The Union Budget 2022-23 was truly a transformative and visionary document, which laid the blueprint for the next 25 years through boosting investments, creating jobs, improving ease of doing business, maintaining tax stability and support to the stressed sectors. The four key priorities outlined in the budget namely, Gati Shakti, inclusive development, sunrise opportunities, energy and climate action, and financing of investment are in resonance with the vision of India@100, which the Indian industry has articulated. The measures announced under each of these areas carry the potential of catapulting India’s economy from the current size of $3 trillion to $5 trillion by 2026-27 and further to $9 trillion by 2030-31.
One of the key highlights of the budget was the pump-priming of the economy with an emphasis on capital spending aimed towards the creation of productive assets and generating a multiplier effect on the sectors.
It is notable to mention here that the capex thrust of the government over the last few years has been visionary, with its capital spending leapfrogging from ₹4.3 trillion in FY21 to ₹7.5 trillion in FY23, a jump of over 75% within a span of two years. It goes without saying that this has been one of the key growth drivers of the economy.
The continued rise in capital spending lends credence to the government’s vision of improving the economy’s growth potential through a push to overall productivity. At a time when there are green shoots in private investments, higher public capital expenditure was crucial to crowd in private investments and catalyze a more board-based recovery in private investments.
In true spirit of cooperative federalism, the central government’s move to sharply increase the support given to states for capex spending to ₹1 trillion in 2022-23 from a revised figure of ₹15,000 crore in 2021-22 through issuance of 50-year interest free loan, is noteworthy and paves the way for greater participation of states in the nation building process.
Importantly, the capex boost to the economy has been premised on a jump in gross tax and non-tax revenue in 2022-23. The tax buoyancy will be supported by strong economic growth which is expected to come in a range of 8.0-8.5% as outlined in the Economic Survey. This has helped the government to balance the spending needs for supporting the economic recovery and the need for fiscal stability very well. The gradual glide path for fiscal consolidation will keep growth buoyant and fiscal deficit at 6.4% of GDP for 2022-23 is prudent.
Conforming to the ‘agile’ approach of using safety-nets for the vulnerable sections as delineated in the Economic Survey, the budget did well to announce wide-ranging measures to support the beleaguered MSMEs sector. The extension of the ECLGS up to March 2023 with an allocation of ₹5 trillion is a huge relief as was requested by small enterprises. The inclusion of the contact-intensive travel & tourism sector, which is still below the pre-pandemic levels of output, under the ambit of the scheme is laudable. An additional ₹2 trillion has been allocated under the CGTMSE scheme for the MSMEs to meet their financing needs, which will go a long way to support revival of this sector that is pivotal for local level jobs as well as livelihoods.
In the past, the government’s enabling policies to nurture the start-up ecosystem along with a plethora of reforms towards improving the ease of doing business have helped catalyze entrepreneurship, and many of these new tech enterprises have gone to become unicorns. This has enabled India to emerge as the 3rd largest ecosystem for startups globally. The budget has carried forward the good work of incentivising start-ups through announcement of schemes such as extending the existing tax benefits by one more year. We believe that the continued boost to the start-ups will help them emerge as a significant driver for growth over the next 25 years.
Overall, through a wide-ranging array of landmark policy measures, the Union Budget 2022-23 has retained its focus on growth, while fast-tracking digital measures that will go a long way towards preparing the country for the future. The fiscal situation appears very much under control with a credible glide path. While cushioning the growth recovery over the immediate time horizon, the measures are also expected to lay a solid foundation for charting economy’s ascent over the next 25 years.
The article first appeared in Mint on 3rd February 2022.