Union budget is much awaited policy announcement in our country every year. Not only policy makers and economist but even common man also takes a lot of interest in the budget. This is because apart from its impact on the major economic activities like production, distribution consumption, saving, investment etc., it has an impact on the family budget also. Various stakeholders have different expectations from the budget. Based on the budget proposal each one evaluates the budget in their own way.
Evaluation of the budget is done on the basis of following parameters:
- Growth measures
- Stability measures
- Reform measures
- Fiscal management
The budget of 2022-23 is to be looked at in the light of the prevailing pandemic conditions as well as assembly election in five states.There was speculation that the current budget will be election oriented, but the Finance Minister has proved it wrong. The current budget is growth oriented with a medium to long term strategy for economic development of India. Instead of giving direct benefit to the people, the budget has measures to give benefits through development. The proposals in the current budget are on major thrust areas like PM Gati Shakti, Inclusive Development, Productivity Enhancement and Financing Investments.
Some of the important announcements in the budget are clearly for achieving fast economic growth. Emphasis on infrastructure development by allocating funds to the extent of nearly 4% of GDP is definitely a measure for growth. Infrastructure is indispensable for economic growth has been proved in many countries of the world. China is the best example of making available world-class infrastructure and thereby leading to growth.
Another important announcement for growth is the proposed capital expenditure to the extent of INR 7.50 lakh crores. This capital expenditure by the Government will lead to increase in aggregate demand and will give boost to private sector investment also. Measures of linking the rural and urban areas through transport and communication facility is a step in the direction of growth. Two major growth engine of India, agriculture and MSME sector related announcements are also measures for growth. Though the farm sector is not contributing substantially to our GDP, the percentage of total population depending on this sector is large and hence, measures to put the income in the hands of farmers by crop procurements and giving MSP will lead to increase in the demand by rural population. Such rise in demand for goods and services will be an incentive for industries to make fresh investments and it will contribute towards arise in the industrial output and GDP growth. Along with measures to increase income of the farmers, use of technology for like digitization of records relating to crop output and land records is a step in the direction of increasing productivity and growth.
Source: Envato Elements
MSMEs are playing an important role in Indian economy in terms of industrial output, employment and exports. Proposal to continue the credit guarantee scheme for MSME sector and extension of tax concession for startups and new manufacturing units is also a growth-oriented measure.
If the nation has to move in the direction of growth, transport is a critical infrastructure. In the current budget, PM Gati Shakti measures are going to contribute for transport availability for goods and people. Under the Gati Shakti measures, national highway construction of 25,000 kms, 400 new trains in next three years, development of ports, airports, mass transport measures will lead to reduction in logistics problems faced by industries and will help in logistics cost reduction and increasing productivity of industry. Gati Shakti will lead to connectivity between different parts of the country and help in balance regional development.
Development of financial sector of a country also contributes towards the economic growth. In the current budget, some of the major policy announcements will strengthen the financial sector and financial inclusion. Decision of post offices to be brought under core banking system will help the country to reach out to the masses in remote areas and enhance financial inclusion. Starting digital banks for financial inclusion will make the system more transparent, accountable and rapid. Our banking system is facing severe problem of non-performing assets (NPA). To manage this problem, Insolvency and Bankruptcy law was introduced in 2016. Initially it appeared that it will be a game changer in NPA management but few limitations in the law were discovered. An announcement is made in this budget to make appropriate changes to that law. This is a very good step for NPA management and making the financial conditions of the banks strong.
Measure to raise the revenue to meet proposed rising expenditure, instead of making major changes in the direct tax, Finance Minister resorted to new avenue by imposing tax on the income from digital assets. This step is not only a new source of revenue but also check the trading, speculating activities in digital assets.
Source: Envato Elements
On fiscal management front, the performance of the Government is good for 2021-22 by keeping the fiscal deficit within limit of slightly higher than budgeted. For 2021-22 the budgeted fiscal deficit was 6.8% of GDP and the revised estimate is 6.9% of GDP. Fiscal deficit is estimated at 6.4% of GDP for 2022-23, however the concern is quality of fiscal deficit. In 2022-23 if one looks at the revenue deficit to fiscal deficit ratio, it is 59.60%. What it means is that, of the total borrowings which the Government will raise, nearly 60 % of the funds will be utilized to meet revenue expenditure. This ratio needs to be controlled. The budgeted borrowing by the Government in 2022-23 is around INR 15 lakh crores. In the light of fear of rising inflation at global level, borrowing to this extent will certainly lead to inflation. Rising commodity prices of oil, gas and coal, less private investment due to lower consumer demand and pandemic uncertainly are the few other challenges before the Government.
Source: Envato Elements
In spite of these challenges, the Finance Minister deserves applause for presenting a budget with a highly balanced approach with the vision and focus of putting India on high growth path. Economic growth and its equitable distribution is the only solution to ensure welfare and wellbeing of the people. As Adam Smit said “No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable”. The measures proposed in the current budget are for the masses to improve their economic conditions.
The author is a Professor and Area Chairperson – Finance & Law department at K J Somaiya Institute of Management, Dean - Faculty of Commerce and Business Studies at Somaiya Vidyavihar University
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