Conservative budget that needs to be commended for resisting populism before elections

The good thing about the budget is its conservatism. It expects nominal GDP to increase by a relatively low 11.1 percent in 2022-23, well below the 17 percent plus increase in the current fiscal year. It’s also rather low if we consider the real GDP growth of 8-8.5 projected in the Economic Survey. The last time nominal growth was around that level was in 2017-18, when it was 11.03 percent, with real GDP growth being 6.8 percent.

That conservatism is also reflected in its expenditure projections. For all the talk about a huge rise in capital expenditure, the government’s total capex in the current fiscal year, including from extra-budgetary sources, according to the revised estimates, will be Rs11.05 lakh crore, much lower than the total budgeted capex of Rs 11.37 lakh crore. Moreover, the fine print says that revised estimates for 2021-22 include capital infusion and loans to Air India for settlement of past liabilities, amounting to Rs 51971 crore. So that number too needs to be excluded. Simply put, while the budgetary resources for capex have been increased, capex by public enterprises is lower.

A similar situation is expected to play out in 2022-23 too. While spending on capex from budgetary resources is expected to go up substantially, total budgetary capex, including from the resources of public enterprises, is Rs 12.20 lakh crore, an increase of just 10.4 percent over the revised estimates. Worse, the increase in the total budgeted capex is a mere 7.3 percent of the total budgeted capex for the current fiscal year.

In short, while much was made in the budget speech about higher public capex, perhaps that needs to be taken with a pinch of salt.

Even so, the silver lining is that the percentage increase in capital expenditure will be higher than that of revenue spending. The increase in total expenditure envisaged in the budget is just 4.6 percent more than the revised estimates. In fact, revenue expenditure, less interest payments, is budgeted to be lower in 2022-23 than in the current year.

How is this feat proposed to be achieved? Outlays under central sector schemes and projects have been slashed, and finance commission grants to states are budgeted to be lower. There’s also some reduction in establishment expenditure. It’s very likely, though, that the expenditure will be higher than budgeted in 2022-23.

What the expenditure numbers tell us is that the government isn’t buying the argument that consumption needs to be supported further. Subsidies on food and fertiliser have been substantially reduced. The outlay on MGNREGS is the same as in the last budget and substantially lower than in the revised estimates. Perhaps the hope is that as the economy re-opens, growth will provide jobs, which in turn will support consumption.

On the revenue side, gross tax receipts are budgeted at 10.7 percent of GDP, lower by a bit than the current year’s 10.8 percent.

The problem lies in excise duties, which have been budgeted much lower, because of the cuts in duties on fuel. Leaving out excise duties, the gross tax revenues budgeted for 2022-23 are 9.4 percent of GDP against 9.1 percent this year. That’s not too much of an increase, but then it needs to be seen in the context of the nominal GDP increasing by over 17 percent in the current fiscal against the budgeted rise of only 11.1 percent for 2022-23.

Despite the fiscal deficit for 2022-23 being lower, as a percentage of GDP, at 6.4 percent, compared to the revised estimate of 6.9 percent for the current fiscal year, the budget will still provide an increased stimulus, albeit a small one. That’s because the fiscal deficit in absolute terms is higher by Rs 70,107crore.

Summing up, given the assumption of a nominal GDP growth rate of 11.1 percent, there wasn’t much more that the government could do. It needs to be commended for resisting the siren songs of populism before the state elections.