A Budget that lays the foundation for the next 25 years

Over the last few mon­ths, buoyant tax collec­t­ions, improved corporate earnings, and a surge in fund-raising have been str­ong signals that the Indian economy is rebounding sharply from the pandemic blow. A major enabler of the recovery has been increased capital expenditure by the government, which is imparting confidence to the private investors as well.

Budget 2022 takes this thrust on public capex to another level — with a bold 35 per cent increase in the provision for capital expenditure; this is on top of an already enhanced capex spending in the last year. It is accompanied by a generous increase in financial assistance to state governments to contribute to infrastructure investments. These allocations give a lot more visibility and credibility to the National Infrastructure Pipeline. Besides allocations, the other piece is the monitoring and planning mechanism that has been institutionalised through the PM Gati Shakti platform.

These transformational initiatives will further str­e­n­gthen the impulses of the capex revival that is alre­a­dy underway in the private sector. Over the medium term, they will also alter the skyline of India’s infrastructure.

Such bold spending plans have meant that the fiscal deficit in FY23 will remain above 6 per cent of GDP for the third consecutive year. But there are two comforting factors with regard to the fiscal dynamic. First, the FM has targeted a larger correction in the revenue deficit — by 90 basis points vis-à-vis a 50-basis points correction in the fiscal deficit. This implies that the qu­a­lity of deficit management will improve. Indeed, capital expenditure is budgeted for the next year at a multi-year record of 2.9 per cent of GDP. Second, tax coll­e­c­tions have improved significantly this year, partly reflecting better compliance through digitisation of the tax systems. This trend will continue. Plus, GDP growth in FY23 could surprise on the upside.

It has been a conscious choice of the government to allow itself a larger fiscal space this year for accelerating public capex — taking cognizance of the near-term and long-term needs of the economy. I believe that this choice will be rewarded handsomely with the crowding in of private capex and recalibration of India’s medium-term growth trajectory to a higher orbit. Pulling back deficits to the long-term desired path should be relatively easier thereafter.

The Budget has taken many steps that are in continuation of the gov­e­r­nment’s thrust on “Make in India”. These include a review of certain customs duty exemptions to promote domestic manufacturing, reduction in import duties on raw materials used by some exporting sectors, furt­her expansion of the Production Linked Incentives sc­h­eme, extension of the tax benefits for start-ups, and a proposed new Act for special economic zones. These proposals are in line with the stated policies of the government towards Atmanirbhar Bharat. These steps will be especially beneficial in an environment where global value chains are exploring a China-plus-one strategy and are looking at India as a promising manufacturing base.

The Budget is also noteworthy for the way it addr­e­s­ses the needs of the segments that were deeply affected by the pandemic. Credit guarantee for the MSME sec­tor has been extended, and the credit guarantee trust for micro and small enterprises is being revamped.

On the whole, this is a Budget that invests boldly in India’s future and also seeds many futuristic ideas, including sovereign green bonds, India’s own central bank digital currency (CBDC), a battery swapping policy to strengthen the EV ecosystem, use of Kisan drones and “drones-as-a-service”. The embrace of digitisation by the government was also evident in the Budget speech — be it the delivery of health programmes or skilling initiatives or e-passports.

Indeed, as the FM said, this is a Budget that lays the foundation for the next 25 years.

The author is Chairman, Aditya Birla Group