Finance Minister Nirmala Sitharaman presented the Union Budget 2022-23 for FY23 on February 1st, 2022. To discuss its key highlights in context to the current Covid-19 scenario, the Center for the Study of Finance and Economics(CSFE), IMPRI Impact and Policy Research Institute, New Delhi, hosted a panel discussion under the #WebPolicyTalk series, The State of Public Finance – #TowardsAccountability titled The Pandemic Era and Union Budget 2022-23.
Dr. Dhiraj Nayyar, Director Economics & Policy, Vedanta; Former OSD & Head, Economics, Finance & Trade, NITI Aayog, was the chair of the discussion and commenced by stating that the current GDP level of India is roughly equal to the pre-pandemic level. Many mini budgets during the covid-19 pandemic were announced, the union budget 2022-23 is the first post-pandemic budget of India. The recovery has been very slow-paced, however, the challenge now is to sustain it with an average of 7%, and hence progress towards a larger economy. Inflation has been rising due to loose monetary policies globally and rising oil prices. The overall choice opted by the government for the budget was one with classic Keynesian government stimulus. Consumption is still dampened. Exports did well, however, due to high imports, net exports did not add to the GDP. The only engine that can drive the GDP is government spending and therefore we see a 35% increase in capital expenditure to drive growth and private spending. Dr. Dhiraj welcomed the government’s decision to make no new announcement of Populus schemes even though there are 5 upcoming assembly elections (including Uttar Pradesh). The fiscal deficit is high at 6.9%, but given the pandemic, a further squeeze was not feasible. Overall, from a macroeconomic perspective, the budget is on the conservative side and made for the current times.
Saugata Bhattacharya, Chief Economist, of Axis Bank started with the speech by highlighting the tight external financial conditions of India in the upcoming years. The US Federal Reserve indicated an aggressive tightening of monetary policy and Other Global Central Banks will also increase their interest rates. IMF reports show a slowdown in global economic growth from 5.9% to 4.4% due to the tightening of monetary policies, consequently a slower growth of trade. Therefore, the export engine is not going to be an important factor in adding to the GDP but domestic growth. In terms of growth inflation trade, it is more favorable now than last year. The economic survey indicated India’s estimated domestic growth at 8.3% for the next year. Estimated CPI inflation is at 5.3% and is likely to go down to an average of 4.8%. Huge risks are involved as oil prices have been rising. The demand for oil is going to be higher in 2022 than at pre-pandemic levels. Due to slowed growth in China, commodity prices might come down. By March 2023, the real GDP level would be more or less equal to the pre-pandemic level. However, in terms of nominal growth, we are about 32 lakh crore higher than the pre-pandemic. This distribution has unfortunately been very skewed with the majority going to the top quintile class. For the past two years, fiscal and monetary policy has worked in coordination with each other for the revival of the economy. Now, they will go on separate paths and monetary policy will stabilize the financial markets and stimulate investment. Overall, the budget is more focused on the medium term.
Dr. Pooja Misra, Associate Professor & Chairperson – Economics, Birla Institute of Management Technology, started by talking about what the current numbers suggest about the Indian economy. Macroeconomic indicators like GST, E-way bills, power demands, rail freight, steel, and cement consumption have been upbeat. The current account deficit was earlier a surplus of 0.9% in Q1 of FY22, which became a deficit of (-)1.3% in Q2 of FY22. There is not much to worry about since imports have been capital intensive in nature and hence are beneficial for the economy. India has transformed from being one of the Fragile five countries to the 4th largest Forex reserve. Tax revenue has been higher than budgetary estimates. CPI inflation has increased to 5.6% and WPI Inflation is at 13.56%. Bringing down CPI is favorable however, it is concerning if WPI starts moving into CPI. The economic survey indicates imported inflation and RBI must look into that. Consumer Confidence has been pessimistic and low and is a reason why people were hoping for the benefits of direct tax. Capacity utilization is low at 69.4%, far away from 76.9% in Q4FY19. The Labour force participation rate is close to the pre-pandemic rate, however, is still significantly low, indicating the desperate need for employment generation.
The government must have balanced between short-term revival in consumption and medium-run growth potential but opted only for the latter. The banking system was well capitalized during the pandemic and NPAs are on a decline. Contact intensive sectors for a K-shaped recovery must be resumed. The federal reserve is a major watch out for the government. The budget is growth-oriented along with fiscal consolidation. Capex target increased from 5.5 lakh crore to 7.5 lakh crore which brings in the multiplier effect. Cryptocurrency will be taxed at 30% and blockchain-based digital rupee will be introduced by RBI from 1st April 2022. 5G services will be rolled out and a PLI scheme has already been planned. Promotion of the audio, visual, and gaming sector will encourage youth employment. High-tech digital services will be delivered to farmers and Kisan-drones will aid farmers with crop assessment, digitization of records, etc.
