Budget 2022-23: Driving the $5 trillion dream, with elections, welfare & reform in tow

When the finance minister stands to present the Budget 2022-23, she will try to address the challenges around life and livelihood posed by the aftermath of the once-in-a-century COVID-19 pandemic. The current third wave has again slowed down our GDP growth during the current fiscal, and the International Monetary Fund (IMF) has slashed our GDP growth estimate in 2021-22 to 9% last week from an earlier projection of 9.5%. The good news is that for both 2022-23, and the year thereafter, IMF in its global economic outlook report has made an upward revision of 0.5% in respect of India’s GDP growth. It expects an improvement in India's credit growth which would boost consumption and investment due to the better-than-anticipated performance of the financial sector.

Of Budget Before Polls And Welfare Economics

With elections to 5 states, including the largest and most politically influential state of Uttar Pradesh starting after just a week of budget, the Finance Minister has to demonstrate the Government’s commitment to welfare economics, in addition to focus on growth, development, and infrastructure push. She has also to address a stubborn inflation at 5.59% in December 2021. With global crude prices rising to $90 recently, the pressure on the price front is likely to intensify.

The pandemic has caused havoc and the unemployment rate has gone up to 8% in December 2021, as per recent Centre for Monitoring Indian Economy (CMIE) data. This is the highest in the last three decades. The challenges get complicated, as unemployment in India refers to educated youth looking for jobs in the formal economy, while the informal sector employs 90% of jobs and contributes half of India’s output. Amidst these challenges, the Finance Minister has to drive the India Growth Story towards a $5 trillion economy by firing on all cylinders – consumption, exports, investment, and government spending.

One of the key areas of government spending has to be in core social sectors like health, education, etc. The limitations of our health care infrastructure were evident during the second COVID wave. Otherwise also, due to lack of proper health centres, more so in rural areas, and lack of universal health insurance coverage, each year millions slip into poverty due to exorbitant hospitalization and medical expenses. As per an Oxfam India study, education in private schools costs 9 times more than in a Government school. Yet almost 50% of children enroll in private schools. Investment in better health and educational infrastructure today will help people at the fringe not to fall back and will act as an equal opportunity provider for people to move up in social stratification. The budgetary spends in both education and health needs to be stepped up substantially from around 3% of GDP now to at least 5% each of GDP.

'Need A Safety Net For The Urban Poor'

During last year and amidst the migrant labour crisis, one lacuna was evident. Absence of a safety net for urban poor. An urban employment guarantee scheme may be envisaged for expenditure in urban infrastructure and provided for in the budget, which can guarantee at least 180 days of wage employment in a financial year to at least one member of every urban household whose adult members volunteer to do unskilled manual work, and 50% thereof preferably be utilized for gainful employment to women workers, if available.

Tax collections have shown remarkable buoyancy. Gross Direct Tax collections as of December 2021 has been ₹10.80 lakh crore compared to ₹7.33 lakh crore in the corresponding period of the previous year. The average GST collection per month in the third quarter has been ₹1.30 lakh crore against ₹1.10 lakh crore and ₹1.15 lakh crore per month in the first and second quarter of the current year. The fiscal deficit in November stood at a comforting level ₹6.95 lakh crore against an annual estimate of ₹15.06 lakh crore representing 6.8% of GDP. The only area where Government is falling short is disinvestment. As against a target of ₹1.75 lakh crore, the mop-up so far has been below 10%. Hopefully the proposed IPO of LIC will give a fillip.

In a post-COVID rebuilding India, the Government may loosen the purse strings and invest massively in physical and human capital. Only when Government makes capex expenditure in a big way, private investment will be spurred into action. The sectors which have been hit hard during the pandemic like MSMEs, hospitality, tourism, aviation, etc need handholding support to come back to pre-pandemic levels and can generate employment. And through various direct transfer of cash to the beneficiaries, consumers can have the money to spend on consumption needs. My suggestion would be for the abolition of inefficient and opaque multiple subsidy systems like in food, fertilizer, power, petroleum, etc to be replaced by a more transparent direct cash transfers.

'Need Structural Reforms In Factors Of Production'

Apart from massive infrastructure development, the budget document must envisage structural reforms in factors of production like land, labour, capital, and entrepreneurship. Incidentally, India now has 81 unicorns (start-up companies with a valuation of over $1 billion), 44 of which have joined this year. India has the talent pool. An encouraging and conducive ecosystem can help it flourish faster and have a multiplier effect in wealth creation. Various tariffs and taxes need to be rationalized for promoting global competitiveness and boost the export sector. Many Asian countries have successfully turned into regional manufacturing hubs. For the services sector, particularly finance centres, a few special zones with single window clearance may be created to attract capital and know-how from across leading economies.

Budget 2022-23 should have a clear road map to make India a vibrant global economic hub, with forward and backward linkages to global chains, to lead India to a $5 trillion economy by 2025.

The writer of this article, Hari Hara Mishra (@hariharamishra), is a Policy Analyst and Commentator