A wishlist from the union budget always is a long one, with the government trying to please some sections, keeping in view its political dividend. Due to several factors, internal and external, the Indian government in 2022 is not exactly in a position to turn generous even though the crucial state of Uttar Pradesh is in election mode. The external factor that is still hurting economies world over has a new avatar called Omicron, the latest mutant of the China-origin coronavirus. The internal factors are many — some like GST has taken away the centre’s power of taxation to a great extent. The other is the style of functioning of the Narendra Modi government. In the last eight years, it is seen that major policy announcements come from the prime minister himself, with the union budget merely repeating the ideas and showing a road map for implementation. The situation has changed so much that some even question the need for maintaining extreme secrecy in the budget making process starting from the halwa ceremony. Yet, talking of a wishlist and predicting how much of that will be in the budget speech remains a favourite pre-budget exercise.
The factor that will be scrutinised closely is the size of the budget deficit. More so since inflation is a major worry at this juncture with retail inflation hitting 5.59 per cent in December 2021, nearly the outer limit of the Reserve Bank of India’s outer limit. Such breach might attract stringent monetary policy forcing an accommodating the RBI Governor Shaktikanta Das to sound not so sweet to the government. Finance Minister Nirmala Sitharaman must therefore take a serious look at the quantum of the government expenditure. The estimated collection from government assets like LIC, BPCL during the current fiscal 2021-22 seems to have missed the target by a wide margin. Thanks to robust tax collection, budget deficit however might not breach 7% mark, a shade higher than estimated 6.8% of GDP in the last budget. State Bank of India estimates that net total borrowing of the centre and states in the coming fiscal will be marginally lower than Rs 15 lakh crore of FY2022. But given the need to maintain the pace of infrastructure development, a much necessary avenue to perk up a pandemic hit economy – domestic and global – the budget 2022 may shave off just few basis points from its estimated 6.8 per cent level. Will it be around 6 per cent or less than that?
Coming back to the point raised earlier, the loss of importance of budget announcement, one may take a look at August 2021 when the union government had unveiled the National Monetisation Pipeline of central ministries and public-sector entities, with the aggregate potential of Rs 6 lakh crore through core assets of the central government, over a four-year period, from FY2022 to FY2025.For FY22, the amount stipulated has been Rs 1,62,422 crore. The finance minister, as the government’s accountant, has to explain the surplus or shortfall in FY21 (over the target Rs 88,190 crore) and perhaps adjust the amount for FY22.
The government’s options are limited. With the private investment playing truant, the public sector expenses cannot be curtailed. Railways have not received as much attention as did roads, with three planned dedicated freight corridors — East-West, North-South and East Coast freight corridors — might receive some mention in the budget. The target Rs 1.6 lakh crore NMP from the railways might get funnelled for railway projects. As political show case these announcements may excite the government.
The government has three critical target groups to be appeased. First the tax paying, largely middle class who are of late slow on discretionary expenses. Unless they come back to the market with full vigour the consumer demand will continue to be sluggish and economic growth will not receive the requisite fillip. For that the budget might tweak the personal taxation rules, ease rules on investment in financial assets, help encashment of sovereign gold bonds so as to make more money available to consumers — many such steps are hopes unrealised. The government cannot milk the same tax paying section of citizens year after year, more so when lack of consumption is hurting economic growth. The tax paying section are not viewed as secured vote bank hence get omitted in budgets but they being the consumers Sitharaman cannot wink at this section any more. For on them depend the wheels of growth especially survival of the MSME sector.
This brings the government to a very important target segment estimated 6.33 crore MSME units in India which contribute 29% to India’s GDP, employing over 11 crore workers. Despite several pronouncements the health of this critical employment generating sector remains in dire straits. What can the budget do for the MSME? Credible source to verify cash flow and seamless access for lenders to GST and ITR data on real-time basis can ease lending to SMEs and rejuvenate TReDS system. Also the government needs to compel its own units and departments to deal through the digital platforms for MSMEs which receive huge orders from them. Mere persuasion used hitherto has not helped. Will the budget bring in some measures? If it does business sentiment may improve and with it GDP growth. At the same time budget may see some tweaks in the ECLGS (Emergency Credit Line Guarantee Scheme) and extension of the same.
The third category which are always at the receiving end — of the government policies and those who claim to be representing the class and ostensibly fight for their cause, are the farmers. According to SBI data, as on 31st March 2021, KCC (Kishan Credit Card) loans for all scheduled commercial banks aggregated to about Rs 7.53 lakh crore through 7.3 crore active KCC card users. This was about 55% of the total agricultural loans outstanding by all the banks. Rule says that access to KCC loans is renewed every year only after the farmer has paid both the principal and interest amount in total. Imagine funds given to a large corporate — say RIL or Tata Motors — getting renewed every year only after the companies paid its outstanding in full. Common logic demands that as long as a KCC card holder pays interest dues the account should be renewed – a small step for Sitharamn but a big relief to the small farmer.
The long budget speech will have many quotes from pundits and politicians, but more pertinent for ordinary citizens will be steps, if any initiated, to unleash the much missed impetus for growth by fuelling consumer demand, housing construction and productive investments with safe and noncomplex instruments. The political administration may, in fact will, go for the rhetoric and take refuge behind the non-tax paying vote bank but what matters for growth in post-Covid years are the tax paying consumers. Unless demand generates from them no amount of lucid rhetoric will help the economy. Question is does the government realise it? Budget will tell us.