Unlike previous years, FY22 Budget assumptions appear to be plausible and its fiscal arithmetic convincing. The Budget has tried to support the incipient economic recovery by giving a push to capex. As a result, capex is budgeted to grow 26.2 per cent in FY22 on top of a 30.8 per cent growth in FY21 (RE).
A nominal GDP growth of 14.4 per cent against a 4.7 per cent contraction in FY21, net-tax/GDP ratio of 6.93 per cent (FY21: 6.90 per cent), a decline of 231bp in revenue expenditure/GDP and a capex/GDP of 2.5 per cent (highest in 17 years) also look plausible. However, disinvestment proceed of Rs 1.75 trillion, if not achieved, can distort the fiscal arithmetic. Non-interest revenue expenditure/GDP is budgeted to decline 858bp in FY22.
The basic philosophy behind this decline appears to be the gradual withdrawal of government support as the economy stabilises and to use it for capex to improve the productive capacity of the economy and reduce infrastructure deficit.
Thus, budgetary allocations for the two schemes — food and MGNREGP — have been lowered in FY22 (BE) compared to FY21 (RE).
Some key elements of this Budget: The roadmap for disinvestment in non-strategic and strategic sectors, monetisation of non-core assets of central public sector enterprises, discontinuation of NSSF loan to FCI and to make food subsidy payment through Budget and borrowing of government agencies for funding of government schemes will improve fiscal transparency.