Union Budget 2022: The Union Budget 2022-23 is to be prepared just before the assembly elections to be held in five states. These states include Goa, Uttarakhand, Manipur, Punjab and Uttar Pradesh. In this, the Uttar Pradesh state election is so important to the ruling party that even brokerage firm Morgan Stanley has mentioned it in its recent India Equity Strategy Note.
In its note, the brokerage said, “Uttar Pradesh, the most important state of India in terms of elections, is due for elections next year. If the ruling party gets a setback in this election, it can change the pace of many policies. We have said earlier also. It has been learned that government policies are the main source of our optimistic outlook. Even if we talk about minimal impact, adverse results will create instability in this election. This note by Morgan Stanley has told how important the upcoming elections are. It is obvious that these states will also be looked at while preparing the Union Budget. Apart from this, Finance Minister Nirmala Sitharaman has to make many other difficult choices while preparing the budget. also have to face.
state of the economy
It can be said that the financial position of the government before the budget is good. There has been a jump in tax revenue. The nominal GDP growth rate is at a high of 23.9 percent. According to the recent RBI report, the revenue expenditure is expected to increase by 27 per cent from November to March 2022. Similarly, capital expenditure has also been projected to increase by 54% from November to March 2022. Increase in revenue expenditure boosts the economic recovery. On the other hand, capital expenditure has strong potential for growth.
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The economy has improved after the second wave of Corona. The Chief Economic Adviser to the government is talking about the recovery of the V-shape. In the report of RBI related to the economy, there has been talk of recovery in demand and sustainable recovery.
The corporate sector, which is called the growth engine, is also in a good position. The balance sheets of both the corporate and banking sectors are in much better shape than they were before the pandemic. The twin balance sheet problem seems to be largely over, especially now that we have a ‘bad bank’. The same can be said about the balance sheets of NBFCs and even the real estate sector to a lesser extent. The companies have raised huge amounts of cash from both the public and private markets. The long-term investment drought is nearing its end.
Inflation
Surely, if the economic recovery is picking up pace, the government must have extra cash to make some concessions to the public ahead of the elections?
But inflation can be a problem here, especially core inflation. Long-term bond yields have risen. RBI is trying to reduce the liquidity. Supply chain issues have come to the fore once again due to the Omicron variant, raising the possibility of more supply-side inflation.
Banks’ investment in government securities is declining. This can be seen in the chart below. In comparison, there has been a very marginal improvement in bank credit. The growth rate is still below double digits. With the boom in the economy, credit growth will also increase and banks will be left with less funds to invest in government securities. Yield will increase further. A higher fiscal deficit will add to the problem.
international factor
What is perhaps most important, however, is the fact that the Union Budget for 2022-23 will be prepared from an international perspective, which may have happened rarely in more than a decade. This is the first time in many years that the central banks of developed countries have been forced to tighten their monetary policy. This threatens to run out of liquidity in the markets. No one knows which big financial problem will arise in the coming time. The global economy is accustomed to very low interest rates. In such a situation, no one knows how the increase in interest rates will affect the world.
This is the reason why Fidelity International has titled its report for the global economy released next year, ‘Catch 2022’. The title is based on an English idiom called ‘Catch-22’. According to the Oxford Dictionary, this idiom means ‘a dilemma or difficult situation from which one cannot escape because of conflicting or dependent circumstances’.
Abbreviation In other words, the Union Budget for the financial year 2022-23 will be made against the backdrop of a great deal of uncertainty. This uncertainty is even greater than at the time of the last budget, because then everyone had a one-point agenda that somehow overcome the havoc of the pandemic. This time also the danger of epidemic remains, but along with it many other risks have also arisen. The choices that the finance minister makes in the budget will tell us how well the Indian economy will deal with these risks.
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