Join InsideIIM GOLD
Webinars & Workshops
Compare B-Schools
Free CAT Course
Take Free Mock Tests
Upskill With AltUni
CAT Study Planner
With India seemingly dodging another wave of the COVID-19 pandemic, the union budget for 2022 started with a refreshing and clear emphasis on expanding capital expenditure, alluding to the government's strategic focus. In her opening remarks, the Finance Minister laid down the roadmap to steer the economy over the next 25 years – from India at 75 to India at 100 – the period she termed "Amrit Kaal."
The government has set its priorities mostly right and has been assertive in undertaking the necessary steps. This article addresses a few significant budget sections and evaluates their likely outcomes.
Infrastructure: The budgeted capital expenditure for FY23, at ₹7.5 trillion (2.9% of GDP), is higher than the revised estimate for the previous year by 24.5%, even as the overall expenditure growth is just 4.6%. An increase of almost ₹1 lakh crore is for assisting the States to catalyze infrastructure development by providing much-needed interest-free loans over and above their regular means of financing. Most of this allocation is channelized towards developing multi-modal transportation networks. These moves will improve the logistic network of the country and invite foreign companies to set up their operations by virtue of improved standards of ease in doing business.
Social Sector: The budgeted outlay for the social sector might be considered lukewarm especially at a time when it needs the most support. The overall budget for the Department of Health and Family Welfare at ₹83,000 Cr has gone up by less than ₹1,000 Cr compared to the revised estimates for FY22, which is ₹82,921 Cr. For education, the budget for school education at ₹63,449 Cr is a mere increase of 6% in nominal terms compared to the 2020-21 budgeted estimate of ₹59,845 Cr. India already stares at a weak position of having deficient spending in critical areas of social protection, education, and health. This negligence does not bode well with the developmental aspirations of the nation.
Industry: The central government's massive increase in Capex is likely to augur well for industrial, engineering, and capital goods. Construction, cement, and other home building materials will also boost from continued focus on affordable housing. This will help trigger the virtuous cycle of income generation and spending, thus raising the overall consumption demand in the economy. Higher levels of economic activity should also enhance credit growth for banks that are struggling to maintain their balance sheets currently.
In contrast to earlier budgets, there is a lower disinvestment target this time around. While a realistic target is always better than overpromised targets, the overall sentiment around PSU stocks may get dampened.
Fiscal: According to the revised estimates of FY22, the Centre's gross and net tax revenues are to grow at 24.1% and 23.8%, respectively, indicating a buoyancy of 1.4 in each case. However, for the budgeted collections for FY23, the buoyancy has been brought down by a factor of 0.9, contrary to the ongoing trends attributed to expanded digitization and formalization of the economy. The Centre's gross tax revenues will have grown more realistically if the under-assessment in tax buoyancy is marginally corrected, thus creating more fiscal space for the government.
In FY23, total expenditure is budgeted to grow by a meagre 4.6%, with budgeted revenue and capital expenditures to increase by 0.9% and 24.5%, respectively. This spells a welcome structural change in government expenditure favouring capital expenditures.
In conclusion, this year's budget is an aberration from the past as even with elections looming around the corner in large states; the central government has denied many ministrations to the populist calls, portraying exemplary resilience. The outcomes of the proposed policy measures and allocations will significantly hinge on their efficient implementation across the state's entire bureaucratic apparatus, which will be observed for the coming times.