’s own capital expenditure for the 2022-2023 is Rs 2 lakh crore higher than the 2021-22 RE, which actually is more than double of Rs 3.36 lakh crore as was in 2019-20. As such, the capex is budgeted at Rs 7.5 lakh crore. This enhancement in Government expenditure is bold and welcome mainly because it focuses on investment rather than consumption; and such a decision is taken in an election year by resisting the temptation of enhancing spending just to yield political dividends, which of course would have been short-term.
This budget focuses primarily at the medium and long terms. It is a fact that the Indian economy craves for investments in the segments like railways, mass transport, roads, waterways and irrigation that would augment, catalyse and boost productivity and reduce additional costs like that in logistics. The consequential benefits of such investments are manifold; it shall lead to an increase in private investment and stimulate demand for commercial vehicles, cement, capital goods, steel, etc. However, taking into account the long periods for the effect of such investments to be actually realised, the investments in such segments can wisely be undertaken by the Government only.
However, what is risky in this approach of investment is that the economy will continue to trail and struggle with the bottlenecks caused and induced by the pandemic. The income losses suffered by the poor and lower middleclass households and the resultant squeezing of savings have already affected the private consumption and it is to continue in the near future. This is so even if we are to assume that there will be a return to normal economic activity in 2022-23 free from the economic disruptions from any new infection.
This budget is well-calibrated with regard to the dearth of resources at the Government’s command. It is obvious that any effort to add impetus to both consumption and investment at the same time would have to come at a higher fiscal deficit. It would also have resulted in an increase in Government borrowings and which would have further scaled up interest rates, directly harming the growth prospects. So, from that perspective, Sitharaman has taken the appropriate decision as any fiscal adventurism would have certainly come up with serious repercussions in the present global scenario, where Governments and Central banks are still dealing with post-pandemic stimulus measures. Besides, taking into account public sentiments, there has been a significant backward movement in disinvestment target. As for the coming fiscal, a mere Rs 65,000 crore is being budgeted from disinvestment.
Interestingly, this budget has brought relief for the market because of the increase in capital outlays and owing to the absence of any proposals on wealth or inheritance tax, etc. Hopefully, with this budget, we can now focus on implementation of the schemes that are already drawn out. As it is not only a political necessity but an economic imperative too to bring back growth. The target is simple, that is focussing on growth, but through a modus operandi that is fiscally sustainable and is done in coherence with the target of reducing the general Government debt.
(The writer is an Additional Central Government Standing Counsel, Central Administrative Tribunal, Cuttack Bench and a Distinguished Adjunct Professor of Law and Media Studies at School of Mass Communication, KIIT University. Views are personal)
