Understanding the numbers in the Union Budget 2022

To begin with, it must be said that while budgeting is exercise in both revenue generation and expenditure, it should be viewed more from the point of view of expenditure side where the objective is to get more bang for the buck. Revenue options are limited as the goods tax is subsumed under the Goods and Services Tax (GST) and there are currently limited options in changing the direct tax rates.

No significant changes have been made here and there is an assumption that the growth spurt will translate into revenue. The assumption is that revenue will increase by about 6.5% which is realistic, especially considering it was 27% last year.

A major pain point in the economy has been the low level of investment. It must be remembered that the investment is really within the private sector and the government can best support the effort by targeting majorly specific sectors in the infra space. In addition, state governments also need to support this effort as their outlay is usually at least 20% higher than that of the Centre. Here, a sustained focus on roads and railways, which characterize the government, would be useful. capital expenditure target of 7.5 trillion for FY23 6.02 trillion is a significant jump in FY22.

The areas of focus are interesting. was given to the railways 1.37 trillion while roads account for 1.87 trillion. Defense outlay is 1.6 trillion and here the target is to procure 68% from domestic sources. Therefore, 65% will be in three sectors. one more 1.11 trillion will be transferred to states for investment. We can see that the forged backward linkage will be strong with steel, cement, machinery, chemical etc. But for this to change the investment cycle, we need the private sector to contribute in a big way. It can be expected that policy initiatives such as the push it has provided over the years will eventually accelerate the private capital investment cycle this year.

Also, the government has promoted the target sectors which need support- hospitality sector is included under ECLGS and with With Rs 50,000 crore in reserve, this should help the industry immensely, as the credit outstanding here is of almost the same amount.

The constant thrust on digitization has again made its mark here where the Finance Minister has spoken of setting up 75 digital centers in different districts and here banks can finance a huge opportunity. In addition, with the introduction of a digital rupee, we will open new possibilities in transactions. Other industries included in the various proposals are telecommunications, solar energy, defense and housing, among others. So the emphasis on the supply side is quite strong and broad.

On the taxation side, there has not been any major relaxation that can be expected. It seems that individuals will have to wait another year before getting any further tax concessions. Right now the focus is on improving the supply side. In a way, it can be said that the demand side has been sidelined, but this is understandable in the context of inflationary pressures and rising bond yields.

Interestingly, the government has kept LIC’s disinvestment proceeds out of the revised numbers for FY22 and FY23, though it said the scheme would be implemented this year. This can be interpreted as an understanding where the actual realization will help moderate fresh borrowing.

The great thing, however, is that the government is on a gradual fiscal consolidation path. This is a good sign, given that we can expect the fiscal deficit to move towards the 4.5% level. It should support growth in the short term while making a strong case with global rating agencies in the medium term.

Thoughts are personal.

Sanjeev Chadha MD & CEO, Bank of Baroda