View: Budget 2022 attempts to strike a balance between fiscal prudence and economic growth

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View: Budget 2022 attempts to strike a balance between fiscal prudence and economic growth

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SynopsisThere are a few themes that clearly stand out from the budget announcements - focusing on capital expenditure, promoting a greener economy, le

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Synopsis

There are a few themes that clearly stand out from the budget announcements – focusing on capital expenditure, promoting a greener economy, leveraging the impact of the digital world and creating a more conducive environment for businesses.

Budget 2022-23 aims to prepare the Indian economy for the next leg of growth by laying down the foundation for the next 25 years. At the same time, it attempts to strike a balance between fiscal prudence and economic growth. While there is a clear-cut intention to bring down the deficit over a period of time, capital expenditure has been identified as a near-term priority. It is also important to understand the backdrop against which the budget has been released.

On the one hand, the Indian economy is still in a recovery phase given the recent challenges posed by Omicron and on the other, the future is already showing bright spots. As per the Economic Survey 2021-22 tabled a day before, the government expects the economy to grow at 8-8.5% in the next fiscal, making India one of the fastest growing economies in the world.

In this scenario, it is key to ensure that the growth journey that India has started should continue its momentum, and the budget appears to have aimed to do just that. There are a few themes that clearly stand out from the budget announcements – focusing on capital expenditure, promoting a greener economy, leveraging the impact of the digital world and creating a more conducive environment for businesses.

Focusing on capital expenditure


At nearly 2.9% of the GDP, the most talked about aspect of the budget is clearly the ₹7.5 trillion spend on capital expenditure for the next fiscal, up 25% from the revised estimate of ₹6 trillion in the current year. This includes higher spending on the “seven engines” of Gati Shakti: roads, railways, airports, ports, mass transport, waterways, and logistics infrastructure. The increased capital expenditure will have a multiplier effect on the economy, attracting more private sector investments and creating more income and employment, ushering in a virtuous cycle. While the increased allocation towards capital expenditure is a welcome decision, it would be imperative for this to be spent in a timely manner.

Promoting a greener economy


The roadmap for clean energy has been laid out keeping in mind the long-term objective of net-zero carbon emission by 2070. The introduction of a production-linked incentive scheme for manufacturing high-efficiency solar modules, promotion of use of electric vehicles by framing a battery swapping policy and interoperability standards, and issuance of sovereign green bonds to fund this green infrastructure should support the long-term commitment made in COP26.

Leveraging impact of digital world


The government has announced various initiatives such as introducing digital universities, digital banking including post offices, digital rupee and provision of access to digital and hi-tech services to the agriculture sector. This is likely to increase efficiency and productivity across sectors. The government has also ventured into the world of virtual digital assets, which are increasingly becoming more mainstream, and introduced provisions for their taxability. The mechanism lays out the deductions allowed (only the acquisition cost), the tax rate (30% on the net gain), set-off and carry forward for loss (not allowed), and the withholding tax requirements (1% on transfer).

Overall, the budget has laid down the intent of the government to focus on the long term and create the right ecosystem for the overall development of the economy. It is now important that all stakeholders align themselves with the government’s vision and work together in order to realise the country’s growth potential.

(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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