Union Budget delivers what India needs now

Built on public investment, its success will depend on timely disbursal and efficient utilisation of funds

It’s difficult to look beyond the big number in the Union Budget. This is the 35.4% increase to ₹7.5 lakh crore in capital expenditure in 2022-23. The number is important because, in the absence of private investment, it is public investment that needs to drive the economy, and there were fears that the government, after increasing capital expenditure by 29% to ₹5.54 lakh crore in 2021-22, would, with an eye on balancing its books, perhaps not follow up with another significant increase. Those fears have proved unfounded, and it is clear that the finance minister (FM) recognises the importance of public investment in the coming financial year (it will “crowd in private investment,” FM Nirmala Sitharaman said). Public investment has played a significant role in the economy’s recovery from the (still) ongoing pandemic, and it’s reassuring that the government realises that it needs to do much of the heavy lifting in 2022-23.

Yet, there is more to Union Budget 2022-23. One, there is a repeated emphasis on domestic manufacturing across sectors (including defence and electronics) which, if successful, could mean jobs apart from selfreliance. Two, there is acknowledgement (backed by allocation) that the education sector has been hit hard and that significant intervention is needed to ensure that the two years that many students have lost do not end up disadvantaging them for life. Three, there is a clear focus on reducing the economy’s carbon intensity (and footprint) — from pushing the cause of solar (through a boost to local manufacturing of modules) to sovereign green bonds to implementing recycling policies across 10 sectors to a push for public transport in urban areas to a battery swap plan for electric vehicles. Four, there is a continued push on the digitisation front, evident in the 50% increase (to ₹79,887 crore) in the IT and telecom expenditure budgeted for 2022-23. Five, there is a nod to the future — not just in the decision to adopt a central bank digital currency, but also in plans for areas such as artificial intelligence, genomics and space. And six, there is the demonstration of the ability to leave well enough alone. There are no new worrisome or meddlesome taxes (the one on crypto and digital assets was required). Also absent were widely anticipated populist measures with an eye on elections in five states.

All of this has been achieved with a fiscal deficit that is estimated to be 6.4% of the GDP in 2022-23. No one is likely to complain about that number — and

Mrs Sitharaman’s unapologetic acceptance of it shows that the government is focusing on growth, not deficit. The math of the Budget appears to be conservative. It assumes a nominal GDP growth of 11.1%, which is low. In 2021-22, it assumed a nominal growth of 14.4%, but ended up seeing nominal growth in excess of 17% — which also found a reflection in its buoyant tax revenue. This seems to suggest that the tax revenue for 2022-23 could also beat the Budget estimates. And, that the actual fiscal deficit could be substantially lower. To be sure, it is also possible that this conservatism is born out of fears about downside risks, including ongoing supply constraints and the rising price of oil.

Those are the hits. As for the misses, the Budget seems to be betting on growth getting consumption demand up, rather than any feel-good interventions (read tax cuts, sops) to do so — just as it seems to be betting that with the economy reviving, some of its relief measures may no longer be needed. It hasn’t announced a Plan B for the agriculture sector after the government repealed late last year, the three reformist farm laws that were Plan A. And it is silent on the inclusion of Indian bonds in global bond indices, something that was expected to attract more foreign investments. The silence on bonds, combined with the government’s record borrowing plan — the Budget fine print shows that it will borrow ₹14.95 lakh crore, much higher than the ₹12-13 lakh crore expected by the market, raising concerns that there may not be enough credit to fuel corporate growth — roiled the debt market soon after the Budget. The fears about debt supply also come in at a time when global central banks are tightening interest rates and the Reserve Bank of India is also expected to do so. And like all other plans built around public investment, Budget 2022-23’s success (or failure), finally comes down to the timely disbursal, and the efficient utilisation of this money.

It may set the stage for the next 25 years of India’s journey as Mrs Sitharaman mentioned in her speech, or it may not, but there can be no doubt that Budget 202223 is as close as can be to being the kind of Budget India needed at this point in time.