Union Budget 2022-23: The government has an opportunity to build on last year’s Budget and the momentum it has achieved in growth
Indian Union Budget 2022: File image of Finance Minister Nirmala Sitharaman. PTI
Budget 2022-23 is coming on the back of yet another year of COVID disruption which impacted the rural economy. This led to the government increasing its welfare spending in rural India by over 40 percent over the budgeted figure. Despite heightened spending, the government failed on its disinvestment targets. The fiscal deficit for the year may remain closer to the targeted number for 6.8 percent for the year. This is driven by huge traction in tax revenues which economists feel may turn out to be 15-20 percent higher than the budgeted number.
Last year’s Budget was characterized by a great deal of focus on Capex, which came as a positive surprise for the market and was cheered heavily. Another factor that may weigh on the Budget is multiple upcoming elections for some of the important states. In the past, that has meant higher spending by the government.
Globally, interest rates are expected to rise, and the US has been vocal about reducing liquidity. This may mean equity raising may not be easy for Indian corporates.
The government has an opportunity to build on last year’s Budget and the momentum it has achieved on growth. Whilst fiscal prudence is important, however, I would think that the government may decide to keep growth as its top priority.
With this backdrop, the following are the expectations from Budget 2022-23:
Growth focused with special focus on capex
I would expect this to be one of the core areas of focus for the government. Road construction may lead the way with the government trying to achieve almost 50 km of road construction per day. Last year the government announced monetization of its infrastructure assets and with better structures in REITs and INVITs, we have already seen multiple INVITs being floated in the market. Further reforms on this alternative source of funding for capex is expected.
Social welfare expenditure to continue
Social welfare expenditure could be one of the major areas of focus for the government as the COVID impact is still not over. Also, as discussed earlier, multiple state elections are coming up and the national election is just two years away. The focus on rural spending may remain the focus for the government.
Disinvestment is key
This is the area where the government was not able to deliver and missed the target by some margin. It is expected that the government would try to finish all the large disinvestments and try some new ones in the next financial year. One of the areas could be the privatisation of some of the PSU banks and increasing the foreign holding limit in PSU banks. The IPO of LIC can become one of the biggest achievements for the government.
Fiscal prudence
The government may stay within its budgeted target for the current year and not show any fiscal imprudence in the next year as well. However, at the same time it is not expected that the government will come up with fiscal targets which may impede growth.
Focus on manufacturing
The government has implemented multiple PLI schemes for the benefit of some sectors. The government should take advantage of the current geopolitical scenario with a lot of economies looking to find a replacement for China. India has an advantage of a large and cheap labour force which can be utilised to portray the country as one of the manufacturing hubs globally.
Lower taxes
Lowering taxes is always a hope that is perennial during Budget time. However, no rationalization of tax rates is expected.
To sum up, Budget 2022 may be a continuation of Budget 2021.
The author is Head of Research, Motilal Oswal Asset Management Company. Views are personal.
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