June 14, 2022


Economic Policy and Research & Development

The forthcoming Union Budget will be important from the perspective of cementing the growth turnaround after the induced stress of COVID-19 pandemic. There has been a spate of reformist announcements lately that include Gati Shakti, sale of Air India as part of the aggressive asset monetisation plan, scrapping of retrospective taxation, sector specific Production Linked Incentive (PLI) schemes and one hopes that the Budget will continue to impart momentum to the Infrastructure thrust. The government should follow these up with strict implementation measures so as to harness the best benefits of private sector investments and unleash the virtuous cycle of economic growth.

In the current FY2022, real GDP growth is broadly expected to be in the range of 9.5-10.5%, but this is on the back of a very low base of the last year. Even as the headline growth indicators have improved significantly, there could be fault-lines in the economy in the form of widening inequality of all forms – income, access to healthcare and education etc. Despite many policies directed towards MSMEs, they still suffer from significant pains that have been inflicted on them on account of stoppage of business activities due to COVID-19.

Having said that, the Budget will have to do a tight rope walk given the need to boost expenditures to support certain sections of the economy including the lowest income segment of the population with livelihood benefits amid the already high current high fiscal deficit and public debt. Given that monetary policy has reached its limits, the onus of sustaining growth will depend on the judicious use of fiscal policy space in the near term given that the net fiscal impulse is set to shrink beyond FY22 as the government will need to pare the deficit and debt levels along the consolidation roadmap to rebuild policy buffer.

While agriculture, rural development & infrastructure, can continue to remain the focal points, the other areas that should receive significant importance in this Budget will be Healthcare and Education. Note, the Healthcare budget was enhanced significantly in the last budget, but it was mostly for vaccination cost, water and sanitation. We evidence which shows that vaccine access, vaccination and effective policy support have been the mainstays of recovery elsewhere. Thus, in addition to continued focus on vaccination, the government needs to take a hard look at the healthcare infrastructure and put adequate funds for a timebased enhancement in the same, especially the primary and the tertiary healthcare. The government can also look towards tying up with the private healthcare providers to boost up healthcare facilities in the rural and semi-urban areas.

The other important area of focus should be the Education. There have been a significant number of students who may have not been able to receive education during the pandemic as it transitioned to online methods. The government should therefore envisage to come out with a clear strategy for inclusive digital learning that includes the use of mass media for dissemination of education. The budget should also stress on education outcomes and try to bridge the gaps in the same.

Overall, this budget assumes importance in many ways and expectations can be many. However, the key will be to use the Budget to address the unevenness in recovery and the multiple divergences (k-shaped) within the underlying economy.

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