Union Budget 2022: Kudos to Finance Minister Nirmala Sitharaman

Exactly two years ago, for the very same newspaper, I wrote a seriously critical piece on Finance Minister (FM) Nirmala Sitharaman’s second Union Budget. My piece on her last Budget (2021-22) was partly critical. But it also recognised that she deserved praise given that it was tough Budget to frame; and I commended her strategy of keeping a ‘goody bag’ of Rs 44,000 crore of standby money with the Department of Economic Affairs, which could be used to provide extra resources for projects, programmes and departments that showed good progress on capital expenditure and required further funds.

This time around, I must go on record praising her for the way in which she has framed the Union Budget for 2022-23. Let me explain why.

First, she has kept her fourth Budget speech much shorter than her other three. Of course, there was the usual praise for the Prime Minister, but certainly not with the frequency with which such acclaim was read out in the last three stints. Consequently, she started at 11 am and recommended the Budget to the House at 12.31 pm — a creditably shorter and far more focused and connected Budget speech than earlier.

Second, it will do all of us well to recognise how creditably the government has performed in collecting tax revenues amidst the pandemic. Gross tax revenue for the Revised Estimate (RE) of 2021-22 increased by over 13 per cent. Every head of tax performed exceptionally well. 

Despite local-level shutdowns, reduced working hours and supply chain constraints across many states, Goods and Services Tax (GST) revenue grew by 7 per cent. Receipts from corporation tax increased by 13 per cent; receipts from income taxes went up by 9.6 per cent; and Customs collections rose by 39 per cent. This buoyancy in a year where it was least expected has given the FM the fiscal space to increase the Budget Estimate (BE) of gross tax revenue by 9.6 per cent for 2022-23.

Kudos, then, for tax collection. Nevertheless, India is now far behind the 15-16 per cent tax-to-GDP ratio that is needed to raise sufficient revenues to simultaneously reduce the fiscal deficit and increase steady state growth to between 6.5 per cent and 7.5 per cent. This malaise is not new. Our present tax-to-GDP ratio is 10.8 per cent and in 2022-23 (BE) it will actually fall to 10.7 per cent. We cannot have such a low ratio, maintain a high growth of capital expenditure – especially in critical infrastructure – and simultaneously expect to steadily progress to lower fiscal deficit to GDP ratios. The arithmetic just doesn’t work.

Third, the team needs to be congratulated on keeping tight control on revenue expenditure, which could have gone through the lid because of Covid-19. Total expenditure for 2021-22 (RE) is only 8.2 per cent higher than the corresponding BE. It could easily have been much more. This control will continue throughout 2022-23 with total expenditure slated to rise by considerably less than gross tax revenue.

Fourth, I have liked the unambiguously clear and huge increase in capital expenditure, especially for roads, national highways and metro rail. Just one example on this account: For 2022-23 (BE), the National Highways Authority of India has got over Rs 1.34 trillion, which is more than double of what it will have received a year earlier.  These infrastructure projects are seriously employment intensive and can generate a large number of jobs to poor people.

Fifth, disinvestment continues to fail spectacularly. For 2021-22, the target was Rs 1.75 trillion. It will be very lucky if we end up at even half of that number. 

I believe that the time has come to recognise that the Department of Investment and Public Asset Management (DIPAM) has consistently failed. Soon to retire civil servants aren’t the world’s best privatisation managers. The FM and PM must consider a radical revamp.

Even so, the FM’s fourth attempt is certainly her best. So long as she and her team keep a tight control on revenues and non-capital expenditure, I see every reason why the 6.4 per cent target of fiscal deficit to GDP should be achieved.

The author is Chairman, CERG Advisory Private Limited