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In the last two years, while dealing with the pandemic, the government has largely focused on the health angle and yet has repeatedly provided stimulus to the economy at the right time. This seemed logical for a country like India that needs to use her scarce financial resources prudently.
Now as the world looks to turn the page on the pandemic, it was appropriate for the government to finally target the growth agenda in full earnest and the just concluded Union Budget speech by the Finance Minister underscores the government’s intent to do so. Having enough fiscal room, due to robust tax collections and adequate forex balance, the government is looking to go for the jugular. The FM has unleashed a capex bazooka while maintaining the fiscal deficit target at 6.4%. This may cause discomfort to the conservatives, but with GDP growth expected to remain strong, the FM has rightly chosen to initiate a virtuous cycle of asset creation that should enable employment generation as well.
This budget could well be the changing of gears for the Indian economy. The FM promised to increase FY23 capex to over ₹7.5 lakh crores, more than double of the investment in FY20. Under the flagship Project GatiShakti, the government intends to drive infrastructure investments and will focus on critical areas such as roads, railways, ports, airports, waterways, mass transport and logistics. Besides the physical infrastructure, there is a strong emphasis on the digital infrastructure with the government looking to auction 5G spectrum in FY23 and plans to extend optic fibre to even remote villages by 2025.
The FM has attempted to complement macro growth with micro all-inclusive welfare. PLIs announced so far, in over 14 sectors, broadly cover the main spectrum of employment generation. The key themes are inclusive development, productivity enhancement, sunrise opportunities, energy transition, climate action and financing of investments.
Having witnessed the massive potential in the Indian start up ecosystem, the government has increased the focus on the sunrise sectors. Also, energy transition would be facilitated by provisions made towards interoperability.
Marrying economic growth with sustainability, the FM has made it evident that we are equally committed to our sustainability agenda and sovereign green bonds will be an important tool in sharply reducing the carbon intensity of GDP in the near-term and in the long haul leapfrogging to our net zero target. The huge increase in allocation for renewable energy – from INR 15,000 crore to INR 1 lakh crore – will provide a significant boost to the fiscal capacity of states, and help them catalyse capex.
The flip side of the growth push and the large borrowing programme would be a hardening of the government’s borrowing cost, but that can be balanced in the near future, if we can take enough steps for index inclusion of Indian government bonds.
Overall, we compliment the FM for not falling for the bait of populism ahead of state elections and being pragmatic to focus on the long-term trajectory of a country that is expected to remain the beacon of global growth this decade and become the third largest economy by 2030.
Sanjay Singh, CEO, BNP Paribas India. Views are personal.
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