The Union Budget 2022-23 was presented against the backdrop of a recovery in economic growth and animal spirits coming back post the pandemic. Against this backdrop, it is very welcome that the Finance Minister presented a Budget with growth focus at its heart while keeping path of fiscal prudence in mind.
The Budget outlined a fiscal deficit of 6.9 per cent of GDP for FY22 and 6.4% for FY23. The Finance Minister, however, reiterated the commitment towards the broad path of fiscal consolidation to attain a level of fiscal deficit lower than 4.5 per cent of GDP by FY 2025-26.
The Budget has been progressive, growth oriented and resisted the urge to go populist. The focus of this Budget has been to maintain growth momentum with clear push on infrastructure.
Capital expenditure is budgeted to rise by massive 35 per cent to ₹7.5 lakh crore in FY23 to a record 2.9 per cent of GDP (vs 2.2-2.4 per cent on average during the last few years). For perspective, FY19 capex was ₹3 lakh crore. This year’s enhancement is significantly larger than usual increase of 15-25 per cent seen previously. Roads, housing and railways have seen a sharp increase in allocation.
In the defence sector, 68 per cent of defence budget will be earmarked for domestic procurement up from 58 per cent, which is a step in the right direction for the country to become ‘Atmanirbhar’.
The assumptions and targets on revenue are quite reliable and credible and, to a large extent, conservative as well. Nominal GDP growth estimates at 12 per cent in FY23 looks conservative. Revenue receipt growth assumption at 6 per cent in FY23 is significantly lower than 27 per cent for FY22 and is driven by lower disinvestment and asset monetisation target.
Overall, gross tax revenues are budgeted to grow at 10 per cent YoY, which is quite conservative especially on the back of strong GST collections and earnings growth by corporate India.
Also, the government expects net tax collection of only ₹17.7 lakh crore in FY22. Already, in the first nine months of FY22, government has collected ₹14.7 lakh crore worth of net taxes, implying that the government actually expects net tax receipts to contract 37 per cent YoY in Q4 FY22. This, according to us, is very conservative. It means that the government has stated a conservative fiscal deficit target of 6.9 per cent in FY22 and 6.4 per cent in FY23.
Some other important measures of the Budget were: Extension of ECLGS scheme to March 2023 and increasing the scope of guarantees by additional ₹50,000 crore to ₹5 lakh crore, a very strong thrust on digitising every economic activity in the country, lot of emphasis on reducing carbon print with environment friendly transportation and more thrust on cleaner energy, tax on digital assets, and launch of digital rupee among others.
No-tax is positive
Another positive of the Budget was almost no tinkering of taxes. Economic recovery is at a nascent stage and any increase in taxes or cesses could have dampened this recovery.
An area that the Budget appears to miss is towards providing some demand support and thrust to consumption. While largely consumption taxes are mostly in the ambit of GST council, there were expectations that personal taxes also could be lowered in line with how the corporate taxes were brought down in 2018.
To sum up, it was a growth oriented, balanced and realistic Budget with focus on the reviving the economy, and laying down strong foundation for sustainable growth into the future. Nifty delivered positive returns eight times since February 2010 for both 2M/3M following the Budget session. Hopefully we see the same again in the coming months.
(Nilesh Shah is the Group President & MD of Kotak Mahindra Asset Management Company)