While thebudget is in the desired direction, the focus now shifts to its efficientimplementation, writes Dr M Govinda Rao.
“There were concerns as to whether the finance ministerwill choose the path of fiscal conservatism or go in for an expansionary stanceto put more focus on accelerating growth and creating employment opportunitiesrather than achieving fiscal consolidation.” DrM Govinda Rao, Chief Economic Advisor, Brickwork Ratings.
There werea lot of hopes and expectations about the 2022-23 Budget. Even as the economyhas shown a revival, the first advanced estimate of GDP for the current fiscalshows that it has barely reached the pre-pandemic level.
In some contact-intensivesectors, the revival has been slow and is yet to reach the 2019-20 level. Theseare the sectors that are employment-intensive, and two years of continuous draghas created a huge burden of unemployment.
Virtually,all the growth engines, except public investment and exports, have beenstuttering; both private consumption and investment are yet to revive. Saddledwith excess liquidity, the advanced Western countries are draining theliquidity and have taken measures to increase the interest rates.
Elevatedcrude oil prices have imparted additional concerns on imported inflation. Besides,there is limited scope for monetary policy, and the heavy lifting of theeconomy must come from fiscal policy. It is in this context that the Budget for2022-23 assumes great importance.
There wereconcerns as to whether the finance minister will choose the path of fiscalconservatism or go in for an expansionary stance to put more focus onaccelerating growth and creating employment opportunities rather than achievingfiscal consolidation. According to the fiscal consolidation path recommended bythe 15th Finance Commission under a slow recovery scenario, thefiscal deficit for 2022-23 should be contained at 5.5 per cent of the GDP.Instead, the budget pegged the fiscal deficit at 6.4 per cent for 2022-23 andchose to increase capital expenditure to a record level of 2.9 per cent of theGDP. The capital expenditure is budgeted higher than the revised estimate forthe previous year by 24.5 per cent.
The increasein capital expenditure is to be accomplished even as the fiscal deficit isbudgeted to be reduced from 6.9 per cent in the current fiscal to 6.4 per centin 2022-23; though as mentioned earlier, this is higher than the 15thFinance Commission’s recommendation under a slow recovery scenario. The financeminister has promised that the rate of consolidation will be faster in thecoming years to reach 4.5 per cent by 2025-26.
Theincrease in capital expenditure is clearly well-intentioned. Almost `1.00-lakh-croreincrease is for assisting the states to catalyse the development ofinfrastructure by giving them interest-free loans over and above the regularloans to be given according to the FRBM limits. Most of these are fordeveloping multi-modal transportation networks.
Inaddition, around `60,000-crorehas been budgeted for providing tap water for 2.8 lakh households and another `48,000-crorefor affordable housing. The important point to note is that most of theseprojects are employment-intensive, and as they also strengthen theinfrastructure, they will help in creating employment and accelerating growthin the short and medium terms.
Notably,the increase in capital expenditure has not been achieved by making anunrealistic projection of revenues. The total revenue receipts are estimated toincrease by just 6.0 per cent over the revised estimate of 2021-22. This ispartly due to the high base figures as the revised estimate for 2022-23 ishigher than the budget estimate by 6.4 per cent.
Despite thesignificant buoyancy in tax revenue seen this year, the projected revenue fromtaxes netted after devolution to the states is estimated to grow only at 9.6 per cent.Of course, this is on the high base of the 2021-22 revised estimate, which ishigher than the budget estimate by 14.2 per cent. Non-tax revenues are supposedto decline even in absolute terms by 14 per cent mainly due to lower estimateddividends from public sector enterprises and the Reserve Bank of India (RBI).
Ondisinvestment proceeds, as against the budgeted `1.75-lakh-crorein 2021-22, the revised estimate is placed at `78,000-crore,and for the next year, it is budgeted at `65,000-crore.Thus, the increase in capital expenditure has been budgeted mainly by takinglower revenue expenditures, which is estimated to grow by less than 1.0 percent from 2021-22.
Inparticular, the total subsidy bill for 2022-23 is budgeted lower by `1.32-lakh-crorefrom the revised estimate of 2021-22, which includes a lower food subsidy ofaround `79,838-croreand fertiliser subsidy of `34,900-crore.It remains to be seen whether the government will be able to restrict revenueexpenditures at the budgeted level.
On the taxproposals, the most important measure is the levy of the tax on transactions invirtual digital assets with 1.0 per cent deducted at the source. Equallyimportant measures are the extension of the tax incentive for start-ups by oneyear and the extension of the availing concessional tax for new entities by oneyear up to 31st March 2023.
On thepersonal income tax front, despite the hope and expectations by themiddle-class taxpayers to increase the exemption limit, deductible allowancesand rate brackets, the finance minister has decided to maintain a status quo.It has been proposed to levy the surcharge on long-term capital gains uniformlyat 15 per cent for all types of capital assets.
The budgethas also introduced several measures to reduce the compliance burden, encouragevoluntary compliance, and reduce litigation.
Thedisappointing feature of the budget is the continuation of the protectionisttrend and continued differentiation in import duties. On the expenditure side,besides a significant increase proposed on capital expenditures, the PLIschemes for 14 sectors are expected to improve the competitiveness of MSMEs.
On thewhole, the budget is in the desired direction, and the focus now shifts to itsefficient implementation.
“On theexpenditure side, besides a significant increase proposed on capitalexpenditures, the PLI schemes for 14 sectors are expected to improve thecompetitiveness of MSMEs.”