Next Union budget may retain focus on infrastructure story: Nirmala Sitharaman
The forthcoming budget may have a continued focus on infrastructure development, finance minister Nirmala Sitharaman indicated on Saturday, and stressed the importance of a consistent tax regime.
The finance minister, speaking at the Hindustan Times Leadership Summit 2021, said that infrastructure development is one of the key focus areas of the government and the “emphasis on infrastructure spending in some form or the other” will continue.
Sitharaman said that the robust recovery of the pandemic-hit Indian economy is because of the government’s policy focus on providing support to micro, small and medium enterprises, increasing infrastructure investments, ease of compliance, and consistency in both direct and indirect taxes.
“If decision-making is complicated, time-consuming and burdensome, it cannot help. So ease of doing business and compliance burden are being reduced,” she said, pointing out that the government is continuously taking policy decisions for ease of doing business.
On consistency in taxation, the finance minister said the government reduced corporate tax in 2019 to boost investor sentiment and the policy decision helped in faster recovery of the economy after the two waves of Covid-19 pandemic hit the economy – the first in March 2020 and the second in April-May this year.
The Covid-19 outbreak last year and the 68-day hard lockdown since March 25, 2020 had a devastating impact on the economy. India’s gross domestic product saw 24.4% contraction in the first fiscal quarter ended June 2020. The economy plunged into a technical recession (negative growth for two consecutive quarters) as it shrunk 7.4% subsequently in the second quarter of 2020-21.
The economy then saw a V-shaped recovery on the back of ₹20.97 trillion stimulus package and several policy reforms announced since March 2020. A positive 0.5% growth was reported in the third quarter, followed by 1.6% expansion in the fourth quarter ended March 31, 2021.
The Indian economy started the current fiscal year with a record 20.1% expansion in the first quarter, signalling a strong revival in business activities. The latest official data released on November 30 reported 8.4% growth in the second quarter ended September on the back of increased government spending, exports and agriculture.
Speaking about importance of certainty on tax rates for taking vital business decisions by corporations, she said, “Both direct taxes and indirect taxes should have a level of predictability.”
On a question on meeting disinvestment targets, Sitharaman said the sale processes are complicated and addressing several technical and procedural issues takes time. She said “tying up of the loose ends” at various departments “consumes its own time”. “And that is what we are trying to speed up.”
With about three-and-a-half months left in FY22, the government is some distance away from meeting its budgeted disinvestment target of ₹1.75 lakh crore, and its disinvestment receipts are less than ₹10,000 crore ( ₹9,329.90 crore as per official data).
She gave the example of Air India’s disinvestment, which was done transparently even during the pandemic. “The same approach [is adopted] for dealing with the rest of them,” she said, adding that the transfer of ownership for Air India was expected to be completed by December 31.
The hint that infrastructure spending will be one of the budget considerations is not a surprise. High capital expenditure and infrastructure development are expected to be major growth engines in 2022-23, which will be based on the ₹111 lakh crore National Infrastructure Pipeline (NIP) and the PM Gati Shakti, the integrated digital platform for infrastructure development that has a potential to reduce logistics costs from 13% to 8% in the next four-five years.
The Gati Shakti platform was launched by Prime Minister Narendra Modi in October to ensure integrated planning and implementation of infrastructure projects in the next four years, with focus on expediting works on the ground, saving costs and creating jobs.
The integrated approach is in line with the government’s plan to raise capital expenditure to boost the economy. Sitharaman, in her budget speech on February 1, announced a ₹5.54 lakh crore capital expenditure plan in the current financial year. In August, she unveiled a ₹6 lakh crore plan to monetise the central government’s existing assets in four years, which is coterminous with the ₹111 lakh crore NIP.
NIP was announced by the finance minister in December 2019 with 6,835 projects. The pipeline has now expanded to 7,400 projects. Out of that about 217 projects worth ₹1.10 lakh crore have already been completed.
The finance ministry is monitoring progress of infrastructure projects regularly. While reviewing capital expenditure of ministries of highways, petroleum and steel last month, Sitharaman suggested that officials should frontload capex in the third quarter of 2021-22 and the first half-year of the financial year beginning April 2022, as infrastructure projects are a priority for the government.