What To Do In Budget 2022
Fortune India|January 2022
Top experts debate how Nirmala Sitharaman can put the economy on a higher growth path.

FINANCE MINISTER Nirmala Sitharaman begins preparations for presenting her fourth Union Budget when Indian economy is on a revival path — GDP grew 8.4% in second quarter of FY2022, after expanding 20.1% in first quarter. So, what can she do to accelerate growth in the shadow of newer Covid variants?

Fortune India organised a PreBudget Roundtable of some of India’s brightest economic minds to bounce off ideas for Budget 2022. The panel comprised Jayant Sinha, Member of Parliament, chairperson of the Parliamentary Standing Committee on Finance and former minister of state for finance and civil aviation; Subhash Chandra Garg, finance secretary from July 2017 to July 2019; Rajeev Gowda, chairman, Research Department & national spokesperson, All India Congress Committee, and former member of Parliament; Akhil Gupta, vice chairman, Bharti Enterprises; and Chetan Ahya, managing director, Morgan Stanley Research. The discussion was moderated by Rajeev Dubey, Editor-in-Chief, Fortune India. Edited excerpts:

What are your two-three biggest expectations from Budget 2022? What should be the priorities?

Jayant Sinha: We are getting ready for an excellent year for the economy. The Budget is expected to focus on three things. The first is strengthening public health infrastructure, ensuring we are ready for any variant of the virus, our population is vaccinated and we have infrastructure to take care of people in this pandemic. In the last Budget, there was a significant step-up in healthcare spending. I hope that is enhanced.

The second is support to vulnerable population. The prime minster has announced that the Pradhan Mantri Garib Kalyan Yojana providing free ration to nearly 80 crore people will continue till March. There are significant outlays for MGNREGA to support rural employment and Kisan Samman Nidhi to ensure healing of scars caused by the pandemic.

The third is public investment in the form of National Investment Pipeline (NIP). Decisions have been taken regarding National Bank for Infrastructure Development. We will be able to provide excellent debt financing for public investment. NIP is already providing significant equity for infrastructure projects.

With economy roaring back, we will see significant public investment. The PM announced in Glasgow that we will reach net zero carbon emissions by 2070. That means massive green transformation, particularly in infrastructure.

Rajeev Gowda: There is nothing to argue on priorities Jayant has specified. The issue is the difference between aspirations and reality. Over the last three years, more people have moved from cities to farms for jobs, resulting in tremendous demand for MGNREGA. This is opposite to what we wanted for the country. In the short term, we have to pay attention to social safety measures such as MGNREGA. The other point relates to small businesses disrupted by demonetisation and GST. Many sectors were hit in the pandemic. The Atmanirbhar Package involved borrowing more (by people) rather than giving cheques.

80 cr

Number of people getting free ration under the Pradhan Mantri Garib Kalyan Yojana.

NIP has been announced in each of the last three Budgets, and sometimes between Budgets too. Maybe financing is still being worked out, but for many of us, it is more a pipedream than a pipeline. The other concern is putting more money in people’s pockets. We have been seeing rising fuel taxes ever since Arun Jaitley lucked out on oil prices. The rise in inflation is hurting people’s ability to trigger demand that will influence growth. Instead of V-shaped growth, we are seeing Kshaped growth, where some sectors are growing and others hurting terribly.

We want more government expenditure, and not just in infrastructure. This year, government final consumption expenditure is below 2019 levels. We also want government to stop squeezing taxes and cesses out of family budgets. That will make people spend.

Subhash Chandra Garg: Any government has three priorities in Budget— growth, redistribution and common goals such as environment and security. It has two instruments for these, fiscal policy and economic policy.

The government is going to emphasise on capital expenditure, which can take two routes—its own capex and that of public sector enterprises. There will be greater emphasis on both. The growth agenda will be serviced by more capex. In redistribution, the focus has been on providing things that make life better, including toilets, water, LPG and electricity. That agenda has been substantially serviced, but there is more to be done, so there will be further emphasis on that.

On redistribution, many schemes were designed to provide resources to the poor. This will increase as government is turning populist. It seems farmers, non-farm labourers and urban poor got a raw deal post-Covid. This Budget might give them something. On economic policy, there will be a little less emphasis on reforms, thanks to farmers’ bills. The privatisation agenda has not moved much, so there will be lesser emphasis on that.

Akhil Gupta: We are coming out of a very high fiscal deficit. This year, the nation needs to stand strongly behind the finance minister and encourage her to not compromise on capital expenditure. When emphasis is on controlling fiscal deficit, the axe always falls on capital expenditure. The planned ₹102 lakh crore spending on infrastructure has not really materialised because of these pressures.

For continued infrastructure capital expenditure, the government, instead of lending or putting own money, should provide guarantees to financial institutions for the private sector which can be enforced till projects take off. This was recently done for MSMEs. It enabled many MSMEs to come out of the Covid situation.

On another front, there is no room for tax concessions. We need tax rationalisation. There is no reason why capital gains should be taxed at 10% and individuals with high salary at 42%. How can income generated by working 10-12 hours a day be of less consequence than money made in the stock market? The rates should be collapsed into one. It cannot happen in one go, though.

The third area where not much has been achieved is divestment of PSUs. With stock market at wonderful levels, why should government not be able to speed up divestment? The FM should be able to lay out a clear plan for 2030 big PSUs.

Chetan Ahya: We looked at many Asian countries. They accelerated per capita income and GDP growth by becoming part of global economy by focusing on exports. This drives savings, giving you income to invest, and brings in a virtual growth cycle. We need a proper, long-term, export strategy for manufactured goods. The success in services is not enough. Any strategy for exports will be important. Exports, capex and, within that, infrastructure capex, are three focus areas of the government. That way we can grow faster and get per capita income to a reasonable level.

10-12% The proportion of announced stimulus that was actually delivered, according to some of the panelists.

In China, government-owned all land, and used it as equity to finance infrastructure. The Indian government has state-owned enterprises which should be used for funding infrastructure. There should be a clear strategy.

If we look back 18 months, has the stimulus worked? If yes, to what extent?

Gowda: What stimulus? There was a package with headline numbers. A recent report says 10% of that was spent. The actual value of the stimulus is much lower, and even there, only 10% was disbursed. While the world is following a Keynesian path, here, it has been an illusion. That is why you don’t find any transformation that a stimulus should have resulted in.

Instead, people are moving back to farms and labour force participation has come down. Unemployment levels are over 8% in urban India, 7% in rural India. So, there is a huge problem. If the stimulus package was to turn things around, why is this happening?

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