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More Hype Than Hits

The Budget proposals are not just misleading but also smack of status quo in key reform areas, says the former finance secretary

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Higher capital expenditure has become the biggest growth mantra for the government, even if it is funded by large dollops of debt. Capital expenditure of Rs 7.5 lakh crore in FY 2022-23, increased by approximately Rs 2 lakh crore or an attention catching 34.5 per cent, was presented as the biggest growth stimulant by Finance Minister Nirmala Sitharaman while presenting her Budget yesterday. The government’s decision to borrow as much as Rs 16.6 lakh crore in FY2022-23 is odd as it will only be partly used for financing this capital increase.

A little probe behind the capital expenditure numbers reveals that the claim of Rs 2 lakh crore increase in capital expenditure is rather misleading. The government decided to give interest-free loans of Rs 1 lakh crore to the states for undertaking capital expenditure on the programmes preferred by the Centre. This is not capex of the central government. The states will repay the loan. States raise their borrowings from market to meet their fiscal expenditure. This capex has to be counted as the capex of state governments, not that of the Centre.

The Centre also decided to fully fund capex programme of NHAI by replacing NHAI’s Rs 65,000 crore of borrowings from the market. This shift is a zero-sum game as far as aggregate capital expenditure is concerned. Finally, the government said it would raise sovereign green funds and provide those funds to the central government undertakings which would replace their borrowings. Again, net-net there is no increase in capex.

Fall in Capex for PSUs
The effect of these three is reflected in the Budget papers. Capex expenditure of public sector enterprises has gone down from Rs 5.83 lakh crore in Budget 2021-22 to Rs 4.69 lakh crore in Budget 2022-23, a decrease by Rs 1.14 lakh crore. The overall capital expenditure budget of the central government and public sector enterprises (excluding loans of Rs 1 lakh crore to the states) is Rs 11.20 lakh crore in 2022-23 as against the budget of Rs 11.37 lakh crore in 2021-22. It is a reduction of Rs 0.17 lakh crore rather than an increase of Rs 2 lakh crore!

The government admirably showed complete restraint in launching any new populist programmes, though all the existing ones will continue. The government also announced an enhanced outlay of Rs 60,000 crore for tap water programme, which is one of the best interventions to improve the well-being and health of the rural people.

Finally, the government showed courage in biting the bullet and recognising the crypto-assets phenomenon. Although 30 per cent flat tax rate on profits made in crypto-trading is quite high and TDS deduction of 1 per cent by the buyer before making payment to the seller is likely to create enormous practical issues, this move marks the beginning of taking the crypto-assets on board.

Slipping into Status Quo
The biggest matter of concern in the Budget was the government receding into status quo. The privatisation programme seems to have lost vigour. There is no visibility on banks’ privatisation or for that matter BPCL and other public sector undertakings identified for this purpose. The government reduced the projections of receipts from disinvestment for both FY2021-22 and FY 2022-23. There were no mid-course correction measures announced for any floundering asset monetisation programme or infrastructure pipeline. There was a lot of talk on the PM Gati Shakti programme but it lacked in specifics.

Reaching out to the large labour force in the construction, agriculture, travel and hospitality and other suffering sectors was conspicuous by its absence. The government also reduced the allocation for food subsidy which signalled the closure of the free ration programme to 80 crore people. How would the government manage the food stockpile without distributing the grains under the free ration programme was not explained. FCI would probably sit on the food grain mountain and bill the government for recovering its cost as consumer subsidy.

Impact of Soaring Oil Prices Sheikhs in the Middle East and Russians seem to have discovered the formula for keeping oil prices high by modulating the production to a little lower than the effective global demand. There is pressure on gas prices as well. The low crude oil price dividend which the government has enjoyed during much of its seven-year period in the form of bountiful excise revenues, which the government decided to keep with itself and not share with the state governments, seem to be finally getting over. This would impart considerable pressure to government finances and probably force the government to lower excise duties.

While the government did not splurge by providing free handouts to people, unlike many countries during the Covid-period, the borrowings have ballooned. India’s debt to GDP ratio is projected to cross 60 per cent in 2022-23. Interest payments are mounting up. Increase in interest payments alone would eat away more than 75 per cent of the revenue increase projected for FY2022-23. It is time the government take a serious note of worsening fiscal deficit and debt situation.

The US and Europe are changing gears in their monetary policy, tightening liquidity, and raising interest rates. This is likely to reverse flows in debt and equity markets in the country and put pressure on foreign exchange prices. The worsening economic and social environment probably cannot be dealt with by continuing with status quo and postpone bold economic reforms.

I argue and present a bold economic, financial, and fiscal policy reforms agenda in my book, The $10 Trillion Dream. India cannot afford to give a miss to the bold reforms which reconfigure the government. A government which is focused on delivering the goods and services to people is what India needs. If India can reconfigure its government on the above lines, its Budget would look lot different than what it does today.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Subhash Chandra Garg

The author is Former Finance & Economic Affairs Secretary, Government of India

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