Sitharaman presents a realistic Budget that signals fiscal responsibility over populism

Budget 2022: Nirmala Sitharaman began her speech at 11 am and wrapped up at 12:30 pm.

Every January a large percentage of Indians prepare long wish lists for Finance Minister Nirmala Sitharaman and her team to magically fulfil. Satisfying them is generally impossible, and the only way to know for sure whether the job is well done is by looking at the report card of the previous year, and the performance at the end of the next.

If there is one other thing that matters it is considering whether some basic principles have been followed instead of the desire to play to the galleries. Budget 2022, scores very high on these parameters, and if extraneous factors, like those highlighted in the Economic Survey don’t play spoilsport, I reckon that this budget will result in a great report card at the end of FY23.

Let me elaborate why and start with the headline numbers. When it comes to the revenue numbers, the GDP estimate, and the fiscal deficit target, and the performance for FY22 has been commendable. Importantly, the targets for FY23 are refreshingly realistic! This bodes well for global and local investors, and economic stability in general, since it signals desire for fiscal responsibility over populism.

The path to get to the math behind these numbers has been an approach to ‘not tinker if it isn’t broke’. While this approach has meant disposing off many suggestions of pundits on slabs and deductions, it is a welcome sacrifice at the altar of providing a stable and predictable tax regime. Continued moves to improve ease of filings, trust and compliance are also welcome. Ultimately, when fiscal space permits, we will need to move to lower rates combined with better compliance that leads to greater revenues.

Every ambitious budget needs to have a few centrepieces, and this budget is built around a few — first being public capex stimulus. A bold statement has been made to crowd private capex in FY23, which is expected to gradually pick up as PLI-led schemes and capacity utilisation of the private sector picks up with growth in consumption during the year. Stepping up capex by a whopping 35 percent to Rs 7.5 lakh-crore or 2.9 percent of GDP is a move that will have a multiplier impact on the economy.

Second is a bold statement that our future is green. Rs 19.5K crore has been allocated to boost 280 gigawatts of installed solar capacity by 2030. To promote green mobility, the government is coming up with a battery-swapping policy, and will develop ‘special mobility zones’ for electric vehicles (EVs). An energy service company business model that would facilitate capacity building, and awareness for energy audits is on the anvil.

Third is the continued focus on delivery of basic needs such as water and housing infrastructure to the masses via the flagship programmes. As of December the Jal Jeevan mission had met ~45 percent of its target with some states having achieved 100 percent coverage. Rs 60,000 crore have been earmarked to try to cover 3.8 crore households in the coming year so that that 100 percent coverage can be achieved by 2024. Similarly, Rs 48,000 crore have been allocated towards building 80 lakh homes under the PM Awas Yojana, which aims to build two crore affordable homes for Indians in rural and urban India in partnership with state governments.

Next, the recognition of the need for urban planning and reimaging our cities is a very welcome statement, given the poor quality of life across all our cities. The stated intent to bring in reforms in the urban sector policies, capacity building, planning, public transport, open spaces, housing, implementation, and governance are all welcome. If executed well these will ease the pressure of urbanisation on cities, improve lives of nearly half our citizens, and provide a boost to employment.

Finally, I turn to agriculture. Much of what the government does from a fiscal perspective, be it procurement or setting of subsidies, only becomes evident via its actions during the course of the year. From some of its actions, it seems like what the government is trying to do is set up a framework wherein the sector is more sustainable and resilient. Thus the continued and welcome push for natural farming by encouraging agriculture universities to include these areas in their syllabi, and setting up a corridor along the Ganga to do so. The Centre is setting aside funds and pushing policies to promote agro-forestry, and private forestry to boost green cover.

I must thank Sitharaman for setting up a high-level committee to look into issues relating to PE & VC industry. Fourteen years ago, when I opened our office in India, the industry accounted for around $6 Billion of inflows in India. As Chairperson of CII’s PE & VC committee I feel proud that last year the industry committed close to $50 Billion to India-centric companies. This growth is extraordinary, and has contributed enormously to India’s growth during this period. In fact, PE & VC now often dwarf FII flows, and account for the lion’s share of FDI flows. However, industry players know that India can get a larger share of funds among destinations over the years to come, and funds can have a better operating experience if we partner with the government to resolve certain issues.

Equally importantly, we have the opportunity to create a vibrant domestic PE & VC industry, in line with Atmanirbhar Bharat, and should aspire to do so with a 25 year view.

Amit Chandra is Chairperson, Bain Capital Advisors (India). Views are personal, and do not represent the stand of this publication.