An overview of the Budget 2022-23 and its desired impact
Taking off from Part I where we explored the changes in the political and economic spectrum and the dynamic world we live in and how a nation and its people are inextricably tied to face the challenges in a modern world through development and fast paced, planned and defined progress and the macro vision of Sab ka Saath, Sab ka Vikaas, Sab ka Vishwas and now Sab ka Prayas ( Development for All, together with Everyone’s Efforts and Trust ) the country is powering on on all cylinders to become the third largest economy by 2030.
Let ’s take the Budget for FY2022-23. The vision, macro outlook and intent are clear. The foundation for the next 25 years of economic growth and expansion leading to 100 years of India’s Independence is being laid. The focus is on transformational results rather than incremental growth.
The Budget takes a rational view and focusses on technology enabled growth without pandering to sops, soft sell and largesse especially when five states are going to the polls, including the largest state of Uttar Pradesh and the largest Agricultural producer, Punjab. One thought the Government would be tempted to temper its budget to suit and benefit constituencies in these five states going to the polls a week or so after Budget Day, but the Prime Minister’s firm resolve of development and its benefits to all and the Finance Minister’s clarity on national and economic growth focussed policies rendered a budget that surprised political pundits, economists, corporates and the citizens at large. Political gambles of this nature can only be taken by people with utter confidence in themselves and their razor sharp focus on the development and growth of the nation and all its people.
Before we get to the salient points and the growth trajectory, let’s address the elephant in the room, the needless hijab controversy in Karnataka. We are a nation whose cultural ethos of live and let live, tolerance and harmony have been around for thousands of years. As seen in Part I, it took patience, time, management, foresight and leadership to control and quieten the extreme right elements floating about and the last thing one needs especially in an important election year is another needless controversy. Personal and religious freedom is a constitutional right and tolerance and harmonious living our cultural DNA and we can’t have it squandered to political gimmicks fanning their petty constituencies. A clear path and agenda for development and progress has been laid out and that is a path we must not waver from. Incidents like these create unnecessary complications and diverts attention in an already complex environment. There are far bigger problems to solve, issues to deal with, changes to adapt to and forces to combat than non issues.
Vision Amritkaal – India at 100 in 2047, a 25 year roadmap in this 75th year of our Independence as an Aatamnirbhar ( self reliant) digital superpower, sustainability leader and a healthy nation…
Coming as we did out of a Third Covid wave, nascent economic recovery (albeit the fastest growing one in the world) and upcoming elections in five states, drawing up an action plan for the next 25 years leading to our centenary Independence Day celebrations is itself a huge task not to mention a paradigm shift in budget planning from the short sighted immediate political gains approach due to the elections that could’ve been taken. To think of a concerted, coordinated and planned approach for India @ 100 and commit to it is fantastic. It also throws a challenge to the bureaucracy and the citizens at large to work in concert with the Government and rise to the occasion.
The Plan outlines Infrastructure and Capital Expenditure, Tech enabled growth, Coordinated and Integrated approach to development across States and Digital Economy and last mile delivery of Govt services and facilities. This budget is banking on supply led growth and huge capital expenditure to boost private investment with four priority areas PM Gati Shakti, Inclusive Development, Productivity Enhancement and Financing.
Capital expenditure for 2022-23 is projected at 5.5 Lac crores ( 74.25 billion dollars) and for 2023-24 at 7.5 Lac crore ( 101.25 billion dollars) with an additional 1 lac crore ( 13.5 billion dollars) to States this year to help meet Gati Shakti targets. The focus is on capital expenditure to restore growth because of its multiplier effect. RBI studies that show that for every 1 Rupee spent on Capex, a return of 2.45 in the first year and 3.14 in the second year can be expected.
International agencies project india to grow at 9% this year. India is the fastest growing economy in the world today thanks to a very effective and rapid immunisation and vaccination programme coupled with progressive policies and the focus on supply management rather than demand to boost economic growth.
Supply creates its own demand and this route has been preferred over fiscal consolidation. The emphasis is on growth and not subsidies to boost capacity utilisation, production, services and employment. The dual strategy of capital expenditure and technology should have a multiplier effect on shortening the Capex life cycle and unlocking India’s rural and urban potential through the physical and digital infrastructure being created.
Gati Shakti is the Government’s national multimodal connectivity programme under which data from 16 ministries on all ongoing projects shall converge on on platform so that duplicating efforts, time and cost overruns, inefficiencies and lack of coordination are eliminated speeding up projects and delivery of services in a coordinated and integrated manner facilitating seamless travel of people, goods and services.
