Union Budget 2022: A wishlist for the FM - Hindustan Times
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Union Budget 2022: A wishlist for the FM

Jan 29, 2022 08:00 PM IST

Invest in education; increase allocation to the rural job guarantee scheme and launch a similar one targeting the urban poor; enhance capital expenditure; formulate a new deal for agriculture; continue elements of the Covid-19 relief package announced last year; and no new taxes of any kind

It seems somehow apt that the Union Budget for 2022-23, the penultimate one of the second Narendra Modi government, is being presented in the immediate wake of two very significant events.

The government should see Union Budget 2022-23 as a staging budget that both addresses some of the lingering issues of the pandemic, and sets the stage for the next chapter of the country’s growth. (Sanjeev Verma/HT PHOTO) PREMIUM
The government should see Union Budget 2022-23 as a staging budget that both addresses some of the lingering issues of the pandemic, and sets the stage for the next chapter of the country’s growth. (Sanjeev Verma/HT PHOTO)

One, the transfer of Air India, post divestment, to its new owner, the Tata group. And two, the completion of all regulatory preparatory work, and the launch of India’s bad bank, an idea put forth in the last budget, and none too soon.

It can be argued that selling State-owned companies can’t be counted as reform, but Chanakya has always considered them as such — especially given the social and economic context in India that makes such sales extremely difficult; not to forget the judicial context, at a time when the Supreme Court has ordered an investigation into one of India’s earliest divestments (dating back only two decades).

It is clear that such reforms will continue.

Given the exceptional tax buoyancy this year that will help the government beat its estimates of tax revenue (and comfortably), there is probably no point in rushing through the partial divestment of Life Insurance Corporation, the big one, although the intent to sell shares through an Initial Public Offer (IPO) is very much on display (and can’t be doubted). Indeed, it’s possible that the government may complete the IPO in March. Still, since it’s very likely that next year will not see the tax buoyancy that this year has, it perhaps makes sense to push big-ticket divestments to the next financial year as a buffer. And next year is also probably when the impact of the bad bank will really start being felt in the banking sector.

If 2021-22’s Union Budget was one that focused strongly on the pandemic, what should 2022-23’s do? There’s no doubt the finance minister will indulge in a bit of ballot-oriented populism (and then, a lot more of the same next year), but that is understandable given the context. It does raise the same question the Prime Minister recently did (again) on the wisdom of unending cycles of elections, but that is material for another column.

Before answering the question on the coming budget’s focus, it is important to understand the economic context in which it is being presented.

The Indian economy will grow by 9% in 2021-22 and 2022-23 and 7.1% in 2023-24, the International Monetary Fund said in its latest economic forecast. Those are big numbers for a $3.1 trillion economy. And those are numbers that mean that India will end 2021-22 with an economy slightly larger than the one it ended with in 2019-20. Put otherwise, the Covid-19 pandemic has not, as feared, made India lose five years, but one year, although it has also changed the lives of some (both individuals and enterprises) irreparably.

Many high-frequency indicators are at or above pre-pandemic levels, and as Hindustan Times explained in an analysis on Saturday, the trajectory of the third wave of the pandemic is already beginning to dip (and it has probably had even less of an impact on economic activity than the second wave did).

That’s a creditable recovery but it is also one that has favoured large companies and heightened inequality. It’s also a recovery that has been achieved without a sustainable growth in consumption (as mentioned by the Reserve Bank of India governor after the last monetary policy); the next one will come soon after the budget and it will be interesting to see what the central bank’s Monetary Policy Committee’s commentary says, and despite poor consumer sentiment (according to RBI’s consumer confidence index). And it’s a recovery that’s been buffeted to some extent by supply constraints, many of which are global, not local.

Against this background, what should the finance minister do on Tuesday?

One, this budget should focus on education, in much the same way the last one sought to do on public health, ensuring that the country does not lose any of the gains it has made in the latter. The best-case scenario for school education is that the majority of children have lost two years; the worst, is that they have lost much more. The budget needs to provide for bridging courses, new curricula, training for teachers, refurbishment of school infrastructure, and access to devices and connectivity.

Two, to create jobs (or at least work) in the short-term, it should increase allocation to the rural job guarantee scheme and launch a similar one targeting poor families in urban areas.

Three, even as it focuses on creating an environment conducive for private investment, it should enhance the government’s capital expenditure, continuing the emphasis on infrastructure. Construction, lest anyone forget, is the biggest employer of unskilled labour in this country after agriculture.

Four, with hopes for a new deal for agriculture (and doubling farm incomes, one of this government’s promises) fading with the repeal of the farm laws, it should announce a new deal for agriculture.

Five, elements of the relief package announced last year should continue at least for another year — especially the provision of free grains to poor households , and credit guarantees for small and medium enterprises and the self-employed.

And six, in an effort to boost sentiment, the budget should announce no new taxes of any kind, no increase in levies, and, in fact, reduce effective tax outgo for income tax payers, either by tweaking tax rates, or enhancing exemptions. Short of cheques-in-the-mail, this is the surest way to make people feel good.

This column has stayed clear of getting into the issue of the fiscal deficit. The government will probably meet (or even better) this year’s targeted deficit of 6.8% of GDP, courtesy the windfall in tax revenue. Next year is a different question altogether (and also because, the reduction in the duty on fuel will pinch the state’s finances). The budget should set a realistic deficit target — perhaps 6%, with a tolerance of around 20-25 basis points (one basis point is a hundredth of a percentage point).

The government should see Union Budget 2022-23 as a staging budget that both addresses some of the lingering issues of the pandemic, and sets the stage for the next chapter of the country’s growth.

letters@hindustantimes.com

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    History has an uncanny way of intruding into contemporary life and shaping our public conversation. A new controversy emerged recently over the relationship between Jawaharlal Nehru and Subhas Chandra Bose.

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