The Finance Minister presented the Union Budget for 2022-23 in Parliament on February 1. Facing the trade-off between growth and inflation, the Finance Minister chose the former over the latter, and rightly so. The nominal GDP growth rate for 2022-23 is assumed at 11.1 per cent.

As the real GDP growth rate for 2022-23 is estimated at 8-8.5 per cent by the Economic Survey 2021-22, the implicit rate of inflation works out to 3.1-2.6 per cent. This seems to be ambitious and will pose a challenge for the Monetary Policy Committee even if the supply shocks are managed dexterously.

Further, being the public debt manager, the RBI has to manage the massive market borrowing programme envisaged in the Budget — ₹14.95 trillion (gross) as against the revised estimate of ₹10.47 trillion (gross) in FY 22 — and the money market rates.

The Budget size at ₹39,449 billion is 4.6 per cent bigger than the previous year’s (revised estimate), which was an expansionary one. As a proportion of GDP at current prices, the Budget size stands at 15.3 per cent compared with 16.2 per cent in the previous year. This is reflective of the beginning of consolidation amid economic progression. A look at the deficit numbers corroborates this endeavour.

Public expenditure

The Budget aims at invigorating aggregate demand through public expenditure, and within it, through capital expenditure. While revenue expenditure has gone up by less than a per cent, capital expenditure has surged by nearly 25 per cent. This is besides the ₹1 trillion grant given to States to increase capital expenditure from their side.

Emphasis on public capital expenditure, a redeeming feature of the Budget, will have a multiplier effect on income augmentation, employment generation and, consequently, demand rejuvenation. So will credit demand. This will also “crowd in” private investment. Capital formation, both public and private, will provide a stepping stone for growth not only in the short-term but also in the long-term.

In a sense, the Budget proposals are non-conventional, as these are not “populist” even when elections are shortly due in several States including a few important ones. This is contrary to the expectations and the tradition too. 

Digital focus

The Budget is a “digital” budget. Starting from establishing a digital university to digital connectivity in the entire socioeconomic fabric, the word “digital” appears 35 times in the 33-page main text of the FM’s speech! In this sense, the Budget is futuristic and underscores the inescapability of digitalisation in future.

The decision that the central bank would be introducing a digital version of the rupee during FY 22-23 is welcome. It is also confirmed that blockchain based distributed ledger technology will be deployed by the RBI to roll out the new age currency.

After the central bank made the announcement last year, it was expected that a pilot project would be undertaken in 2021 itself which could have brought the desired experience to officials deciding the choice of technology. Use of blockchain in a distributed environment is heavily network dependent and may require a separate payment network. It may also lead to the RBI maintaining customer accounts. Anyway, it is too early to make any assessment before the RBI’s first field level effort in this direction.

The tax on “virtual digital assets” will enable the government to earn revenue while empowering income tax authorities to break new ground in reopening of closed cases. However, by allowing taxpayers to file revised tax returns within two years is probably designed to extend an olive branch to investors having income from digital assets. The new rule has not remedied the concerns expressed by the central bank.

Surprisingly, the Budget contains no proposal on the personal income tax front, especially for the salaried class. It should have revised the standard deduction or the tax slabs at least to neutralise the impact of inflation in the recent years. Moreover, a relook at the taxation of interest income from bank deposits is overdue. These measures would have boosted the aggregate demand on the retail front. However, no tinkering with the corporate tax regime signals stability.

Subsidies slashed

The expenditure programme shows significant slide in subsidies: fertilisers by 25 per cent, food by 28 per cent and petroleum by 11 per cent, over the FY 22 revised estimates. However, there is no indication as to how such large reductions are to be accomplished.

The insurance sector has been left untouched. Looking at the under-penetration of life and health insurance in the country on one hand and the people’s felt need to increasingly go for health insurance cover, especially in the post-pandemic period, the Budget should have addressed the issue on priority basis and preferably through tax rebates.

Not much for banking sector

There is no ground-breaking announcements for the banking sector too. Yes, establishment of 75 digital banking units will enhance financial inclusion. It will have a salubrious impact on remittances and cost thereof as well. Further, the good thing is that the Budget doesn’t propose any recapitalisation of public sector banks (PSBs). Either the PSBs are intrinsically in good health or the government has realised the ill-effects of continuous recapitalisation including the moral hazard risk. The progress as to the privatisation of two PSBs, which was announced in the previous Budget, should have been mentioned.

If it is the ‘voters’ who ‘elect’ the government, it is the ‘taxpayers’ who run the government. Therefore, taxpayers’ money has to be utilised appropriately, especially in a Budget which envisages massive capital expenditure.

Das is a former senior economist of SBI and Rath is a former Chief General Manager of RBI. Views are personal