SynopsisFocus now is on unprecedented capital expenditure generating future income and employment.Despite Covid, GoI has performed remarkably well in
Focus now is on unprecedented capital expenditure generating future income and employment.
Despite Covid, GoI has performed remarkably well in collecting revenues for 2021-22 (revised estimate). Gross tax revenue for 2021-22 (RE) is up by 13%, driven by corporation tax, income taxes, customs and GST. This has given the FM to budget for another 9.6% growth for the coming year, 2022-23 (budget estimate). Equally, we have been falling seriously short of what ought to be a sensible, steady-state tax-to-GDP target. For 2021-22 (RE), despite a smart increase in collections, our tax-to-GDP ratio was 10.8%, estimated to drop to 10.7% in 2022-23 (BE). For creating a fiscally viable nation, this should have been at 15-16%. So, while the FM deserves kudos on the tax front, she should be aware we are way behind where we ought to be for long-term fiscal stability.
How have we succeeded in getting the fiscal deficit for 2021-22 (RE) to 6.9% of GDP — admittedly a bit higher than the BE of 6.8% but creditable nevertheless? It has been by maintaining a tight lid on many items of revenue expenditure. These could have gone through the roof on account of Covid. But thanks to the old stratagem of the expenditure secretary not having ink in his pen in the second half of the financial year, total expenditure of GoI for 2021-22 (RE) is only 8.2% higher than the corresponding BE.
This control will continue throughout the next year with total expenditure slated to rise by 4.6% in 2022-23 (BE) versus a significantly higher increase in gross tax revenue. Hence, a lower projected fiscal deficit for 2022-23 (BE) of 6.4% of GDP.
But the focus now is on future income- and employment-generating capex. Net of capital infusions and loans for settlement of Air India’s guaranteed and sundry liabilities that were carried out in 2021-22, capex is targeted to increase by a huge 36% to Rs 750,246 crore in 2022-23 (BE). Another Rs 317,643 crore will be pumped in as grants-in-aid for creating capital assets, including through MNREGA. We haven’t seen such capex ever before.
Much of this is to build infrastructure such as roads, national highways, metro rail and the like. Allocation for the National Highways Authority of India (NHAI) in 2022-23 (BE), for instance, is Rs 134,015 crore, which is 105% more than what it will have received in 2021-22 (RE). Such infra projects could provide a large number of jobs to poorer sections. However, we spectacularly fail on disinvestment. For 2021-22, the BE on disinvestment was a colossal Rs 175,000 crore. The RE on it is Rs 78,000 crore which, though 55% less than estimated, may not be even achieved. Small wonder that BE on disinvestment for 2022-23 has been pegged more modestly at Rs 65,000 crore. GoI must completely revamp its Department of Investment and Public Asset Management (DIPAM), and have it led by a dynamic investment manager and privatisation expert who will take this up as a challenge, rather than a civil servant with one eye to retirement and the other to potential interventions by the CBI, CVC or ED.
Kudos to the FM on this budget. It is sensible, doesn’t over-promise and, in all likelihood, will meet the fiscal deficit numbers for 2022-23. I would keep a close watch on the tax revenue targets because much will depend on how these pan out. And given where we are right now, I am a firm believer in fixing the broken supply side, especially through a slew of infra projects. These generate jobs that are better than distributing food hampers.
We don’t – and never did – have delivery mechanisms to adequately fix the demand side. Only jobs can raise the sustainable income level of the bottom 40%. Jean Baptiste Say wasn’t a fool when he posited that supply creates its own demand.
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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