Workman-like and pragmatic Budget 2022 prioritises growth

Budget 2022

Given that we are on the cusp of election season, the Union Budget for FY23 doesn’t seem to pander to populism or tactical dole outs to any target audience. Instead, we have a solid workman-like budget announcement with a singular focus seemingly on government spending to boost the supply side of the economy —an investment and capital expenditure push.

Growth has been prioritised with realistic fiscal deficit targets. The last year has demonstrated the fact that buoyancy in growth and hence tax collections is a better solution to get a hold on the fiscal deficit rather than to target the deficit itself. From that perspective prioritizing growth and recalibrating the glide path of fiscal deficit is not only likely to energise some so-called “old economy” sectors engendering tag-along private sector capex but also likely to find favour with the equity markets even as bond markets see a rise in yields. All the same, the budget surely must be informed by the “agile” framework and “nowcasts” forecasts approach supported by real time data and economic proxy indicators detailed in the Economic Survey. One must assume that in context of the evolving macroeconomic scenario and the global backdrop there is willingness to calibrate in real time as we go along; this is what was also cited as the basis for the response to COVID-19 emergency.

While the budget signals policy continuity with a thrust on capex, enhancing the ease of doing business and boosting exports and manufacturing, there is emphasis on new areas such as sustaining digital ecosystems and urbanisation. Adjusted for certain one-offs, the on-budget outlay on capital expenditure has been increased by 35 percent YoY with focus on multiple areas like roads, railways, defence, and electric vehicles. Integrating the higher allocation towards national highways and improving the rail network with the PM GatiShakti master plan for seven infra related sectors provides ample visibility to overall capex even beyond FY23.

While previous budgets have focused on building road and railway infrastructure, there is a significant focus in this budget on logistics to drive productivity. Apart from the thrust on multimodal connectivity, the proposal to develop four multi-modal national parks, 100 PM Gati Shakti terminals and a Unified Logistics Interface Framework to enable efficient movement of goods is likely to boost competitiveness of the manufacturing sector in India.

There is significant focus on clean energy as manifested in the push for solar power where an additional allocation was made towards the existing production linked incentive (PLI) scheme for manufacture of high efficiency modules; or for example, the supportive policy actions to help scale new opportunities such as Geospatial Systems and Drones, Semiconductors and Green Energy.

Market borrowing through green bonds for mobilizing resources for green Infrastructure is also a welcome step. The decision to include dense charging infrastructure and grid-scale battery systems in harmonised list of infrastructure will help drive growth in data centres and energy storage systems. A PLI for design-led manufacturing to build a strong ecosystem for 5G networks has also been proposed.

On the other hand, higher allocations towards social infrastructure continued under the flagship “Har Ghar, Nal Se Jal” program and the PM Awaas Yojana. The financial assistance to states related to funding these infra investments has also been expanded significantly. The budget was also pragmatic in extending measures such as the ECLGS for contact intensive sectors like hospitality which were badly affected in the pandemic.

One source of concern is the lower disinvestment projection but given that we have been missing targets it suggests a realistic and calibrated approach. It could also mean that this mode of raising revenue and liberalising the economy is being downplayed for multiple reasons. That said, hopefully the numbers should not undermine the process for privatisation or strategic disinvestments for CPSEs which have been underway for some time now.

There were a few other underappreciated but impactful announcements. For instance, the setting up of universities and colleges in GIFT City to create an internationally trained cadre of financial services is a great move. The ability to update tax filings and regularise compliance up to 2 years is an excellent move and may probably even result in slightly better collections without fear of punishment. Digitization of land records and national standard for registration of documents and anywhere registration are welcome moves for tax compliance and transparency in real estate markets. Similarly, the linking of post offices across India onto a core banking platform with ability to transact with the wider banking system is an excellent move to integrate and make financial resources more productive.

India is expected to be the fastest growing major economy in FY23. Ample emphasis on improving logistics efficiency and ease of doing business apart from the thrust on capex is likely to provide support to the sharp rebound in growth post the COVID pandemic. Now to watch for the execution, which as always, is the key.

Aashish Somaiyaa, CEO, WhiteOak Capital Asset Management.

Views are personal and do not represent the stand of this publication.