Budget 2022 lays a blueprint for growth

At the current nascent stage of recovery from COVID-19, it was important for the budget to focus on reviving business and consumer confidence, while staying mindful about the fiscal arithmetic. This was a complex balancing act. But, the budget announced several initiatives in the right direction.

The February 1 announcements indicate a thrust on investment in creating infrastructure. Initiatives to improve roads, ports, airports, railways, logistics hubs, and mass rapid transit system, if executed well, will help connect cities with the hinterland, potentially strengthening new hubs of economic activity, apart from providing a boost to near term recovery in economic activities. The additional provision of allowing states to borrow up to Rs 1 lakh-crore in interest free loans to aid capital investments is also a welcome step.

The budget highlighted a number of initiatives for the MSMEs which are often considered the backbone of the economy, and were severely impacted during the pandemic. Proposals such as expansion of the ECLGS net by Rs 50,000 crore to Rs 5 lakh-crore, and extending the timeline by one more year till March 2023; the additional credit target of Rs 2 lakh-crore through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE); and Raising and Accelerating MSME Performance (RAMP) with an outlay of Rs 6,000 crore should help the MSMEs and a number of financial intermediaries that lend to them.

Along with a focus on the MSMEs, the continued focus on production linked incentive (PLI) schemes to target new manufacturing sectors remains noteworthy, especially given India’s ambition of becoming a global manufacturing hub. The government has also taken a welcome step to interlink the various portals, including Udyam, e-Shram, National Career Service (NCS), and Atmanirbhar Skilled Employee Employer Mapping (ASEEM). This will likely lead to further formalisation and ease of disbursing targeted benefits towards the MSMEs.

The announcements for the housing sector under the PM Awas Yojana (rural and urban) is set to benefit a large section of the population directly and indirectly. The banking and financial sector should also benefit from the significantly higher outlay of Rs 48,000 crore announced for the affordable housing sector under the PM Awas Yojana. The additional housing capacity of 80 lakh units planned during 2022-23 should also boost demand for many other products and services, and have a multiplier effect on the economy. Digitization of land ownership and proposed faster approval for land availability will provide impetus to the said proposal.

While there was an expectation that the government might give personal income tax benefit or higher tax exemption on repayment of housing loan interest, it did not materialise, possibly as the government is mindful of managing the fiscal deficit situation, especially amid substantially higher capital expenditure allocation.

The announcement regarding core banking network for 100 percent of the post offices will expedite the agenda of financial inclusion, directly benefiting farmers and the rural population. Additionally, the plan for 75 digital banking units (DBUs) to be set up in 75 districts will also act as a pilot project for further penetration of banking services to every nook and corner of India, with digitisation breaking physical barriers.

Continuing with the commitment made by India in the COP-26 summit, the focus on areas related to environmental issues and green energy was distinctly noticeable. The ambitious goal of 280 GW of installed solar power capacity by 2030, with an additional allocation of Rs 19,500 crore through the PLI scheme for the manufacturing of solar modules is a strong step in this direction, along with existing initiatives such as Sustainable Alternative Towards Affordable Transportation (SATAT), and biofuel blending.

Overall, while the budget prioritised supporting the economy in the near term, the government was mindful of staying the course towards consolidating deficit and debt indicators over the medium term. To strike an effective balance between these two priorities, it was critical for the government to lay down the medium-term fiscal roadmap in the budget. To that effect, Budget 2022-23 represents a detailed blueprint, the success of which will depend on effective execution.

Siddhartha Sanyal is Chief Economist and Head of Research, Bandhan Bank. Views are personal, and do not represent the stand of this publication.