The government set a realistic target of Rs. 65,000 crore for disinvestment. SEZ legislation is getting a makeover and if used for the domestic market, it will boost the economy. 66% of the sanctioned amount has been given to MSMEs under the emergency credit line, which has now been extended till March 2023. An investment of Rs. 50,000 crore will fuel the growth of the hospitality sector. The Bank bankruptcy court must be brought back for quicker dispute resolution.
Tax-payers are given a two-year extension to ensure voluntary filing and reduce litigation. Rs. 2.37 lakh crore is kept aside for MSP and will be directly credited into the farmer’s account and will create a consumption push. National Skill Qualification Framework will help align skills with dynamic industry requirements.
Dr. Pooja concluded by saying that while the government is hoping for an entire Capex push, implementation is the key. The union budget is more focused on capital expenditure, where the multiplier works between 2.5%-2.6% and 4.5% in the long run. Revenue expenditure on the other hand only transpires into a multiplier of 0.5%-0.9%.
Subhomoy Bhattacharjee, Consulting Editor, Business Standard questions the government’s decision not to introduce populous schemes under the budget by showing concern about the distress among people in the lower-income bracket. Indian budgets have always been expansive and ambitious. They essentially tend to forget expenditure constraints and relied on the hope of revenue receipts being enough to bridge the gap between the two. This time, the budget has been the opposite and very conservative. India is not considered a good investment avenue and the government took a conservative approach to the problem by not getting involved in the global bond indices. Subhomoy appreciated the level of courage shown by the government by using the escape key and not falling into the trap. The deliverables must be focused on the sectors of health, education, and agriculture. However, in all these sectors, the remit falls under the state government and not the central government. The central government only gives out money and the actual work is done by the state government. Therefore, the debates concerning these sectors should be more about the state budgets. It is not surprising that the difference between northern and southern states is expanding due to varied implementation capacities.
Nalini Gulati, Managing Editor, Ideas for India; Country Economist, India Programme, International Growth Centre (IGC)Nalini, but light on the Gender budget along with job creation and social schemes. Gender Budget allocation stands at Rs. 1.7 lakh crore which has been increased in comparison to the last year. However, in terms of proportion of the total expenditure, it decreased to 4.3% from 4.4% last year. There has not been any change as the average proportion usually lies around the same. What really matters is the actual spending. In this regard, there was a positive development in the Interim Budget of FY19-20 through the introduction of a column for actual spending under the gender budget. There is a need for institutionalization of gender-responsive budgeting at all levels of government- national, sub-national, ministries, and departments. We need to build capacity so that the gender lens is applied to the entire process- planning, budgeting, program design, implementation, monitoring, and evaluation. When gender-responsive budgeting was completed 15 years in FY19-20, Nirmala Sitaraman in her speech proposed the formation of a broad-based committee with government and private stakeholders to evaluate gender-responsive budgeting and suggest actions to move forwards, however, no update is issued for the same.
The three main examples of women-led growth highlighted in the speech were Mission Vatsalaya, Mission Shakti, Saksham Anganwadi, and Poshan 2.0. In the recent budgets, a lot of existing schemes are brought under an umbrella scheme which makes things obscure and difficult to compare. These schemes suggest important interventions but do not embody women-led development, apart from the Jal Jeevan Mission. Overall, there is a lack of gendered-perspective, while the adverse impacts of the pandemic were very much gendered. Female labor participation in India has been among the lowest in the world which was very concerning even before the pandemic. In the context of pre-existing gender layered disparity, being gender blind is not necessarily gender-neutral.
Nalini expressed disappointment in the non-acknowledgment of income distribution during the pandemic. Most of the job creation is expected from a big infrastructure push and we need to observe how quickly it happens as there is usually a long gestation period in this sector. Another concerning point is the huge allocation for roads which has possibilities of either creation of new work or making payments for previous work (in which case there won’t be the creation of jobs). The budget gives less direct and immediate support to individuals as well as enterprises. The government could focus more on pre-existing programs like National Livelihood Mission, DDUGKY, etc. as they already have a well-established infrastructure in place and will see quicker growth. The majority of it is coming from the assumption that the pandemic and its impact are behind us and the new announcements will spur economic growth and create jobs.
For Education, learning loss due to Covid-19 was acknowledged in the budget speech. Progressive moves are made in the Health sector by setting up teleconsultation for mental health. Perhaps, more could have been done for physical facilities, medical education, and R&D to build more resilience for future challenges. For rural development, new initiatives like setting up optic fiber internet facilities are announced.
There is a push for millets and oilseeds under crop diversification however there is still a lack of a blueprint.
For closing remarks, the panelists expressed their concern for a deeper examination of land reforms, administrative reforms, and cooperative federalism. The GST council must bring down the slabs and incorporate them under fuel to reduce the cost of production. The current budget can act as a template for the government to address its finances and it must be ensured that inflation does not rise unwarrantedly.
YouTube Video: #TowardsAccountability | Panel Discussion | The Pandemic Era and Union Budget 2022-23
Acknowledgment: Arunima Marwaha is a research intern at IMPRI.