The Ministries include Roads and Highways, Railways, Aviations Shipping and Ports, Meity, Petroleum and Gas, Textiles,Food Processing and other infrastructure based ministries.The objective is transformative and sustainable development. The budget for Gati Shakti is 100 lac crores ( 1.4 trillion dollars) and 20000 crores (3 Billion dollars) has been allocated for it this year.
Its Six Plllars are :-
-Comprehensive planned initiatives on a single centralised portal where departments from all these ministries can access each other’s projects and provide critical data while planning and executing their projects.
-Enabling Priortization through cross sectoral interactions of the various departments. -Optimisation of resources, time, costs and movement of goods and services Synchronization by eliminating silos and enabling ministries to plan and implement in a coordinated and efficient manner
-GIS based spatial planning and analytical tools with over 200 layers and assimilating all the data in one place for accessibility
-On going reports and progress through satellite imagery.
The Seven Engines of growth under PM Gati Shakti have been identified namely:-
-Roads- To facilitate quicker movement of people, goods and services An additional 25000 km to be added to the National Highway network this year for which an additional 20000 crores ( approximately 3 billion dollars) has been allocated. In addition Parvat Mala will endeavour to build and improve roads and ropeways in the hills and border areas enabling connectivity and development and adding to the local economy which will be ecologically sustainable as well. Uttrakhand, Jammu and Kashmir, Himachal and the North Eastern States shall benefit from these initiatives. 1.34 lac crores ( approx 16.5 billion dollars) for roads has been allocated this year.
-Railways- Gets 1.4 lac crores ( approx 17 billion dollars) this year new products and efficient logistics services for MSME’s and farmers and integrating the postal and railway network for seamless movement of parcels. Supply chain management through the concept of One Station One Product, 2000 km rail network to be brought under Kavach, a train collision avoidance system the world calls technology railway infrastructure bering built along with 400 new Vande Bharat trains with best in class service and passenger experience and 100 Gati Shakti Cargo terminals in the next three years.
-Airports- In the 70 years prior to 2014, India had 74 airports. Another 66 have come up in the last 7 years and 16 more will be built. Cargo capacity too is at 1760 million tonnes.
Mass Transport- Increasing public transport in urban areas by expanding the metro and bus network. 27 cities are building or expanding their metro rail network increasing the already 700 km metro lines by another 1000 km. Metro Lite and Metro Neo in Tier 2 cities and peripheral areas of Tier 1 cities will also be deployed.
Ports and Waterways and the Sagarmala project to leverage the 7500 km coastline and 14500 km of navigable waterways linked to the Gati Shakti programme. 574 crores have been allocated this year, a trifle small compared to roads and railways but an integrated approach to planning especially in the logistics sector should yield optimum results.
-Logistics – A Unified Interface Logistics Platform is envisaged to enable data sharing between all mode operators and stakeholders allowing real time monitoring and planning to moves goods in the quickest, cheapest and most efficient manner possible, reducing costs and wastage, eliminating lengthy documentation and increasing international competitiveness.
Our logistics costs are currently 14% of GDP far above the global average of 9%. UILP and other initiatives seek to bring down costs significantly over the years Four multimodal logistics parks are also being commissioned. The Logistics sector in India is about 11.2 lac crore (150 billion dollars) and contributes 14% to the GDP and the competitiveness gap between India and other countries due to higher logistics costs is currently 13 lac crore (180 billion dollars) slated to grow to 37 lac crore ( 500 billion dollars) by 2030 if steps are not taken on a war footing. These plans hopefully will reverse the trend bringing our costs at par or lower than American and China.
-Modern class infrastructure, IT, Tech enabled governance and monitoring, implementation, cost management and speedy clearances will lay a strong foundation to achieving the economic and social goals envisaged. Back of the envelope calculations suggest ready projects worth over 30 lac crore ( 405 billion dollars) are in the pipeline and many projects have overcome the hurdles of clearances and and acquisition etc and thus absorption of capital is not such a major issue.
PLI Production Linked Schemes
14 Sectors have been identified to power this growth and the Production Linked Schemes introduced by the Government to create employment and drive the Make in India and Aatmanirbhar programmes. An outlay of 1.97 lac crores ( 26 Billion dollars) was made in the 2021-22 Budget. The PLI scheme has the potential to create 60 lac jobs and generate production worth 30 lac crores ( 405 Billion dollars) over the next five years.
The sectors include
Automobiles and Auto Components
Drones and Drone Components
Chemical Cell Battery
Large scale Electronic Manufacturing
IT Hardware
Food processing and Exports
Medical Devices
Metals and Mining for speciality steel
Pharmaceuticals, Drugs and API’s
Renewable Energy Solar PV Modules
Telecom and Networking Products
Textiles and Apparel
White Goods
Semi Conductors which has received the largest outlay
Gati Shakti along with the PLI Schemes to boost Make in India and the IT and Start Up Eco system, IT services itself is poised to grow to 16.5 lac crore (220 Billion dollars) this year and 26.2 lac crore (350 Billion dollars) by 2025 all promise greater employment opportunities and the growth of the formal economy. Unemployment is still a concern given our population, percentage of youth and able bodied work force, skill match to job requirement and greater strides to be made in education.
