Budget 2022-23 for Creating Demand in the Long-run: Ignores Middle class and lacks in Resource Mobilization | SS Sangwan

by S S Sangwan *

The Central Budget (CB) 2022-23 has been presented by the Finance Minister as a blueprint for steering the economy for the next 25 years i.e. the Amrit Kaal. The budget has set four priorities viz., PM Gati Shakti (PMGS), inclusive development, productivity enhancement & investment, and financing investment. The PMGS is defined as a transformative approach through the usual key infrastructure namely, Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure which are termed as seven engines of growth. It is assumed that investment in these sectors will have a multiplier effect on numerous related sectors like cement, steel, building materials, paints, fibbers, glass, etc. These sectors will employ about 60 lakh persons who will create demand for other consumer items. My analysis of the budget is in two parts. To start with, the main narratives of the budget are discussed and its macro assumptions are commented on in the end.

In agriculture, the usual procurement of paddy and wheat worth rupees 2.37 lakh crore will be taken up. It also envisages a comprehensive scheme to increases oilseeds production from 36 million tonnes to 56 million tonnes to reduce our imports dependence from 52 to 36 %. Digital service, organic farming, and Kisan drones will be introduced to reduce the cost of cultivation. To increase irrigated area, the Ken -Betwa project will be completed with a total outlay of Rs5700 crore during 2021-22 and 2022-23. Draft DPRs have been finalized for linking five more regional rivers. It is a welcome step if taken to its logical ends.

To encourage MSMEs, their guarantee cover for financial support will be expended by Rs4.5 lakh crore and 2.00 lakh crore with the support of Emergency Credit line under Guarantee Scheme and Credit Guarantee Trust, respectively. Further, their operation will also be extended by one year upto March 2023. To ensure timely payments to suppliers from government departments, a provision has been made for payment of 75 percent of running bills within 10 days and launching of end-to-end online e-bills for use by all Central Ministries. It will check corruption and bring efficiency. A system of surety bonds instead of bank guarantees will also be introduced to reduce costs for suppliers and in turn, the expenditure of the government.

The education sector has been allocated Rs 1.04 lakh crore with increases of 19 percent over the RE of 2021-22. The new education policy will be implemented and a digital university will be set up. The University will provide access to students across the country for world-class quality universal education at their doorsteps. Further to provide city-like internet connectivity, all villages will be connected by optical fibber through PPP mode during the period 2022 to 25.

The allocation for health and family welfare including Ayus is about 11 % higher over the BE of 2020-21 but 4 % lower than the RE. Its inadequacy is a cause of concern. Even the rural employment program of MGNREGA has got the reduced allocation of Rs 73000 crores against the RE of Rs 98000 in 2021-22.

To improve financial inclusion, all 1.5 lakh Post offices will have a core banking system like banks. Carrying forward the digital banking agenda, it is proposed to set up 75 Digital Banking Units in 75 districts of the country by the Commercial Banks. To make a cheaper currency management system; it is proposed to introduce the Digital Rupee through the Reserve Bank of India in 2022-23.

Urbanization shall be revamped to make it sustainable. A committee of reputed experts in the field will be set up to suggest a clear road map for urbanization. The tier 2 and 3 cities will be focussed on by states with support from the Central government. The budget provision is Rs76549 crore for 2022-23 against 2021-22 BE of RsRs54589 crore. Besides, the budget allows Rs48, 000 crore for 80 lakh houses under PM Awas Yojana in both rural and urban areas.

In pursuit of AtamNirbhar Bharat (ANB), 68 % (58 % in 2021-22) of procurement by Armed Forces will be from domestic industry. To improve quality, more R & D budget has been provided for design development by DRDO jointly with private industry through SPV mode. Many import duties & taxes are also rationalized to support domestic units.

The public capital expenditure (CAPEX) has been stepped up by 35 % from Rs5.54 lakh to 7.50 lakh crore. Its effective amount through the grant in aid to states will be almost double i.e. Rs10.68 crore. Besides, given the success of the ‘Scheme for Financial Assistance to States for Capital Investment’, its allocation is being enhanced from Rs15000 RE in 2021-22 to Rs 1 lakh crore to assist the states. It is a fifty-year interest-free loan and over and above the normal borrowings allowed to the states.

