The Union Budget for FY22 is a little more realistic about targets than its predecessors, and that can provide room for upside.

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A fiscal deficit of 9.5 percent for FY21, when the target was 3.5 percent pre-COVID, and a deficit of 6.8 percent for FY22, when the street was estimating anything between 5-5.5 percent can be more than a little disconcerting, to put it mildly.

But like with all financial statements, it pays to delve deeper to understand what’s driving the underwhelming performance. A quick look at the numbers—more details will surface as the document is dissected—suggests that a significant part of this variance is due to a sharp rise in food subsidy expenditure. So far, this was being borne by Food Corporation of India. Now, that is now being brought into the main budget.

The other big swings are seen in the estimates of non-tax revenues, which seem more realistic than in the past. The two key ones here are telecom revenues (mostly spectrum usage charges) that are seen far lower in FY21RE and FY22BE at Rs 33,737 crore and Rs 53,987 crore, respectively, compared to over Rs 1 lakh crore estimated by forecasters and the Rs 133,000 crore budgeted for in FY21BE (pre-COVID).

Disinvestment is the other non-tax revenue had that has seen a scale back, after a poor showing. The targeted receipts in FY22 are Rs 1.75 lakh crore compared to Rs 2.1 lakh crore budgeted for in FY21. This needs to be viewed in the context of the low Rs 32,000 crore expected to be collected in 2021, and the Government’s resolve to not just conclude divestments of BPCL, Concor, Shipping Corp, Air India, BEML and IDBI Bank in the coming fiscal, but also conclude LIC’s IPO and privatize two public sector banks and a general insurer. If it manages much of this, an overshoot could well be possible.

Put all these numbers together, along with the planned higher capital expenditure and the math does not look as bad. Especially considering that the nominal GDP estimate is 14.4 percent in FY22, though on a lower than estimated dip of 4.2 percent in FY21, compared to the 15 percent most economists were working with and the 15.4 percent indicated in the economic survey.

BEYOND THE MATH

So, let’s set the fiscal concerns aside and look beyond. What do we have in the Budget, beyond this? The first big number that leaps out is the capital expenditure proposed in FY22. It is not just 26 percent higher than the proposed spend in FY21, but also a good 25 percent higher than most economists were penciling in—or a good Rs 1 lakh crore more. Thus, the Finance Minister seems to have heard the voice of the camp, including the Chief Economic Advisor, who were calling for higher spends to drive the economic recovery. In fact, if the counter-cyclical multiplier effect pointed to into the economic survey—and clearly practised by developed economies as per the provided data—does deliver the expected results, the economic performance could actually surprise.

What’s also heartening is the intent to monetise assets and free up resources—via InvITs of NHAI and Powergrid Corp, besides railways and land assets. However, here one would like to see a more concerted effort. After all, what is the need for the Ceneral government to own infrastructure assets when these are better held by long-term investors like pension funds looking for annuity returns? The focus should be on build and divest to keep freeing up resources. For a capital-starved economy, recycling of capital is extremely important.

The other key measures like the proposal to have bad assets of the banking sector pooled and managed by an AMC, the setting up of a development financial institution and the divestment policy for strategic and non-strategic sectors are all good in intent, but much of the impact will be determined by the form and execution. So, it may be premature to read much into them for now.

LEAVING TAXES ALONE

Sometimes, boring is good. This is especially true when it comes to taxes. Predictability has its own value, and not tinkering with most taxes—besides some import duty revisions, imposing a tax on ULIPs and EPF investments—is mostly a welcome change.

What’s more important is that a feared cess on direct taxes or a revision in capital gains tax regime haven’t become reality. What has, however, been done, and is positive, is to try and further address the issue of tax disputes and provide a faceless appellate tribunal centre.

No new incentives have been offered for buying homes, but the earlier benefit for affordable homes has been extended. Tax filing has been made easier, with more pre-filled parameters. And some concessions have been provided on TDS along with incentives to foreign investors, in a bid to woo more capital.

THE BOTTOMLINE

The Budget in India is not just a statement of projected income and expenses, but a statement of intent. It is not just about the money to be spent and earned but also about the policy impact of measures to spur growth through infrastructure investments, reforms and incentive schemes like the PLI for manufacturing. Can the government deliver on the promise of the Budget? That is what will determine whether it is hailed as a landmark or designated as yet another event that was big on promise but low on delivery.

For the sake of India, I do hope we can call it a watershed.

(Edited by : Aditi Gautam)

First Published:Feb 1, 2021 8:12 PM IST