Union Budget 2022: Economic survey focuses on the good; ignores bad and ugly

Union Budget 2022: Economic survey focuses on the good; ignores bad and ugly

Special CorrespondentUpdated: Tuesday, February 01, 2022, 08:52 AM IST
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The Union Budget for 2022- 23 is likely to be growth focused, driven by a strong step-up in government spending, going by the optimistic outlook presented in the Economic Survey, which was tabled in Parliament by Finance Minister Nirmala Sitharaman a day ahead of the Budget.

The survey has projected an 8-8.5% growth rate for the economy in the 2022-23 fiscal, a paring back of the 9.2% number projected for the current financial year.

This is understandable since the surging third wave of Covid-19 caused by the Omicron variant has come as a setback to the growth revival. The survey is banking on four key drivers to sustain the growth momentum. “Growth in 2022-23 will be supported by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth, and availability of fiscal space to ramp up capital spending,” the survey notes.

Private sector investment is also expected to see a strong revival, particularly with the banking system getting more headroom to step up lending with a further clean-up of bad assets and the creation of the new ‘bad bank’ which will take over some of the stubborn cases of bad debts currently burdening the system.

Of course, the growth projections come with some “ifs” and “buts”. The key assumptions include an expectation that global crude oil prices will average around $70-75 per barrel.

Another big assumption is that with the vaccine coverage now having covered 90% of all adults with at least one dose and three quarters of the eligible population with two doses, there will be no more pandemic related lockdowns. The other assumptions are a normal monsoon, an orderly tightening of the excess money (liquidity) pumped into the global economy to fight the pandemic disruptions by the central banks of major economies, and a gradual easing of global supply-chain disruptions, like the global chips shortage which has crippled automobile production, or the lack of containers which has thrown global shipping into gridlock.

The Economic Survey said that growth in 2022–23 will be supported by widespread vaccine coverage, gains from supply-side reforms and easing of regulations, robust export growth and availability of fiscal space to ramp up capital spending.

A key indication of how the FM will plan her spending for the next financial number comes in the fiscal deficit projections. The Economic Survey expects the government to easily meet its fiscal target this year -- in fact, going by the April-November estimate for the fiscal deficit in the Survey, which has printed at just 46% of the whole year estimate -- the government may well emerge with higher than expected fiscal headroom to step up spending.

This has been made possible by a strong rebound in the government’s tax revenues. Net tax revenue to the Centre, which was envisaged to grow at 8.5% in2021-22 (Budget Estimate) relative to 2020- 21, grew at nearly 7% during April to November 2021.

Overall revenue receipts are expected to be 64% higher than last fiscal, while gross tax revenues are expected to be higher by over 50% compared to last year. The survey made no reference to the tumultuous protests over farm laws witnessed over most of last year but instead focussed on the positives.

Pointing out that agriculture and allied sectors have been hit least by the pandemic, it noted that agriculture was the only sector to consistently grow through the two Covid years, it expects the sector to grow by 3.9% in 2021-22 after growing by 3.6% in 2020-21.

Advance estimates suggest a rebound in industry as well, with the gross value added (GVA) of industry (including mining and construction) pegged to rise by 11.8 per cent in 2021-22. The services sector, though, will take time to recover. Hit the most by the lockdowns and ongoing rolling restrictions on movements and gatherings as well as travel, services are estimated to grow by 8.2 per cent in the current fiscal, after shrinking by 8.4 per cent in the last financial year.

Total consumption is estimated to have grown by 7 per cent in 2021-22 with significant contributions from government spending. The Survey also pointed to a resilient external sector. While current account deficit has widened on the back of a rise in imports driven by reviving growth, as well as surging oil prices, capital flows have been robust, leaving India with one of the highest foreign exchange reserves in the world, the Survey noted.

Buoyed by the Survey numbers, the stock markets clearly expect a pro-growth and proreform budget backed by a significant increase in government spending. As Aditi Nayar, chief economist of credit rating agency ICRA, noted, “The continued thrust to government capex portended by the Economic Survey is enthusing, as it offers the best likelihood of instigating a durable growth recovery.”

Both the BSE Sensex and NSE’s Nifty indices recorded gains of 1.4 per cent. For the common man, though, the strong indication of a government spending led growth revival does not augur well for major tax reliefs or sops.

With the Railways alone expected to see budgeted capital expenditure of over Rs 2 lakh crore every year over the next few years, as well as stepped up outlays for road and other infrastructure, as well as the productivity-linked incentive scheme (PLI) for several manufacturing sectors calling for more funds, the Finance Minister is unlikely to front load any tax breaks till the economy returns to a high growth path in a sustained manner.

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