Against the backdrop of sharp deceleration in growth in the wake of an unprecedented global health crisis, the FY22 Budget has emphatically provided a much needed thrust for healthcare spending, job creation, and overall economic recovery, all within the ambit of deft fiscal rectitude. The announcements made by the Finance Minister should be seen in conjunction with government’s previous announcements under various fiscal packages encompassing Pradhan Mantri Garib Kalyan Yogana and Atma Nirbhar Bharat Abhiyan.

From an objective standpoint, in a year of difficult fiscal computations, the Finance Minister has walked a tightrope to balance the stretched revenue receipts with necessary expenditure support. At 6.8 per cent of GDP, FY22 fiscal deficit is a realistic display of support to reinvigorate India’s Real GDP growth, which is projected at 11 per cent, albeit supported by low base.

The Basics: Healthcare and Capex

With the pandemic exposing the vulnerabilities in the healthcare sector, the FY22 Union Budget makes a bold attempt to improve the situation allocating ₹2.23-lakh crore — an increase of 137 per cent from the last year’s budget. For Covid-19 vaccines itself, a significant allocation of ₹35,000 crore has been provided, with more support likely in case required

I reckon the government’s thrust on increased capex spending — budgeted to rise by 26.2 per cent over FY21 — will provide the much-needed supply side push to the economy

Creation of an Asset Reconstruction Company was the need of the hour, to reinvigorate risk taking appetite that was getting bogged down by the monumental requirements for provisioning on account of stressed assets. In my opinion, this singular step, with active participation from the financial sector, should help in de-clogging of investments in the country in a formal institutionalised setup

The laying out of the DFI structure is a structural medium term reform to garner infrastructure financing, which is currently being carried out by banks, which as an entity is prone to ALM mismatches as far as financing long term infrastructure projects are concerned. Earmarking of ₹20,000 crore for bank recapitalisation is a step in the right direction. With fiscal situation expected to get comfortable in the coming quarters, possibility of a top-up in this case cannot be ruled out

Continued capital account liberalisation in insurance, with FDI cap getting raised to 74 per cent from 49 per cent is a fantastic move and is likely to pave way for greater insurance penetration in the country The disinvestment target of ₹1.75-lakh crore is bound to unlock value while also leading to diversification of ownership under the Net Public Sector Enterprises Policy

The significant others

Government’s allocation of ₹15,700 crore for MSMEs will bolster growth further. The earlier allocation towards Production Linked Initiative Scheme (PLI), creation of Mega Investment Textiles Parks, and adjustment in customs duty on a range of products will provide protection to this segment to recover from the Covid-19 shock. Further, change in the definition for Small Companies by increasing the thresholds for paid-up capital by 4 times and turnover by 10 times is a welcome move as it eases the compliance requirements of more than two lakh small companies

For incentivising start-ups as well, extending the eligibility for claiming tax holiday and capital gains exemption for investment in start-ups by one more year, until 31st March 2022, will not only free up the working capital of these firms but also revive entrepreneurial spirits

Overall, FY22 Budget is a pragmatic and visionary statement which distinctly lays its focus on consumption and investment drivers to speed-up the economic recovery. The government has prudently laid its long term focus on nurturing growth while also consolidating its fiscal position. Accordingly, it plans to trim fiscal deficit to 4.5 per cent by FY26. This should be broadly acceptable at the time when India needs a strong engine of growth to push it towards achieving the goal of a $5 trillion economy.

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