Budget 2022-23 is a comprehensive and transparent budget, reflecting confidence in economic recovery. Set against the backdrop of the third wave of Covid, it is a rightly balanced budget. It balances the need to revive the economy against the prevalent fiscal constraints, primarily by focusing on the quality of spending.
Its skilful navigation of fiscal constraints is mirrored in a modest increase in nominal expenditure – a proposed increase of 4.5% in 2022-23 over the revised estimate (RE) for 2021-22; a flat revenue expenditure; and a sharp increase in capital expenditure, reflecting an increase of 24% over the RE for 2021-22. Politically tricky subsidies are slated to decline, while the revenue projections seem highly conservative, that is, a 9.5% increase in tax revenue and a 14% decline in non-tax revenue. As such, these budgetary estimates should be eminently achievable and could even offset any over-shooting of expenditure.
While many observers had expected it to be an ‘election budget’, it turns out that it has skirted populism. It provides continuity in terms of adhering to the policy pathway this government has laid out in the last few years. This pathway consists of an accelerated build-up of infrastructure, improvement in logistics to ensure competitiveness in Indian manufacturing, and leapfrogging development by leveraging digital opportunities.
The overarching ambition seems to be to set India on a virtuous path of enhanced competitiveness, and the public sector facilitating growth in the private sector through the provision of public goods such as infrastructure as well as an enabling framework, leading to higher real and nominal GDP growth and buoyant tax revenues.
Particularly creative is the use of fiscal tools to ‘manage’ the risks that individuals are assuming through their investments in crypto assets. These risks may eventually have deeper implications for the stability of the financial sector. While developing a full regulatory framework for crypto assets may take some time, the fiscal measures announced could prove to be a critical regulatory tool. Equally heartening is the announcement of the roll-out of a digital currency.
Yet there are three things on which further articulation would be needed. First, even though most people would not recommend a sharp fiscal consolidation at this time, it would be useful to articulate the fiscal roadmap that GoI envisages in the medium term.
Second, to foster growth at rates much higher than in the past, we need a vision to integrate India into global value chains. We account for only 1.5% of the goods and 3.5% of the services supplied to the global market. The aim should be to double these market shares.
The third missing item was an acknowledgment of, and accounting for, the potential headwinds from the global economy. Currently, the global outlook is mixed. The buoyancy in global trade is being offset by high level of inflation and the impending tightening of liquidity. It would be worth asking whether the global outlook poses a risk to implementation of the Budget proposals.
Overall, one can laud it as a very constructive Budget released in a highly complex and challenging economic environment.