A pragmatic Budget amidst a challenging global environment

The proposal to defer the filing of an appeal by the tax authority where the question of law is pending before the jurisdictional Hc or Sc would help reduce the administrative workload

Budget 2022-23 has been presented against the backdrop of an uncertain global environment. The IMF revised its 2022 projection of world output downwards by 50 basis points to 4.4 per cent from its earlier estimates. Yet, India withstood these contractionary forces and registered a growth rate of 8.8 per cent in 2021-22. According to the Economic Survey, India is likely to grow by 8-8.5 per cent in 2022-23, continuing on its current growth trajectory.

Budget 2022-23 has taken a pragmatic approach of keeping revenue expenditure in check while increasing capital expenditure. Expenditure on capital account has gone up 24.5 per cent — Rs 7.5 trillion from the revised estimate of Rs 6 trillion. In the total budgetary expenditure, the share of budgeted capital outlay now constitutes 19 per cent, which is a 300 basis points jump from the previous year. Major capital investment is going to sectors such as transport, urban development and housing. Allocations to the NHAI have been doubled to Rs 1.34 trillion from Rs 65,060 crore in 2021-22. Focus on infrastructure is clearly demonstrated in the budget by its core priority agenda such as PM Gati Shakti, productivity enhancement and investment, sunrise opportunities and energy transition and climate action, and financing of investments.

With MSMEs playing a pivotal role in the country’s economic growth and also in job creation, Budget 2022 rightly continued to focus on providing relief to the sector. Other measures aimed at further strengthening MSME recovery include extending ECLGS by one year with an additional guaranteed cover of Rs 50,000 crore, interlinking of various MSME portals and building of an organic database, setting up of a fund through NABARD and provision of financing to start-ups in agri and rural enterprises, and the RAMP programme with an outlay of Rs  6,000 crore.

Budget 2022 continues with the low-carbon development strategy of the government. Solar power, circular economy and transition to a carbon-neutral economy is the clear agenda to achieve sustainable growth. For solar power, the FM has increased allocation by Rs 19,500 crore through the PLI scheme to manufacture high-efficiency modules.

To maintain fiscal sustainability, the government has balanced the increased public investment with rationalisation of subsidies such as fuel, food and petroleum. Allocation to MGNREGA saw a reduction in comparison to the revised estimate of 2021-22 by 25.5 per cent.

On the revenue front, projections do appear more realistic as the government has projected tax revenue to grow by 9.6 per cent. Under a nominal GDP growth assumption of 11.1 per cent for 2022-23, it shows a tax buoyancy of 0.86.

In terms of tax policy, the proposed reforms largely revolve around enhancing trust-based governance, reducing litigation, bringing parity, and continuing to incentivise start-ups and domestic manufacturing. The new provision provides headspace to taxpayers to rectify any errors/omissions in their return within an extended period of 2 years.

The proposal to defer the filing of an appeal by the tax authority where the question of law is pending before the jurisdictional High Court or Supreme Court would help to reduce the administrative workload for both taxpayers and tax authorities.

The government is committed to remaining on the path of fiscal sustainability. In the Budget speech, the FM stated that the fiscal deficit would be brought down to 4.5 per cent by 2025-26, though the deficit shall remain elevated in 2022-23 at 6.4 per cent. While a higher fiscal deficit may add pressure on the interest rate, the borrowing calendar needs to factor in any short-term disruptions. The overall debt-to-GDP ratio shows a mild increment (from 59.9 per cent in 2021-22 to 60.2 per cent in 2022-23). However, market borrowings are expected to increase from Rs 8.75 trillion to Rs 11.5 trillion (a 32 per cent increase). While the yield rate on Union government dated securities is low, increased borrowing may limit the RBI’s manoeuvrability to contain inflation unless inflation is brought down through supply-side measures.

Overall, the Budget is growth oriented with a focus on crowding-in private investment through increased public investment. The Budget has taken into consideration the ongoing challenges and the need for continued support to keep the economy growing for a fit-for-future India.

The writer is chairman, PwC in India