Budget 2022

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8 highlights

  • I was hopeful, if somewhat perplexed, by the assertion in the Economic Survey that there was enough fiscal space to ramp up capital spending. If true, this would mean that the government had found a way out of the ongoing fiscal crisis that I have been highlighting since 2019. My analysis of the macro fiscal scenario in the 2022-23 Budget, unfortunately, shows that the fiscal crisis continues to cripple the Centre’s public finances.

  • Net tax revenues in FY22 (Rs 2. 2 trillion) are higher than the budgeted target of 7.6 per cent of gross domestic product (GDP), but this is expected to fall to 7.5 per cent in FY23. This continues to be lower than the 8 per cent of GDP target that the government has been setting (and failing to achieve) since FY18.

  • So this government is consistently unable to either tax or disinvest in line with its own ambition ever since the growth slowdown commenced in FY17.

  • Thus, the modest incremental revenues have been used to reduce the fiscal deficit, not to increase public expenditure to “stimulate” the economy as so many pundits seem to be saying on television.

  • This rise is consistent and means that less than 60 per cent of the fiscal deficit will be used to finance revenue expenditure in FY23 compared with 71.4 per cent in FY20. This is a structural change in fiscal stance. But, contrary to the braggadocio in the Economic Survey, this has come about through revenue expenditure compression, and not through an increase in resource mobilisation, which is why the capital expenditure/GDP ratio has increased even though the total expenditure/GDP ratio has shrunk.

  • The quality of revenue expenditure is poor. Interest payments continue to rise inexorably.

  • MGNREGA outlays have shrunk dramatically from Rs 1.1 trillion in FY20 to Rs 73,000 crore in FY23 despite 9 million households being unable to access the programme on demand in FY22. This is disgraceful for a government that has only this to show to alleviate the scarring caused by the Covid-induced economic collapse.

  • The increase in public capital expenditure has, therefore, happened despite shrinking total expenditures by compressing revenue expenditure on public goods. The government has seen fit to subsidise more but allocate less for much needed public employment.1

Footnotes

  1. What does this mean? ↩

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