A large part of our work force is in the unorganised centre and speed is of the essence to implement plans to rationalise this vast employable demographic and sector. An attempt has been made to recognise workers in the gig economy as a class and their rights and work rules are being brought into the formal ambit with regulation, legislation and corporate governance including transparency, rights, terms and conditions etc. adding to the formal employment numbers. At 7% unemployment rates are high though 4-5% is normally considered full employment by some.
The pandemic along with the world economies in a spin and technology replacing labour in some cases have contributed to these declining employment numbers but with these new measures and supply side boost, employment numbers are set to rise significantly.
Our direct tax collections and GST collections this year have also been the highest which does throw some light on more earning capacity and more people working as well as higher consumption capacity and the fact that the housing sector is seeing an uptick in demand for housing from genuine buyers and not speculators seems to suggest that the wheels have begun to spin and the projections that the new Capex suggest could significantly lower our unemployment rates. PMI ( Purchase Manager Index) a measure of production and capacity utilization has averaged over 50 for the large part of the year as well.
After Covid 19 hit the world, its after effects made the world realise that for most manufacturing needs they were totally dependent on China especially for hardware, electronics, semi conductors, pharmaceuticals etc. To reduce dependence on one single region and to promote indigenous production, India launched the PLI Scheme in 2020 to invite organisations to set up business operations here and make in India for the world. Over the next five years, India should become a manufacturing powerhouse with made in India products proudly competing with the rest of the world and second to none in quality.
Efforts in signing FTA’s ( Free Trade Agreements) with the US, UK, Europe are ongoing and the recent FTA signed with the UAE to cover goods and services could increase bilateral trade from 60 to 100 billion dollars over the next 5 years giving our exports a high fillip and add over a million jobs from this agreement alone besides attracting investment in India.
Inclusive Development
-Direct payments of 2.37 lac crore ( approx 32 billion dollars) to 1.63 crore farmers (163 million) for procurement of wheat and paddy. -Kisan Drones for crop assessment, land record digitisation, spraying of insecticides and nutrients , financing of startups in the agricultural space and organic farming initiatives along the rivers starting with the Ganga and river linking projects for transport and irrigation.
-95 of the 112 Aspirational Districts have made significant progress in the set parameters of health, infrastructure and financial inclusion. Work to connect rural India and its 2,50,000 gram panchayats and 6,00,000 villages through Bharat Net is underway.
-130 lac MSME’s to be given additional credit under the Emergency Credit Linked Guarantee Schemes and the scheme itself has been expanded to 5 lac crores ( 65.5 billion dollars) as well as an additional credit for 2 lac crore ( 27 billion dollars) under the Credit Guarantee Trust . 3.1 lac crore ( 40 billion dollars) has already been advanced as loans with a guarantee space of 1.4 lac crores ( 18.6 billion dollars) under the ECLGS. Udyam ( Company registration) , E shram ( labour registration) , NCS ( national career service) and ASEEM ( Aatmanirbhar employer employee skill mapping) portals will also be linked.
-In addition skill development, skill enhancement and reselling programmes will be run through the DESH Stack e portal.
-A Digital University for world class quality universal education with personalised learning will be established with high quality E learning content for all classes so that kids in the rural areas dont miss out, 200 TV Channels to facilitate non classroom learning will be launched. This is akin to lighting a billion minds with education truly for all, fundamental right now a reality.
-PM Awaas Yojana gets 48000 crores (approx 7 Billion dollars) to complete 80 Lac houses for the poor in the year. Har Ghar Jal the mission to provide tap water in every home also gets a sizeable allocation of 60000 crore ( approx 8 billion dollars) to cover 3.8 crore ( 380 million) households this year
-The border areas get a new Vibrant Villages programme. Focussing on border areas for connectivity, development and infrastructure is a far sighted move to not only build and develop the areas in the spirit of inclusiveness, but to provide youth and children opportunity for education, work and self reliance and build on our own security.
-Financial inclusion efforts are being further strengthened by the inclusion of all 1.5 lac ( 15 million) Post Offices to function as bank branches and 75 digital banking units to be set up in 75 districts. RBI has already set up a working group and 43 districts have already been identified.
-The focus on urban planning and development is not lost as it is estimated that 2047 50% of the population will be living in urban towns and cities. Planning for sustainable living, opportunities for all, capacity building, governance, town and city planning, mass transport, etc has to be done on a war footing. Digitisation of land records through a Unique Land Parcel Identification Number, under the One Nation One Registration software and over 90% have been digitised in 24 States.
