India loosens its purse strings to boost growth

With better-than-expected revenues at her command, Indian Finance Minister Nirmala Sitharaman promised to invest more on building roads, railways, airports and homes for the needy in the Budget, hoping the multiplier effect of these plans could pave the way to revive the Covid-hit economy and create more jobs.

She, however, stopped short of giving any income tax relief to the middle income group and the salaried class, disappointing those affected due to pay cuts, high inflation and a fall in household incomes during the pandemic.

"There are times, when you have to wait longer," Sitharaman said in a post-Budget presser, to a question on why she could not provide a pill for the sufferings of the middle class in her Budget for the upcoming financial year.

Read more: Budget 2022: Infra at the cost of welfare

Sitharaman tried to balance her Budget with a greater thrust on infrastructure-led development in a year when the BJP-led Union government gears up for Assembly elections in five crucial states. To finance such humongous projects, she proposed to raise the capital expenditure by a whopping 35% to Rs 7.50 lakh crore.

The news, which boosted Indian stock markets on Tuesday, was welcomed by some corporate titans.

“The Indian economy needs a steadying hand at a time when it is trying to find its feet as the tremors from the global Covid-19 pandemic recede slowly. She has prudently laid the groundwork for a gradual economic revival by following a path of fiscal prudence and ensuring ease of doing business,” Biocon Chairperson Kiran Mazumdar Shaw said.

Despite the plan to spend more, Sitharaman expected the target for the government deficit to narrow to 6.4% in FY23 from a projected 6.9% in FY22, suggesting she planned to rely heavily on strong economic growth in the coming year. But experts said the prevalence of pandemic-related risks and rising oil prices posed great uncertainty.

Indian 10-year benchmark bond yields surged to their highest in 2 and a half years after Sitharaman said the fiscal deficit for the current financial year would be bigger than expected. The NSE Nifty 50 and S&P BSE Sensex stock indexes closed 1.4% and 1.5% higher respectively on the boost in capital expenditure.

Her spending plan was raised to Rs 39.45 lakh crore in 2022-23. To meet these expenditures, the government will also borrow about Rs 11.6 lakh crore from the market in 2022-23. This is nearly Rs 2 lakh crore higher than the current year's plan. Receipts from disinvestment proceeds were pegged at Rs 65,000 crore, lower than the current year's mobilisation of Rs 78,000 crore.

"The Union budget for fiscal year 2022-2023 underscores the Indian government’s previous emphasis on capital expenditure to sustain the near-term recovery from the pandemic, while simultaneously paving the way for longer-term restructuring of the economy. However, various spending initiatives were not offset by any significant announcements related to further increasing revenue generation," said Christian de Guzman of Moody’s Investors Service.

In her 91-minute speech, she proposed four focus areas of the Budget -- private investment in the transport sector under the PM Gati Shakti project, inclusive development, optimising productivity and boosting financial investment.

Read more: Govt's subsidies to decline 39% to Rs 4,33,108 cr in FY22; to further drop next fiscal

But a steep cut in spending on food, fuel and fertilizer subsidies invited criticism from economists.

"There are vulnerabilities at the bottom of the pyramid which could keep demand and growth weak. As such, it may be a good idea to keep social welfare spending elevated for longer," said Pranjul Bhandari, chief India economist at HSBC.

Sitharaman raised the farm credit target to Rs 18 lakh crore from Rs 16.50 lakh crore for the current financial year, but cut the allocations on rural job guarantee programme MGNREGA to Rs 73,000 crore.

Her infra proposals included an expansion of the highway network by 25,000 kms in 2022-23, creation of 100 new cargo terminals and innovative funding for a new metro rail system. Housing projects were allotted Rs 48,000 crore. She also promised to complete the construction of 80 lakh affordable houses under the PM Awas Yojna in 2022-23.

Her tax proposals incorporated a 30% levy on income transfer of digital assets. This precedes the introduction of the much-awaited Crypto-currency bill in Parliament.

“With virtual digital assets rapidly gaining popularity, the Indian government lost no time in bringing the same within the tax net. This Budget proposes to levy capital gains tax on transfer of any such digital assets at a whopping 30%, without the benefit of any expense deduction or setting off any losses against such gains,” Rajesh Srinivasan, Partner, Deloitte India, and Supraja Srinivasan, Deputy Manager, Deloitte India wrote in an exclusive piece for DH.

Sitharaman capped the surcharge on long-term capital gains at 15% to give a boost to the start-up community.

To help small businesses recover from the pandemic, the Budget proposed to extend the emergency loans scheme to MSMEs till March 2023 and expand its guarantee cover by Rs 50,000 crore to a total cover worth Rs 5 lakh crore. The additional amount will be exclusively earmarked for the hospitality and related segments to help them recover to pre-pandemic levels.