By VP Nandakumar
If there is one single number from the Union Budget that catches the eye and the imagination in equal measure, it has to be 7.5 lakh crore. That’s the proposed outlay for capital expenditure during FY23, and has gone up sharply by 35.4% from the current year’s5.54 lakh crore. It is also more than double of what was spent in 2019-20.
This bold thrust on infrastructure spending will hopefully crowd in private investment and is much needed at a time when the Indian economy is still finding its way out of the turmoil and stresses of the pandemic. One of the things that India got right in the response to the pandemic was to tilt towards capital expenditure that improves future supply as compared to revenue expenditure that stokes demand. This can be inflationary, as the US and other advanced economies are discovering now.
Further, it is perhaps not adequately appreciated how investment in infrastructure lowers overall costs in the economy and adds to the competitiveness of local industry. It creates new markets for producers and new sources of supply spring up. These results don’t appear overnight, but the effects of the extra attention to infrastructure over the last half-decade are already beginning to show in the way India’s exports have taken off in the last one year, and how GST collections are consistently exceeding expectations these days.
India’s corporate sector has come out of the pandemic with flying colours, increasing its profitability and gaining market share at the expense of the unorganised sector. Back in September 2019, the government had paid heed to a long-standing demand of the corporate sector by sharply lowering corporate income tax, which did much to lift sentiments in the market. The sector did not need further sops from the Budget and the fact that there are none is not a sore point.
However, the woes of the unorganised sector required stronger measures. The government’s Emergency Credit Line Guarantee Scheme (ECLGS) meant for MSMEs has been extended till March 2023 and its scope widened to 5 lakh crore (from4.5 lakh crore). The ECLGS allows borrowers to avail financing from institutional lenders against government guarantees, lowering risk for lenders. Reportedly, ECLGS has so far helped 1.3 crore MSMEs weather the impact of the pandemic. But ideally, it should have been complemented by more thought about better social protections to informal workers, especially the urban poor who don’t come under the NREGA.
India’s middle class feels aggrieved that recent Budgets have not extended any meaningful relief to them. Here is one concession that could have been considered which can bring down two birds with one stone. A rebate on income tax for the wages paid to domestic workers, provided it’s paid by bank transfer to beneficiaries registered on the e-shram portal.
With the spectre of looming inflation, an accelerated glide path for bringing down the fiscal deficit to levels of 3% would have been advisable. While the targeted fiscal deficit of 6.4% for 2022-23 is 0.5% lower than the 6.9% estimated for the current year, a sharper reduction was warranted in the light of booming GST collections. If finance is the lifeblood of the economy, the record shows that the financial services sector does best when inflation is low. Over the last few years, India has enjoyed a period of steady low inflation. It is a hard-won success which must not be frittered away.
(The author is MD & CEO of Manappuram Finance. Views are personal.)
