FM focuses on capital investment in quest for post-pandemic recovery
The finance minister (FM)’s Budget speech was briefer in length than in previous years. However, it covered a lot of ground across sectors, and so, one must choose a few noteworthy themes. Perhaps the most far-reaching element of the statement was the willingness to continue with a 6% plus fiscal deficit. The present government has generally believed that it possesses competent execution capabilities and can, therefore, manage large capital expenditure plans efficiently.
Consequently, it has been prepared to live with a very high level of capital expenditure of ₹7.5 lakh crore in FY 23. This element, if well executed, has the power to keep India at an 8% trajectory of growth.
Within the various areas that one can spend money on, this government has historically over-delivered on the implementation of road and logistics projects. Echoing the confidence that comes from this, the finance minister dedicated ₹20,000 crore for highways, 400 new Vande Bharat trains and several initiatives for logistics. Another pet project, and one I am a fan of, is the affordable housing programme under the Pradhan Mantri Awas Yojana (₹48,000 crore for this).
Another interesting topic in the speech was the idea of sustainability. In the wake of the government’s commitments at the COP26 climate conference, we now see serious capital touching on various aspects of the climate crisis. The government has offered a ₹19,500 crore production linked incentive for solar panel manufacture. The extensive reference to new policies around the circular economy across 10 sectors will require businesses to change the way they deal with waste. Similar references to energy efficiency savings models for commercial buildings and investments in special mobility zones for electric vehicles will make this one of the most climate conscious Budgets in the world.
While the speech did not overtly refer to many subsidies, it offered safety nets for a few groups facing undue hardship. Even lay readers will have observed the pain faced by the hospitality sector. The government has expanded the emergency credit line scheme, the invaluable credit guarantee system, with an additional ₹50,000 crore dedicated to the hospitality sector and other sectors. The same scheme has been continued for other small and medium enterprises, who have also suffered the short end of the K-shaped recovery.
One of the winners in the Budget speech was a city. Gandhinagar might have, some years ago, been felt to be an unusual location for a financial centre — Mumbai being the obvious choice. However now, the efforts of the Centre as well as that of the Indian Financial Services Centre (IFSC) are coming to fruition. The finance bill was replete with tax incentives for portfolio managers, ship lessors. It is exciting to see the IFSC being visualised as a Global Centre for Climate Finance, competing with Luxembourg and London. If this succeeds, it can prove to be a magnet for foreign funds.
Budgets, in the digital age, have tended to use the power of technology to bring about reform. Continuing this theme, the government will create an open digital platform for health. It will complete the core banking linkages of the post offices to allow farmers and senior citizens to save and invest more easily. Seventy districts will have digital banking units and funds are again allocated for digital skilling. These forms of soft technology infrastructure will drive growth by avoiding leakages, increasing reach, and generating business efficiencies
No Budget is ever perfect. One would have liked to see an explicit articulation of job creation measures, although it is clear that the FM feels that the many programmes she has outlined will lead to job creation. There was also no reference to how we will manage inflation, especially given high oil prices. The FM has had to deal with two waves of Covid lockdowns this fiscal and now looks forward to elections in several states. This did not leave her with a lot of elbow room to do things.
In these circumstances, it is commendable that she has chosen to stay the course on capital expenditure expansion. Many of the best economic outcomes have come from small reforms. The Budget addresses a range of initiatives and also looks to protect domestic industries from imports. This focus on capital investment coupled with reforms across industries, and assistance to small enterprises will nurse the economy to its growth path.