-Health and well being with the focus on building a resilient, sustainable and inclusive healthcare system, digital health platform, unique health ID allowing all records, diagnostic reports, patient case history to be uploaded, shared with health professionals and tracked.
Productivity enhancement and investment
-25000 compliances and 1500 laws have been repealed in an effort to continue to enable ease of doing business and ease of living. Trust based governance, integration of Central and State systems through IT bridges, single window clearance green portal for all approvals through one form, allowing corporates to wind up within six months of filing proceedings are some of the initiatives.
-The start up eco system has also caught the Government’s attention. Changes to strengthen innovation, entrepreneurship and the start up ecosystem by removing bureaucratic silos, institutional mechanisms to promote innovation and hand holding young innovators and enterprises are being effected. Five years ago we had 500 startups, today there are 60000. 83 of these are unicorns, valued at over a billion dollars each, of which 40 became unicorns in 2021 alone. Currently the US has 487 unicorns, China 301. We are number three in the world. And currently have 55 more soon to be unicorns. Startups attracted over 3 lac crores (42 billion dollars) of funding in 2021-22.
-Government procurement has been eased and bills will be raised end to end by all suppliers. The Government departments have been mandated to clear 75% of the invoice value within ten days of billing. Surety bonds will now also be accepted instead of the cumbersome bank guarantees.
Tax stability and tax reforms along with easy recourse to dispute resolution mechanisms have been put in place. There were no increases in tax structures this year.
-Our R&D percentage to GDP is currently below 1%. This year we clocked 3.6 lac crores (48 billion dollars) the 7th largest in the world. US and China send about 5% of their significant GDP on R&D. -The Private sector too hasn’t pulled its weight in this regard. In developed countries , 70% of R&D spends come from the private sector and measures to attract private sector players are now underway such as flexible tools in procurement, ease of doing business, collaborative funding etc. More measures are required like Public Private partnerships in key sectors, R&D as a policy mandate in both the startup and industrial sectors, incentives for engineering a reverse brain drain and getting our scientists working in other countries back, stronger patent laws, private sector incentives to fund university research labs and hubs. Defence R&D too has been opened up for the private sector.
-Sunrise opportunities in Artificial Intelligence, Geo Spatial systems and Drones, Semi Conductors, Green Energy and Clean Mobility. Supportive polices, minimum regulatory compliances, facilitating environment to make in India and impetus for R&D can lead to sustainable development, opportunities and jobs.
Financing. Space Technology for eg has already seen investments of approx 5.5 lac crore (70 billion dollars) this year with more in the pipeline.
The Centre’s effective Capital expenditure is estimated at about 10.68 lac crores (142 billion dollars), 4.1% of GDP, Forex reserves at an all time high of 48 lac crore (632 billion dollars) robust tax collections of 25,16,059 crores ( approx 336 billion dollars) in 2022 and estimated 27,57,820 crores (367.4 billion dollars) in 2023. For every rupee in the Government’s coffers, 58 paise is to come from tax.
Public borrowing 14.9 lac crores ( 19.8 billion dollars) to bridge the deficit. Fiscal deficit at 6.9% this year and 6.4% next year and 4.5% in 2024-25 to provide impetus to growth by increasing capital expenditure and strengthening supply. The debit to GDP ratio at 60% is far from the desired 40%. The tax to GDP ratio of 10.8% also needs to go up by widening the tax base.
India is currently the 6th largest economy project to grow to the 3rd largest by 2030. It has the 4th largest Auto market in the world, ranks number two in mobile phone production and steel production, number three in electricity generation, number 10 in climate change performance. It needs to work on its global innovation index at 46, governance index 49 and ease of doing business, 63. While there haven’t been any major scams involving the Government, corruption , complacency and accountability down the line across the States and Regional areas top down to the base levels have to be addressed.
A big picture macro outlook with last mile execution requires strong leadership, buy in from all stakeholders including policy makers, bureaucrats, private sector, professionals and the citizens at large, commitment, focus and above all vision and its implementation. Political parties of the day have to realise that the old ways of socialist policies, dole, freebies and subsidies etc have run their course and a big vision and dynamic ideas are required more than just cobbling up an Opposition with a single point agenda to beat the party in power.
There is a new order in the world now and it is changing rapidly. It is not enough to keep up for keeping up would mean running in the same place. It is time to outgrow, outpace, predict, preempt and unlock our full potential. if we have to become the powerhouse and bring the vision of a self reliant, confident, rich, healthy and vibrant India to life… to rephrase the Sharks in Shark Tank ‘ and for those reasons, I’m in…
Ravi Sasan 