Budget 2022: The call – spend to grow

In a way, Finance Minister Nirmala Sitharaman has continued with the NDA government’s economic philosophy of fiscal rectitude, without any mention of privatization, disinvestment and asset monetization in her 90-minute speech.As India emerges from the shadow of the Covid-19 pandemic with an ebbing third wave, Finance Minister Nirmala Sitharaman’s economic recovery strategy hinges on a sharp step-up in government spending which, in due course, is expected to spur private investment that has so far remained stalled.

This exclusive focus on capital spending is, in effect, a continuation of the previous year’s Budget but devoid of its high decibel reform push — asset monetization and privatisation of state-owned banks and insurance companies — which the government projected to position India in the post-pandemic world.

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In a way, Finance Minister Nirmala Sitharaman has continued with the NDA government’s economic philosophy of fiscal rectitude, without any mention of privatization, disinvestment and asset monetization in her 90-minute speech. Despite an unprecedent economic distress which many surveys showed hurt the poor the hardest, the Budget persisted with government interventions on the supply side.

For ordinary income tax payers, there were no real takeaways other than some easing of compliances and a new I-T return system. And for the bottom of the pyramid that suffered income and job losses during the pandemic, the Budget did not offer any major support despite five states including Uttar Pradesh and Punjab going to polls.

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For 2022-23, Sitharaman has sharply hiked the capital expenditure budget by 24.47 per cent to Rs 7.5 lakh crore (compared with the Revised Estimate for 2021-22 at Rs 6,02,711 crore), which is almost 2.9 per cent of the GDP. Together with grants in aid for creation of capital assets (including MNREGA works), the effective capital expenditure for the next year is budgeted at Rs 10.67 lakh crore, 27 per cent more than the RE of 2021-22 at Rs 8.40 lakh crore.

This expenditure boost comes along with an increase in the state borrowing limit to 4 per cent of the GSDP. Sitharaman also allowed states to borrow up to Rs 1 lakh crore through 50-year interest-free loans to make capital investments. In 2021-22, the Centre had allowed states an additional Rs 15,000 crore for capital investment under a similar window.

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This is classical Keynesian economics at play – at a time when the private sector is reluctant or averse to invest given poor demand conditions, the government is weighing in, and borrowing more to spend more.

Over the course of the next 12 months, such government spending is expected to crowd in private sector investment and help create jobs.