Union Budget 2022: The capex push, says India Ratings' Devendra Kumar Pant

FY23 Budget aimed at addressing issues related to demand and unemployment through capex. At a time when private sector capex is focused on selected sectors, the government has decided to do the heavy lifting. General government’s contribution to total investment in the economy is around 12 per cent; it will be difficult for the economy to have sustained investment revival only by government capex. Capex in FY23 is budgeted to grow 24.5 per cent from FY22 (RE). The philosophy appears to be addressing the unemployment issue through increased capex, which will have a multiplier impact on the economy. However, capex is concentrated mainly to eight ministries/departments – atomic energy (1.9 per cent of capex), telecommunications (7.2 per cent), defence (20.3 per cent), transfer to states (14.9 per cent), police (1.4 per cent), housing and urban affairs (3.6 per cent), railways (18.3 per cent) and road transport and highways (25 per cent).

Revenue expenditure is budgeted to grow 0.9 per cent only in FY23 (BE) compared to 2.7 per cent growth in FY22 (RE); it was budgeted to contract 5.0 per cent in FY22 (BE). While the interest payment is budgeted to grow 15.6 per cent (FY22(RE): 19.7 per cent), non-interest revenue expenditure is budgeted to contract 4.2 per cent (FY22 (RE): -2.1 per cent). Revenue expenditure/GDP is on a declining path, it is budgeted to decline to 12.4 per cent in FY23 (FY21: 15.8 per cent, FY22 (RE): 13.6 per cent). Non-interest revenue expenditure (NIRE) has a multiplier impact on the economy, in FY22 it was budgeted to contract 11.8 per cent and as per revised estimate it is likely to contract 2.1 per cent. Factoring in 5 per cent NIRE growth, revenue expenditure in FY23 will be Rs 2.1 trillion higher than FY23 (BE).

At the core of tax collections is an assumption of 11.1 per cent nominal GDP growth for FY23, which appears pessimistic. Based on assumed GDP growth, gross tax buoyancy is estimated as 0.86x compared to 1.26x in FY22(RE). Union excise duty is budgeted to decline 15.0 per cent, which is in line with the union excise duty reduction in November 2021. GST is budgeted to increase 15.6 per cent in FY23 from 23.0 per cent growth in FY22 (RE). GST collections in FY22 have shown good buoyancy and with plugging in leakages in GST, it is expected to meet FY23 targets. Higher nominal GDP growth in FY23 is likely to take care of any expenditure slippage.