Despite what political critics say, our Minister of Finance has proven to be a constant and studious student. His first two budgets were “the art of the possible” at best, lacking imagination or even a cohesive overarching theme. Although the 2019 proposal to raise funds through sovereign bonds denominated in foreign currencies was a bold exception, due to conceptual and ideological burdens, it has remained on paper so far.
But last year it was different. Spurred on by the need to keep the economy afloat amid the ravages of the pandemic, the FM boldly breached the 6% lakshman rekha budget deficit and presented a stimulus strategy built around heavy government spending on infrastructure. It turned out to be a very shrewd and prescient call.
Nations that have gone the lazy way of injecting stimulus by simply putting money in people’s hands have begun to pay the price for that laziness in the form of runaway inflation, as our inflation continues to be within tolerable levels despite the fait accompli of imported inflation caused by high crude oil prices. Having gained confidence, perhaps after being right once, she decided to stick to the same theme this year as well, albeit with bigger bets, providing the desired thematic consistency to the budget exercise.
Above all, the FM has signaled its willingness to prioritize growth over fiscal consolidation by letting the budgeted budget deficit remain above 6% for the second consecutive year – 6.4% forecast for the FY23 vs. revised estimate of 6.9% for FY22.
It is also a signal to the rating agencies that our political decisions may no longer be influenced too much by the threat of a rating action. Of course, the deficit numbers and borrowing plans spooked the bond market, pushing yields to a two-year high. But as our new chief economic adviser would have said in the past, the needs of the real economy should take priority over those of the financial economy. So some passing anger from bond traders is a fair trade to back up growth momentum at a time when the lingering aftermath of the waning pandemic has yet to be fully understood.
Within infrastructure, roads receive a large share of the allocation with 25,000 km of new highways targeted for FY23. This equates to building a jaw-dropping 68.5 km of new roads per day. This is more than double the current rate of road construction. Even China, in its most frenetic years of growth, did not build roads at such a rate. So it seems far too ambitious, given the usual challenges of land acquisition, environmental and social impact mitigation, not to mention the actual construction work.
Nonetheless, the budget sets the vision and the pace for a giant leap forward in the highway system, and that is to be applauded. Allocations for drinking water and irrigation are also significant, with the stated goal of providing tap water to every rural household by 2024. The government having a track record of building toilets and, to a lesser extent, in the supply of cooking gas to rural households. , there are also reasons to be optimistic about the water mission. Relaxing the rigors of daily life will result in healthier, happier families and freer women, which can create long-term, persistent benefits for the rural economy.
The budget is also big on the green, with an innovative program to provide ‘battery as a service’ or simply ‘battery swapping’ – a truly off-the-shelf idea that can iron out most of the associated logistical challenges. to electric locomotion. Imagine the ease of driving to a roadside gas station to discharge a nearly empty battery and plugging in a fully charged battery in its place.
With the right design changes, electric cars and scooters can become pure plug-and-play machines, devoid of headaches like finding a charging point on a long stretch of road or, worse, getting stranded halfway. -way with a discharged battery. This may turn out to be the smartest idea on our journey to electric locomotion.
Perhaps the cruelest budget cut has been reserved for crypto enthusiasts. Not only were investors slapped with a flat 30% tax bill on crypto gains, but they were also denied the consolation of having their transactions declared legitimate, leaving them in a kind of “Trishanku swarga”. While the government may have its reasons for taking such a half-armed approach, it still seems like an avoidable thing in an otherwise well-written storyline.
(The author is a seasoned banker with over 25 years of experience in domestic and international banking)