Our expert, Professor Anil Sood, Co-founder, Institute of Complex Choices, has this analysis to share:
It was heartening to see the budget presentation outline the government's goals for India@100, which is twenty-five years from now.
The government intends to achieve higher inclusive growth through leveraging technology and enabling energy transition and climate change. The government also expects to play an enabling role in driving growth through private investment. It is indeed possible to achieve the goal of higher, inclusive growth in the long run, as India still is a young country.
While productivity was mentioned as a key objective, I would have also liked the government to redefine the Production Linked Incentive Programme to Productivity and Value-creation Linked Incentive Programme. We need to accelerate people and capital productivity and value-creation through innovation at a much faster rate so that we can export to advanced economies. If not, our industry would continue needing the crutches in form of import tariffs.
The government has announced an ambitious capital expenditure programme budgeted at Rs 7.50 lakh crore, which is an increase of 24.5% over the revised budget. The change is explained by the increased allocation for Ministry of Road Transport, Department of Telecom and Railways. We have an additional item of nearly Rs 90,000 crores in the form of other grants/loans/transfers to states, which in all probability is the additional reform-linked loan that the Finance Minister talked about in her speech. If we exclude that, the increase in the central government expenditure will be about 15%. We would need to ask ourselves, if the government will be able to spend the money allocated for capital expenditure during the current year. As of November, the actual expenditure was only 49.4% of the budget.
Staying with the last year, the aggregate revised expenditure is higher by 8.2%, compared to the budgeted expenditure. But after removing the payment for Air India debt and increase in fertilizer and food subsidy of Rs. 160,000 crores, the increase is only 3.6%.
The increase in aggregate budget expenditure for the next year is a miserly 4.6%. I guess that the government is assuming that the economy is back on track, and it does not need its support anymore. The increase in revenue expenditure, other than interest cost, is an even more miserly increase of 0.86%. In effect, the central government expenditure will shrink in real terms. Even if we remove the food subsidy (where we may have some effect of accounting adjustment from the previous years) and interest amounts from our calculations, the increase is still 4.8%, lower than the expected growth in GDP at 11.1%. In other words, the central government's relative contribution to India's economy is expected to shrink. All this in a year when the net tax revenue is expected to grow by 9.6%.
It seems that the fiscal hawks have had their say. Consequently, we will either end up risking the nascent recovery or the households and MSMEs will have to deal with another year of low depleted savings and indebtedness.
A review of the detailed expenditure for the next year too does not inspire confidence, as the increase in defense, agriculture, and health is 4.6%, 2.5% and 0.8%, respectively. Rural development budget is expected to make do with lower expenditure (-0.30%). Only major sector that is expected to see a large increase (18.5%) in expenditure is Education.
If we look at the total transfers to states, the increase is once more 0.52%. Loans of Rs 159,000 crores towards GST compensation are now being replaced by loans state capital expenditure of Rs 100,000 crore. The states' share in taxes has gone up by 9.65%, about the same rate as the increase in the Centre’s tax revenue. Since the state governments too have suffered revenue losses (property tax, vehicle registration taxes, etc.), we have a situation once more where the entire burden of driving growth is expected to the shouldered by the private sector – households, MSMEs and large corporations. Are the households and MSMEs in a position to shoulder the responsibility? I hope so.