Despite state elections being just around the corner and a palpable need to be seen as pro-consumer and poor, the Union Budget 2022-23 manages to tread the path of fiscal prudence at the expense of populism. The budget refrains from wasteful subsidies and splurging on unproductive measures. This is commendable, especially given the fiscal situation of the economy and the desperate need to spend every possible resource in the most productive manner.
The budget recognises the requirement for continued capital spending by the government, critical not only for growth revival in sectors such as construction, but also for crowding in private sector capex. The thrust to infrastructure addresses the supply side of the economy.
Extension of timeline for emergency credit line guarantee scheme to March 2023 and increase in its cover to ₹5 lakh crore is a positive measure and could aid the MSME sector and protect the health of banking sector.
While the budget has addressed the supply aspect of the economy through focus on infrastructure measures and incentivising corporate capex, it falls behind expectations on measures to boost aggregate demand improvement. Emerging from a pandemic where the demand in both urban and rural regions has been severely impacted, inadequate efforts have been taken to stimulate demand, which seems to be faltering. Various factors that play on demand, like job creation, income growth, moderate taxes, increasing disposable income in the hands of people to boost demand and discretionary spending, have been completely given a pass. Steps to support household capex through tax incentives in the housing sector could have encouraged both construction and housing infrastructure as well as ancillary sectors, thereby, triggering a greater positive multiplier effect .
As a part of the financial inclusion, not enough steps have been taken to encourage smaller firms and corporates to access the credit markets beyond the banking system. No structural measure has been announced to deepen debt markets and improve access to risk capital.
The tight-rope fiscal walking could have been augmented with steps to drive growth through higher private spending and capex. What the budget delivers in terms of being fiscally pragmatic and being non-inflationary, it falls short on efforts to stimulate aggregate demand which could have provided a greater thrust to overall growth sustainability.
