Union Budget 2022-23: Relevance for UPSC Exam
- GS Paper 3: Indian Economy– Issues relating to planning, mobilization of resources, growth, development and employment; Government Budgeting.
Union Budget 2022-23: Context
- Recently, the Union Budget tabled in Parliament saying that India’s domestic output (GDP) is likely to grow 9.2% this year (2021-22) over last year- the highest among the world’s large economies.
- However, India’s output contraction in the previous year (2020-21) was among the worst in the world.
Union Budget 2022-23: Budgetary Provisions
- Union Budget 2022-23 seeks to boost public investment by 35.4% at current prices over last year to raise its share in GDP to 2.9% from 2.2% last year.
- With grant-in-aid for state investments, the Union Budget hopes to increase public investment share to over 4% of GDP.
- The Union Budget hopes to trigger a virtuous investment-led output and employment growth.
- This will happen through the “crowding-in” effect of public investment on private investment.
- The Union Budget 2022-23 aims to mobilise resources to finance the investment as it seeks to reduce the fiscal deficit ratio, as per the schedule laid out in the last Budget.
Union Budget 2022-23: Challenges to Indian Economy
- COVID Virus: adverse effect of the ongoing wave of the Omicron virus may negatively impact the rise in GDP (estimated to be 9.1% this year by Economic Survey).
- No growth in Per Capita Income: India lost two years of output expansion. In other words, per capita income, today is lower than it was two years ago.
- Decline in Private Consumption: the share of private consumption declined by three percentage points of GDP between FY2020 and FY2022.
- The Government stepped up its expenditure to mitigate the decline, but only modestly; hence, the marginal output expansion.
- Issue of Revenue Realization: The critical question is whether additional tax and non-tax revenue (that is disinvestment proceeds) will be sufficient to finance the investment plan.
- public investment has picked up in the current fiscal, by barely 0.2% of GDP.
- Challenges in meeting the proposed investment targets:
- Threat of higher (imported) inflation (on account of rising international oil prices) and
- Rising interest rates (on account of the US Federal Reserve’s decision).
- Rising Unemployment: Rampant loss of employment is probably one of the key causes of the decline (of three percentage points of GDP) in private consumption.
- Industrial Slowdown: The manufacturing sector’s share in GDP has been stagnating at around 15% of GDP for quite a while.
- The annual industrial growth rate has sharply slowed down from 13.1% in 2015-16 to minus 7.2% in 2020-21.
- Another example, of the industrial slowdown, is the fall in two-wheeler sales. As per news reports, it fell to 11.77 million units in 2021, below 11.90 million units sold in 2014.
- Industrial slowdown leads to a contraction in employment, mostly in the informal or unorganized sector.
Union Budget 2022-23 on Public Investment: Way Forward
- Ensuring Revenue realization: The realization of revenue for the proposed public investments would crucially depend on-
- Tax revenue realisations,
- Disinvestment proceeds,
- Sale of rail and road assets and
- Government’s ability to raise resources from the market, without raising interest rates for the private sector.
- Employment: enhanced allocation for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) and initiating a similar scheme for meeting urban unemployment.
- However, the Government has slashed the allocation for MGNREGA by 25% over last year.
- Reducing Imports: If a substantial share of proposed public investment “leaks” out as imports, then the industrial output may not get the desired boost.
Union Budget 2022-23: Conclusion
- Without fully committed funds for capital investment, the success of the ambitious effort to fund proposed public investment remains questionable.