View: The budget avoids drama in a complex economic environment
Its deft navigation of budgetary constraints is reflected in a modest increase in nominal expenditure – a proposed increase of 4.5% in 2022-23 compared to the Revised Estimate (RE) for 2021-22; a fixed income expense; and a sharp increase in capital spending, reflecting a 24% increase over the BR for 2021-22. Politically sensitive subsidies are expected to decline, while revenue projections look very conservative, namely a 9.5% increase in tax revenue and a 14% decline in non-tax revenue. As such, these budget estimates should be entirely achievable and could even offset any overspending.
While many observers expected it to be an “election budget,” it turns out to sidestep populism. It ensures continuity in terms of respect for the political path that this government has charted in recent years. This path consists of accelerated infrastructure build-up, improved logistics to ensure the competitiveness of Indian manufacturing, and forward development by leveraging digital opportunities.
The overriding ambition seems to be to set India on a virtuous path of increased competitiveness, and the public sector to facilitate private sector growth through the provision of public goods such as infrastructure as well as an enabling environment, leading to higher real and nominal GDP. dynamic growth and tax revenues.
The use of tax tools to “manage” the risks that individuals assume through their investments in crypto assets is particularly creative. These risks could eventually have deeper implications for the stability of the financial sector. Although developing a comprehensive regulatory framework for crypto assets may take some time, the announced tax measures could prove to be an essential regulatory tool. Equally encouraging is the announcement of the rollout of a digital currency.
Still, there are three things that further articulation would be needed. First, while most people would not recommend strong fiscal consolidation at this stage, it would be helpful to articulate the fiscal roadmap that the Indian government envisions over the medium term.
Second, to foster growth at much higher rates than in the past, we need a vision to integrate India into global value chains. We represent only 1.5% of the goods and 3.5% of the services supplied to the world market. The objective should be to double these market shares.
The third missing element was the recognition and consideration of potential headwinds in the global economy. Currently, the global outlook is mixed. The dynamism of world trade is offset by the high level of inflation and the imminent tightening of liquidity. It would be useful to consider whether the global outlook poses a risk to the implementation of the budget proposals.
Overall, it can be hailed as a very constructive budget released in a very complex and difficult economic environment.