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The Bland And The Beautiful?

The government’s answer seems to be ‘more of the same’. The seven engines of growth will aspirationally provide the leverage using which the rest of the economy will haul itself to the sunlit uplands, which we so desperately need

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The Finance Bill 2022 was preceded by the usual frenzy and followed by the unfortunately typical partisan approbation and reprobation. The latter two are surprising since there really doesn’t seem to be much to say. 

The Union Budget 2022-2023 and the Finance Bill have been framed as a roadmap to India’s 100th year of independence. The Finance Bill reiterates extant government of India policy positions -- infrastructure and localisation are focus areas with a significant impetus to homegrown digitization, direct cash transfers to the economically disadvantaged are here to stay, disinvestment remains a focus (and hope) for raising resources, and there is further, incremental, effort to reduce tax litigation. We also, finally, have some implicit confirmation as to the government’s policy position on cryptocurrencies and non-fungible tokens.

Nothing Unexpected
Really, the Finance Bill said nothing unexpected as far as I’m concerned and, arguably, that is the greatest positive of the Finance Bill. After the economic shocks engendered by the migration to GST, demonetisation, and the pandemic, policy consistency seems to be for the best in the immediate term.

Of course, I do not suggest that policy consistency is in itself an aspiration to be achieved to the exclusion of all else. Notwithstanding the slight increase in government spending on education, health and education continue to be ignored, or, at least, deprioritised, as they have since 1947. Our spend on these crucial areas remains far below that of our global peers. 

The impact which the reduction in aggregate subsidies to be made available over 2022-23 will have on savings and consumption needs to be seen. Leaving aside debates on the extent of unemployment, the fact remains that we have a significant unemployed population with attendant risks. The delta between the policy statements on process change and ease of economic activity and the fact of executive action on the ground doesn’t seem likely to be ameliorated in the near term. The fine tradition of petrol and diesel prices far above the international average continues. The historically low procurement costs of 2014-16 seem unlikely to recur.

All of this points to the reality that there is only so much to go around. Government must spend and the demands of our economy and society far exceed the resources available at this time.

Questioning the State of Real Economy
The real answer lies in enabling individual consumption and saving across the economy. That the middle class is the engine of the Indian economy as of date is unquestioned. Equally unquestioned is the fact that the middle class is under increasing stress with growing income disparities. The next fillip to our economy will likely come from a deeper and broader base of economic actors. The bottom of our economic and social pyramid needs to be meaningfully enabled and welfare sops that are palliative but do not allow for meaningful changes to the capacity to generate and increase real income will not take us far.

That these lacunae obtain notwithstanding a burgeoning fiscal deficit is worrying. If projected revenue targets for 2022-23 are not achieved, the consequently increased deficit will raise serious questions as to the state of the real economy. The target of a fiscal deficit of 4.5 per cent in 2025-26 remains in the face of the fiscal deficit projected for 2022-23 increasing over the deficit for 2021-22.

Be that as it may, the government’s answer at present seems to be ‘more of the same’. The seven engines of growth will aspirationally provide the leverage, using which the rest of the economy will haul itself to the sunlit uplands of prosperity that we so desperately need. Economic surplus and prosperity are expected to spread from these foci if not trickle down.

Answer in the Execution
Accepting the government’s position as we must, the blandness of this 25-year blueprint is welcome. Additional policy shocks are perhaps more than we can ask the economy to sustain at present. That said, as with all blueprints, everything depends on the execution and recognising and addressing issues meaningfully and expeditiously. 

Governments are not known for flexibility and quick reactions when it comes to policy positions and while the present dispensation has demonstrated that it is, more than occasionally, an exception to this norm, it has also demonstrated a willingness to persist with identified imperatives that align with its policy positions. How well it will deal with the challenge requiring a modification or deviation from extant policy remains to be seen.

Short-term is Bright
For the present, the stock markets have rallied, and the formal economy has welcomed the Finance Bill. We should witness continued and genuine growth over the next 12 months even accepting that we are measuring growing from the reduced base engendered by the pandemic. If the government is correct and the Finance Bill delivers to its plan, all of us, and not only those of us who consume media like this publication, stand to gain.

In due course, there seems to be little option but to address the genuine systemic issues which we face. Some of these are growing unemployment, income disparities, and consequently horrifying social welfare indicators. This government’s parliamentary majority equips it better than most to take these tasks in hand and I do not suggest that this government is ignorant of nor that it is oblivious to the gravity of the situation.

In conclusion, there are clear costs and benefits to the economic policy which the Finance Bill reiterates. All of us must hope that the government is successful in ensuring that the benefits to our society far exceed the costs. On that at least, there must be unanimity irrespective of otherwise partisan positions.

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.

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Budget 2022 Magazine 22 Feb 2022

Justin M. Bharucha

Managing Partners, Bharucha And Partners

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