The first budget of the new decade has laid the road map not only for the next financial year but also for the entire decade. Yes, this budget is different from the earlier ones of Nirmala Sitharaman – not only because it was read from her tablet instead of conventional paper document but also because of the content. By doing so, the FM not only saved some trees but also lifted the sagging morale of the industries. Now all the eyes turn to resource mobilisation and execution part – of course, the most difficult part.
FM recently said that this budget is trying to raise resources which are non-tax resources at a time when we need a lot of money to spend. “It’s a budget which raises resources but not on the back of increased taxation. There is a directional change in the budget which is so distinct that it will fuel the entrepreneurial spirit which the Indians show given the right opportunities.”
Pump priming the economy
In a challenging macro condition in the country post covid-19 and subsequent lockdowns, the need for a mega push to the economy was imperative. To that extent the FM lived up to the expectations of the industries and others. “Laying down the vision for providing further fillip to the government’s flagship Atmanirbhar Bharat Programme by spelling out the measures under the critical six pillars, the Budget ticked all the right boxes which would strengthen the path of recovery of the economy. This is a budget catering to all aspects of lives, livelihoods and growth”, Mr Uday Kotak, President CII said in his reaction to the budget.
According to Mr Uday Shankar, President, FICCI, there is a sharp focus on capital expenditure. “The fact that no new taxes have been levied shows government’s recognition of the stress different sections of society have been going through and the need to support them at this critical juncture. It’s heartening the Finance Minister has taken concert steps to improve the Ease of Doing Business and encourage compliance,” he added.
Priorities clearly spelt out
Elaborating on the thrust areas in a post budget meeting with the industry, the Finance Minister had rightly expressed that the stress has been on areas with high multipliers such as infrastructure which would facilitate the private sector, such as power, roads, ports, airports, etc. Healthcare and Agriculture have been the other priorities. There has been a strong emphasis on infrastructure development be it social, physical, or financial infrastructure. This will not only help propel growth in the economy but also prepare us better to face adversities similar to those seen during the COVID times.
Spending on infrastructure
The government has made its intentions clear – spend heavily on infrastructure to pump prime the economy and ensure its speedy revival. From the budget it’s clear that big push to infrastructure will not be restricted to just one year but will be continued for next few years. Another important aspect of government’s infra push is that it has already decided the projects on which it’s going to spend which means that spending on the project will start soon. In other words, the government has adopted the bottom-up approach to determine the allocation which will enhance the efficiency of spending and reduce wastage.
Private sector participation crucial
While the Budget provides for enhanced capital expenditure by the government, it also envisages private sector participation in a big way. The Finance Minister has said that though Government will provide some capital for the proposed Development Finance Institution, the DFI will also raise capital from the market. In addition, the DFI Bill will provide legislative space for private DFIs. Similarly, the Asset Reconstruction Company for the management of non-performing assets (NPAs) will be floated as a holding company by the banks themselves, with support from the government.
In the context of raising resources, an equal emphasis was placed on attracting capital from abroad. The proposed simplification in REITS and InVITS alongside the announcement of InVITS by NHAI and PGCIL will help attract foreign investments in these areas. Apart from the proposal of setting up of a Development Finance Institution, raising the FDI cap from 49% to 74% in the insurance sector will also help draw long term funds for meeting the investment requirements of the infrastructure sector.
Minimum government, maximum governance
The budget proposals also laid a renewed thrust on promoting the principle of ‘minimum government, maximum governance’ as well as improving the ease of doing business and ease of living in the country. It is heartening to see continuation of measures towards easing the life of taxpayers and this is reflective of government reposing greater faith and trust in the taxpayers. Spending will continue despite limited new tax revenue, and the focus is clearly on stimulating growth after a once-in-a-century shock.
Contraction in rural spending
On the other hand, Rural spending is likely to see a sharp contraction of 17% YoY in FY22 – after ramping up at a 38% CAGR from FY19-21. The sharp contraction in rural spending in FY22 is likely due to 35% lower allocation towards MNREGA. Given that rural economy has been least impacted by the pandemic and there has been strong government spending support, some withdrawal of the same was imminent. Nonetheless, the 17% contraction is quite sharp and could weigh on demand.
While many sectors got support in the budget, a few sectors like tourism, hospitality, aviation etc. failed find mention especially at a time when they need the support most. It’s also true that the better-than-expected recovery seen in the past few months led by larger companies is yet to fully benefit micro, small and medium enterprises. Also, having announced some mega plans now the focus will turn to mobilisation of resources and execution of plans. Hope we will be able to see ‘as never seen before’ on these counts too.