Budget 2022-23: Avoid sharp fiscal correction, economists tell FM

Ahead of the Union Budget, economists advised Finance Minister Nirmala Sitharaman and ministry officials to avoid a sharp fiscal correction and maintain focus on public investment in infrastructure to further revive consumption and demand.

In a pre-Budget meeting on Wednesday, the economists also advised finance ministry officials that the Centre should strive for consistency and stability in tax policy, instead of tinkering with rates too much.

“The broad advice was that don’t go for a sharp fiscal correction. Keep focus on capital expenditure as the recovery of consumption, investment and demand is still shallow,” a person aware of the discussions in the meeting told Business Standard.

According to the source, almost all economists recommended the government not to be too aggressive with their fiscal stance, be conservative with revenue projections for fiscal year 2022-23 (FY23), and have expenditure space for welfare schemes and capital expenditure.

The economists said to be present included Surjit Bhalla, the former chief economic advisor Nitin Desai, the member of Economic Advisory Council to the prime minister (EAC-PM) Sajjid Chinoy, former Monetary Policy Committee and EAC-PM member Ashima Goyal, State Bank of India’s Soumya Kanti Ghosh, Barclays’ Rahul Bajoria, Deutsche Bank’s Kaushik Das, HSBC’s Pranjul Bhandari, and Aditya Birla Group’s Ajit Ranade, among others.

Along with Sitharaman, the virtual interaction was attended by Finance Secretary T V Somanathan, Economic Affairs Secretary Ajay Seth, Department of Investment and Public Asset Management (DIPAM) Secretary Tuhin Kanta Pandey, Corporate Affairs Secretary Rajesh Verma and Principal Economic Advisor Sanjeev Sanyal.

“Most of the advice was on maintaining tax predictability and stability, though there were some voices that suggested that the government should present a four-year roadmap on the Direct Tax Code,” said a second source aware of discussions in the meeting.

The economists are learnt to have recommended the ministry officials the need to focus on employment-friendly schemes and mechanisms, keeping borrowing programme and bond rates stable, and announcing a more focused policy on renewable energy.

The economists also lauded the government’s initiatives to kick-start recovery across sectors and steps taken to deal with the Covid-19 pandemic.

With this meeting with economists, Sitharaman has concluded her pre-budget meetings. Since last week, the finance minister and top ministry officials have interacted with industry bodies, representatives from agriculture and food processing sectors, labour organisations, capital markets, infrastructure and green energy sectors, services and trade bodies, social sector bodies and economists.

“The stakeholder groups made several suggestions on various issues that included increased R&D spending, infrastructure status for digital services, incentives to hydrogen storage and fuel cell development, rationalisation of income tax slabs, investments in online safety measures, among others,” according to an official statement.