Sitharaman’s push for a big growth cycle on the back of capital investment and infrastructure will work.
It’s kind of an unconventional budget. Many may not feel it. It doesn’t matter, but it’s India’s civilizational philosophy of ‘Yoga kshema’ – the welfare of the people – ordained in the dharmic principles of economic governance that Finance Minister Nirmala Sitharaman relied heavily on when presenting her fourth budget . The easiest way is to dismiss with a smirk that there is nothing in the budget for hoi polloi. Finance Minister Sitharaman’s budget proposals were certainly not a routine affair that offered a few rupees here or there through tax breaks, exemptions or raising the standard deduction bar. Even Kautilya’s arthshastra had emphasized establishing a sustainable and viable economic order, especially during and after a pandemic. This is precisely what Nirmala Sitharaman has attempted through his Rs 39.45 lakh crore budget for 2022-23 unveiled on February 1. It is not easy to pull the economy out of the woods after being battered for more than two years during the Covid 19 induced pandemic. Sitharaman seems to have donned the cap of a thinking finance minister to set the roadmap to induce sustained medium-term growth. Stimulating industrial expansion to create millions of new jobs and work opportunities in the medium term may not be a bad idea. Expanding the productivity incentive program beyond 14 sectors alone could create six million new jobs, Sitharaman estimates. For the man on the street and the average BJP voter with a ‘what’s in it for me’ attitude, this high growth agenda may not mean much. Even optically, the “grow, grow, and grow” kind of budget can be a tough sell. But then the right message is what the Narendra Modi government needs to do to garner support for the budget proposals which outlined a plan to set aside more than Rs 7.5 lakh crore for capital expenditure marking a 35% increase compared to revised estimates in 2021-22. As Prime Minister Modi pointed out a day later, this huge capital outlay was four times more than Rs 1.87 lakh crore incurred in 2013-2014 before his government took over. In addition, states were allowed to borrow Rs one lakh crore in the form of interest-free loans with a tenor of 50 years. Upstream public investment also means that private and foreign investors would follow suit to restart the investment cycle. It’s not just the messaging part. The reality is that the Modi government has devoted a large part of the budgetary resources to railways, ports, airports, roads and other infrastructure projects to aggressively boost economic growth and thereby create more jobs. Even if 50% of the government’s plans materialize, the criticism that nothing has been done to tackle unemployment and job losses will fall flat. It’s a conscious bet that the Modi-Sitharaman duo took. Most of the world’s economies have continued to report contraction over the past two years. Interestingly, the resilience of the Indian economy led to a growth of 9.27% this fiscal year. To maintain the growth momentum, the Minister of Finance seems to have chosen public investment and the push for infrastructure development as two driving forces. Well, opponents were quick to cite heightened inflationary pressure working counter-cyclically to a high economic growth trajectory that the Modi government consciously opted for. Crude prices heading towards $100 a barrel ($90 a barrel reported two days ahead of the budget) could put immense pressure on Indian inflation which is already hovering in double digits in wholesale markets and at 5.4% at the level of consumption. It is undeniable that for every Minister of Finance, the biggest nightmare was to strike the right balance between prices, inflation and interest rates on the one hand and achieve the desired growth to spread prosperity, respond to people’s aspirations and create work opportunities. While Sitharaman worked methodically to induce sustainable growth, she faced bricks for letting fiscal prudence slip as the fiscal deficit was targeted at 6.4% in 2022-23 and continued to be high. to 6.9% this fiscal year. Huge increase in goods and services tax revenue has not helped reduce deficit figures, although Finance Minister Sitharaman insists Modi government has not lost fiscal consolidation plan described in the last budget. Consistently, GST cleanup topped Rs 1.2 lakh crore each month from April 2021. And, in January 2021, GST collections hit an all-time high of Rs 1.40 lakh crore since its created in July 2017. However singular his aim was to achieve high levels of growth, Sitharaman has not been shy about extending borrowing to Rs 14.95 lakh crore for 2022-23. Through the budget exercise, Nirmala Sitharaman put an end to the raging debate over cryptocurrencies. She clearly stated at the post-budget press conference that private cryptocurrencies would be completely banned. This is in line with this government’s belief that only RBI has the right to introduce currency, be it notes, coins or digital instruments. Prime Minister Modi has offered more clarity on the digital rupee that will be launched, regulated and monitored by RBI. During a virtual conference with BJP workers after the budget, Modi even pointed out that the digital currency and the physical rupee would be easily convertible. While taxing digital assets (read cryptocurrencies) at 30% on long-term capital gains and 1% on transaction fees, Finance Minister Sitharaman clearly stated that private digital currencies n shall not be legal tender in India. Nirmala Sitharaman’s decision to tax digital assets like cryptos gave credibility to digital transactions. But, will they be accepted as collateral in banks is a question on which ambiguity persists. Tax officials say the income tax department was collecting tax on digital transactions through the capital gains window. Although there is no official estimate of Indians’ exposure to cryptocurrencies, several independent consultants have put the figure at a whopping Rs 6 lakh crore. Now that private cryptocurrencies will no longer be recognized, the future of these blockchain technology investments, mints and exchanges is a big question. Expanding the productivity incentive program beyond the initial 16 sectors and renewed support for the ‘Make in India’ campaign would only increase the engagement of foreign companies in India. According to the budget documents, 60 lakh jobs will be created over five years by these companies. The drive for self-sufficiency pushed across the defense sector with over 68% of resources earmarked for Indian companies on a preferential basis is again a big positive. Several other initiatives for start-ups, medium, small and micro-enterprises apart from the digitization of the rural and agricultural economy would have a cumulative impact that would add up perfectly. It is a budget that continues to grow and ushers in the well-being, prosperity and upward socio-economic mobility of 1.4 billion people. Congratulations, Minister of Finance Nirmala Sitharaman! (The author is director and managing director of the New Delhi-based nonpartisan think tank, Center for Integrated and Holistic Studies)