The GST Council now makes all the tariff-related decisions, corporate tax rates have been pared to the bone and individual taxpayers are being nudged to a new exemption-free regime. Indian Finance Ministers therefore have little room now, in their annual Budget presentations, to hand out sops that can excite the aam aadmi or fire up stock market investors. But the current Finance Minister seems to have learnt the art of getting these factions to cheer for the greater good without any populist giveaways in her Budgets.

Union Budget for 2022-23 has three big-picture aspects to cheer.

Conservative accounting

Union Budgets in India have a historical reputation for over-promising and underwhelming on delivery. The NDA’s last two Budgets have attempted the opposite. Consider the FY23 Budget Estimates (BE). While pegging the FY23 deficit at 6.4 per cent, the Budget makes rather conservative assumptions on the denominator, assuming just 11.1 per cent growth in the nominal GDP in FY23 despite forecasters expecting real GDP growth of 8.5-9 per cent. Should the actual nominal GDP overshoot this estimate, viola, the government wins additional elbow room on expenditure, even while its fiscal deficit percentage remains in check.

The Budget has eschewed the conventional practise of over-the-top assumptions on revenue mop-ups too. It expects tax revenues for BE FY23 to expand just 9.5 per cent over RE FY22, below nominal GDP growth. It has also broken from the past, in expecting non-tax revenues to shrink by 14 per cent in BE FY23. The disinvestment target, set at ₹1.75-lakh crore in the FY22 Budget, has been pruned to a more achievable ₹65,000 for next year.

Frugal spending

The growing list of creatively named Central schemes that are being rolled out to build out infrastructure, improve ease of living, enhance connectivity and improve the lots of the urban and rural poor may give one the impression that the government is adding on hundreds of new fund-guzzling projects each year.

But a closer look at the Budget documents tells us that older schemes are constantly getting rationalised or wound down, as new ones are flagged off. Big-bang initiatives like Gati Shakti merely merge and streamline already operational schemes, those like PM Awas Yojana have seen allocations flatlining and old favourites such as Krishi Sinchai Yojana have been subsumed under new ones like Krishi Vikas Yojana.

With the pandemic likely to wind down, the Budget also hopes to eke out significant savings by paring MGNREGA allocations (₹1.21-lakh to ₹0.99-lakh crore), food subsidy (₹2.86-lakh crore to ₹2.06-lakh crore) and fertiliser subsidy (₹1.4-lakh crore to ₹1.05-lakh crore).

Overall, all this has helped keep a tight rein on total expenditure this year, with spending for FY23 just 4.6 per cent higher than RE FY22. Within this frugal spending though, the Budget has found room for a 27 per cent increase in its capital spending (including grants to States) that has cheered investors and India Inc alike.

Off balance sheet cleanup

This Budget has continued to sharply reduce reliance on off-balance sheet items to shore up revenues. With Air India disinvested to the Tatas, FCI loans cleared and lower borrowings from the National Small Savings Fund, the extra-budgetary items that lent ‘outside support’ to spending but made for a less transparent budget in earlier years have been cleaned up.

Not following through

Good as the Budget has been on upping the credibility of its projections, it has slipped a bit on follow-through of previously initiated schemes. Expected measures to make the new personal tax regime more popular have failed to come through. While the move to bring virtual assets (euphemism for cryptocurrencies) under the tax net is welcome, a level playing field between old-world assets — equities, bonds, real estate, gold — on capital gains treatment remains missing. Only piecemeal measures such as uniform surcharge on LTCG have come through.

Some flagship schemes of erstwhile years have been allowed to wind down without much explanation on whether they’ve achieved their purpose, lost relevance or been subsumed. The low ₹2,300 crore allocation to the Swacch Bharat Mission and 1.4 per cent increase for the Smart Cities project are instances. The Credit Linked Subsidy Scheme, a critical element of PMAY, has been allowed to lapse despite high expectations for a housing push.

High market borrowings

If stock markets found reason to cheer this ‘growth-oriented’ Budget, bond markets now have new worries to contend with. Despite the frugal spending, this Budget has ended up with a sharp increase in expected market borrowings. With the fiscal deficit expected to be at 6.4 per cent and repayments coming up from earlier years, the Budget expects the Centre’s gross market borrowings to shoot up from ₹10.46-lakh crore in RE FY22 to ₹14.95 lakh crore in BE FY23, a number that significantly exceeded market expectations of ₹13-lakh crore. Net borrowings too are set to sharply rise from ₹7.75-lakh crore to ₹11.11-lakh crore.

Bond markets may not have minded this much, had the FM granted their wish of smoothing the road for Indian sovereign bonds to be included in global indices. By some estimates, expediting this could have brought in $35-40 billion in flows in the first year. As the FM has not obliged, domestic bond market participants are now worrying about how the market will absorb this deluge of government securities in the year ahead. But then, you can’t please everyone.

The silver lining to this borrowing spree is that Indian savers can finally expect better real returns on their fixed income investments after long kow-towing to borrowers. With the 10-year government bond yield topping 6.8 per cent post Budget, it’s only a matter of time before banks and other borrowers are forced to raise their interest rates to offer savers a better deal.