Financing of Investments

Capital investment holds the key to speedy and sustained economic revival and consolidation through its multiplier effect. The higher pubic CAPEX will crowd in private investment. Sovereign Green Bonds will be issued for mobilizing resources for green infrastructure. The green public sector projects will also reduce the carbon intensity of the economy.

Fiscal Position

The total revised expenditure for 2021-22 is Rs 37.70 lakh crore as against the BE of 34.83 crore. The revised fiscal deficit will be 6.9 % of GDP for the current FY and the GDP growth rate is to be 9.2 % in 2022-22. The total budgeted expenditure for 2022-23 is Rs 39.45 crore and the total receipts will be Rs22.84 lakh crore without Borrowings. The budgeted Fiscal Deficit is 6.4 % of GDP during 2022-23 and GPD growth is estimated to be 8.5 percent. The figures appear to be within the controllable limit, hence, the capital market also responded positively.

In part B there is no tax relief indirect tax except to parents of persons with disability and increases in tax deduction limit of state governments’ employees from 10% to 14% at par with that of the central government. The tax exemptions for starts up and new manufacturing units are expended for another year upto March 2023. The virtual digital assets and gifts will be taxed at the rate of 30 % and there will be a TDS of 1 percent to capture their transfer.

Check on Imports

In pursuit of ANB and ‘Make in India’; the budget proposes to phase out the concessional rates in capital goods and project imports gradually and apply a moderate tariff of 7.5 percent except for a few advanced machineries and specialized inputs. Further to incentivize domestic MSMEs, exemptions are to be phased out gradually for more than 350 entries like an umbrella, headphones certain agricultural products, chemicals, medical devices and drugs, and medicines that have sufficient domestic production. To enable domestic production of high growth electronic items like mobile phone chargers and camera lenses of mobiles and certain other items; duty concessions are being given to their parts.

Export- Push

To incentivize exports, custom exemptions are being provided on items such as trimming, fasteners, buttons, zipper, lining material, specified leather, furniture fittings, and packaging boxes that may be needed by bonafide exporters of handicrafts, textiles and leather garments, leather footwear and other goods. Duty is being reduced on certain inputs required for shrimp aquaculture to promote its exports. To encourage the efforts for blending of fuel, unblended fuel shall attract an additional differential excise duty of Rs 2/ litre from the 1st day of October 2022.

Apprehensions about Macro Assumptions

Most budget- analysts agree that the micro-narratives are rational and realistic in pursuit of ANB and make in India. The government has estimated a nominal GDP growth rate of 11.1% in 2022-23 which will bring down the real growth rate below 7 percent. Hence, the tax bouncy may be less than assumed and the fiscal deficit may be much higher than 6.4 %. Further, in infrastructure projects, heavy machinery will replace the employment of labor, hence actual employment may be much less than the assumed 60 lakh whereas the rich owners of machinery may corner the benefits. The government has missed addressing the rising inequality by taxing the rich. It is recognized that the demon of inequality is causing biased access to resources, health, education, employment and the process in the budget may further heighten the menace to social harmony.

In our country, the share of indirect taxes with incidence on poor is increasing while most of the developed countries are increasing direct tax through the wealth tax or inheritance tax or both. The illustrate; the highest wealth tax (annual) is in Portugal 61.3%, Slovenia 61.1%, Belgium 58.4%, France 2.166 and Spain 2.618% with an average of around 2 percent in big countries. The inheritance tax is levied on the market value of the property or assets at the time of death of a person after deduction of liabilities &exemptions, at the rate of 55 % in Japan, 50 % in South Korea, 45% in France, 40 % in the U.K, 40% in the United States and 30% in Germany. Whereas, India has abolished the estate duty in 1985 and the wealth tax in 2016. It is high time to re-introduce these taxes otherwise; it may create an India, where a vast majority of people may be suffering silently while a few may be living in splendid isolation under a perceived threat of social unrest.

* (Author: Dr. S S Sangwan is Former Professor SBI Chair Chandigarh)