Union Finance Minister Nirmala Sitharaman, presenting her fourth Budget and the second one in a pandemic-hit economy on Tuesday, largely stuck to the broad script from last year, scaling up the wager on public capital spending to revive private investments and job creation through a virtuous growth cycle, while keeping an eye on the country’s macro fiscal health.
This Budget, presented in the 75 year of Independence, sets the stage for an Amrit Kaal ( time of nectar) over the next 25 years, culminating in a vision for India in 2047 as enunciated by Prime Minister Narendra Modi in his I-Day address last year, she said.
Beginning her 90-minute speech with an expression of empathy for Indians who grappled with the health and economic impact of the COVID-19 pandemic, Ms. Sitharaman invoked a verse from the Mahabharat before placing her tax proposals for 2022-23. This included the levy of a 30% tax on all profits from transactions pertaining to virtual digital assets or crypto assets, bringing some clarity over a grey area for investors even as further regulations are being worked out.
“The king must make arrangements for Yogakshema (welfare) of the populace by way of abandoning any laxity and by governing the state in line with Dharma, along with collecting taxes which are in consonance with the Dharma,” the Minister recited, adding that the government is drawing wisdom from ‘our ancient texts’ on the path to progress.
The salaried and the middle class, however, got no direct relief in the form of tax breaks to counter inflation and the COVID-hit on incomes and jobs, nor was there any significant nudge to spur private consumption that is likely to end 2021-22 below pre-pandemic levels.
Ms. Sitharaman pointed out that the government has not raised taxes in these COVID-affected budgets, but stressed that several proposals aimed at helping farmers, startups, micro, small and medium enterprises as well as affordable housing projects will ultimately benefit the middle classes. “There are times when you can give [relief], there are times when it will have to wait a bit longer,” she noted.
Contact-intensive services sectors like hospitality that are also languishing under 2019-20 levels, did get a helping hand with the expansion of the existing ₹4.5 lakh crore Emergency Credit Line Guarantee Scheme to ₹5 lakh crore, with the window to avail this support extended by a year till March 2023.
The Minister conceded that jobs have been affected due to the pandemic’s effects around the world, but emphasised that the government has been taking steps to help. Production Linked Incentives for 14 sectors alone have the potential to create 60 lakh new jobs in the coming five years, she said.
While the Budget marked a continuation of strategy adopted in the last Budget to lift the economy from the COVID lockdown-induced plunge of 2020-21, reflected in the Minister reiterating several measures announced last year with fresh outlays, some silences rankled even as others were heartening.
For instance, a fresh push was made on creating liveable cities and a better planning framework for urban areas where half of Indians are expected to live by 2047 but there was no talk of the government’s existing programmes to build smart cities.
On the other hand, without mentioning China, the Budget promised a convergence of existing border area development programmes to provide better physical and digital connectivity to villages with sparse populations on the ‘northern border’. Similarly, it was refreshing that there was no overtly populist measure in the Budget to woo voters in ongoing State Assembly polls.
While the economy has shown strong resilience over the past year, the Finance Minister said greater capital spending is needed to sustain the recovery and enhanced the Centre’s capex plan to ₹7.50 lakh crore in 2022-23, which she emphasised is over 2.2 times the outlay in 2019-20.
Separately, in a move that should also reduce federal friction, she also announced a ₹1 lakh crore 50-year interest-free loan for States to pursue critical capital spending projects, aligned with the PM Gati Shakti programme, digitisation or urban reforms. A similar ₹10,000 crore window announced for 2021-22 has been enhanced to ₹15,000 crore in deference to State CMs’ requests, Ms. Sitharaman said.
The Minister said the listing of Life Insurance Corporation of India is expected shortly, which may well translate into a lower fiscal deficit than the 6.9% of GDP now projected for 2021-22. However, the ambitious ₹1.75 lakh disinvestment target for the year has been pared to ₹78,000 crore with the 2022-23 expectations set at a modest ₹65,000 crore.
Rating agencies, like Moody’s Investors Service, reacted with caution to the Budget math that pegs fiscal deficit in 2022-23 at 6.4% of GDP without any significant revenue generation plans.
“This suggests the government is relying on strong economic growth to help drive fiscal consolidation in light of the large bump in capital expenditure, and poses some uncertainty given the prevalence of pandemic-related risks,” noted Moody’s sovereign risk group senior vice president Christian de Guzman.