Budget 2022: The COVID-19 pandemic was an extraordinary period in history. While economic activity slowed down, worldwide fiscal and monetary policies tried to protect growth/livelihoods and mitigate the effects of potential economic catastrophe. The governments of developed markets came forward for support swiftly, then India waited for a few months to present a relief package.
Economists point out that even though India announced several packages, their fiscal impact was limited. So, when the world is withdrawing fiscal support, India is not too worried about it as it has nothing to rollback. India, instead, has used this as a good opportunity for structural reform, which the country can benefit from in the years to come.
Some of the major relief packages announced under self-reliant India are as follows-
The budget of the Emergency Credit Guarantee Scheme was Rs 3 lakh crore, but it did not burden the exchequer. Its fiscal liability will increase only if the beneficiary or MSME fails to repay the money. Another was the Rs 1 lakh crore Agriculture Infra Fund, where the beneficiary could take medium to long term loans at low cost. This too did not put any burden on the government. Liquidity of $900 billion has been given in the third discoms. It was raised from the market against the income of the discoms and was guaranteed by the state.
Clearly, all these announcements had a comparatively low fiscal burden, which was 1.7 per cent of GDP or Rs 3.4 lakh crore.
Is this reflected in government expenditure?
When the government prepared the budget for FY21 before Covid, the total budget expenditure was Rs 30.4 lakh crore. But actually an expenditure of Rs 34.5 lakh crore was incurred in FY21. The budget figure in FY22 was Rs 34.8 lakh crore. Covid relief of Rs 2 lakh crore was given this year, but it is estimated to remain within “limits” with the Government of India limiting other expenditure. Therefore, the government has good hopes of achieving its expenditure estimates. In FY22, in April-October, the government utilized 46 per cent of its budget capital expenditure and 54 per cent of budget revenue expenditure.
revenue breakdown
With economic activity restricted to essential sectors, the impact of the pandemic on revenues (especially taxes) in FY21 was significant.
Net revenue declined to Rs 6.4 lakh crore in FY21, or 30 per cent lower than the budget.
However, FY22 started well with tax collections of Rs 13.6 lakh crore between April-October, apparently higher than Rs 8.8 lakh crore in the same period of the financial year. At the same time, it was more than the pre COVID average of Rs 10 lakh crore.
With this run rate, the government expects the tax to be higher than the budget estimate of Rs 22.1 lakh crore in FY22.
This is an interesting question. There will be an emphasis on sustainable debt management going forward. Even though fiscal pressures will ease, monetary policy may vary across the world. For example, India may take a long-term resilient stance and focus on a liquidity surplus situation.
The fiscal policy will be ready in February 2022 and it has more possibilities of supporting the poor. The gap between the economy’s potential output and its actual output will begin to narrow, increasing its employment prospects. India has undertaken several structural reforms like Production Linked Incentive Scheme (PLIS), Export Promotion, Make in India Initiative and Manufacturing Tax Holidays.
We have a wonderful recovery road ahead of us!
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