The 2022 budget is not glamorous, and that’s good news!


A crisp 90-minute presentation without any populist announcements, like cash handouts, that many expected, but with a clear focus on building social and physical infrastructure and helping states through interest-free loans to make part of the trip – this is the plan sum of Finance Minister Nirmala Sitharaman’s budget presentation this year.

And that’s exactly what it should have been. This writer last week that fiscal situations, potential inflationary pressures, and global uncertainties provide little room for splurging. The government has already announced expensive programs and it is time to put them in place. It turned out that the budget adhered to this principle.

Infrastructure and job creation

The main focus area of ​​this budget has been the effective implementation of transport, transit and digital infrastructure projects, with a particular focus on PM Gati Shakti to ensure optimal use of resources.

The three-year Rs 100,000 crore interest-free loan window open to states (beyond existing borrowing windows) to undertake capital investments under Prime Minister Gati Shakti will encourage the construction of allied digital and physical infrastructure to make central capital spending more useful.

India suffers from a high logistics costs/GDP (gross domestic product) ratio (14%) compared to 7 to 8% in the world. A focus on creating efficient infrastructure will go a long way to closing the gap and improving basic skills in manufacturing and services, thus helping to attract investment, which is the main catalyst for employment.

The pandemic has caused structural changes in the global economy, which has an impact on the potential for job creation. In India, the introduction of GST (goods and services tax) and UPI (unified payment interface) digital payment interface is bringing about very significant changes.

A review of high-frequency data from the 2022 Economic Survey will reveal that employment in the organized sector has likely grown at the fastest rate. This contrasts sharply with the high urban unemployment rate of 8% reported by the Indian Economy Watch Center.

To understand the trap, one must also look at the sustained increase in average monthly GST collection, which was highest in January 2022, and the parallel popularity of UPI payments.

Between January 2019 and December 2021, the volume of UPI payments increased almost sevenfold. During this period, cash withdrawals from ATMs remained stagnant or had declined.

The circulation of cash in the economy has increased in 2020 due to shutdowns. It was a worldwide phenomenon. But, as in 2021, the circulation of cash remained stagnant despite the economic recovery.

The bottom line is that the Indian economy is formalizing at a rapid pace. Efficiency improves and will have parallel shifts in the low or semi-skilled labor market. Automation is on the rise in the business sector and will likely peak this decade with the onset of the great investment rush.

Unlike in the past, the government cannot offer any quick fix to job creation. The scramble for infrastructure and the scramble for private investment in the manufacturing and services value chain and skills development are the only solutions. The higher the level of investment, the greater the potential for job creation. The budget facilitates this.

It should be stressed, however, that the target of increasing capital expenditure by 35 percent will largely depend on the success of the monetization and divestment of assets and the privatization programs already announced by the government.

The Minister of Finance did not give any details on the progress made on the asset monetization front in her speech. She did, however, talk about the progress made in divesting the government’s stake in Neelachal Ispat, IPO of LIC, etc.

Health and drinking water

Although less discussed, the Modi government has made a considerable contribution to India’s social sector over the past seven years.

Swachh Bharat has made India free from open defecation. Ayushman Bharat has created an ecosystem for affordable healthcare in the private sector in addition to helping millions of people access quality healthcare. The continued focus on rural electrification and availability of quality electricity through programs like Saubhagya, and near universal access to cooking gas has changed lives.

The successful implementation of these social sector programs, especially rural electrification, was one of the main reasons for the re-election of the Modi government in 2019. In 2024, the government will seek re-election based on the success of two major programs, universal affordable housing and access to tap water (Mission Jal Jeevan).

The budget presentation highlighted the allocation of almost Rs 1.10 lakh crore in these two schemes in 2021-22 and 2022-23. The PM housing scheme alone comes with Rs 48,000 crore.

Deployed in August 2019, the Jal Jeevan mission aims to provide clean water through individual connections to household taps to all 19 million rural households by 2024. In 2019, only 3.23 million rural families (17%) had running water connections.

The economic study pointed out that an additional 5.5 crore households have been connected to tap water since 2019. The 2022 Union budget promised to offer individual tap water connections to 3.8 additional crore in 2022-23, increasing coverage to almost 66%. rural households.

At the same time, new initiatives are being taken in the health sector. The deployment of the national digital health ecosystem will be a decisive development.

Digital registries of health providers and health facilities and a single health identity will go a long way in addressing known illnesses in the sector and protecting citizens from malpractices. Health insurance penetration and coverage could experience unprecedented growth.

Regulatory changes

The budget proposed numerous regulatory changes. Three of them are worth mentioning here.

First, allowing taxpayers to update their tax returns over the next two years is a welcome step. This will reduce litigation and increase voluntary compliance.

Second, income from cryptocurrency trading will finally be taxed.

Third, the elimination of customs duty exemptions on a wide range of products.

Selective fee waivers are a deferral of the licence-permit raj and are largely the result of the link between business and politics. The Minister of Finance was right to remove them.

However, a selective increase in duties on umbrellas, etc., went against this principle. It is understood that the decision was made to protect small domestic manufacturers.

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