The pandemic has left India at an interesting crossroads. On the one hand, India is the fastest-growing large economy at 9.2% FY22, record foreign exchange reserves equalling 13 months of imports; inflation seemingly under control; stock market and corporate earnings in a positive direction. On the other hand, the two years post-covid have shown annual growth rates of 1%, the lowest in Independent India history. The brunt of the covid disruption is the 70 million micro-enterprises that employ over 200 million individuals. The impact of the formalization of the economy and that of covid has left a deep wound to this part of society that requires healing. Unless this is done, we will not see private consumption picking up and making the economic growth inclusive and robust. It is in the backdrop of a K-shaped economy that we need to evaluate the FY23 budget.
The biggest initiative that addresses the most pressing need of the hour is the infrastructure. In this space, the finance minister gets full marks. With an allocation of ₹7.5 trillion, which is 35% over the previous year’s budget estimates, the government has pushed the right buttons. Apart from generating employment, it stimulates demand in the core sector and improves productivity in the economy. A large part of this allocation will be to fund the PM Gatishakti, which covers logistics, including roadways, railways, ports, airports, etc., with special emphasis on setting up 100 multimodal cargo terminals and data connectivity for seamless movement of goods. This initiative will bring tremendous benefits to “Make in India” & PLI initiatives and reduce business costs. Always, the risk lies in implementation. Infrastructure spending is fraught with project risks that include land acquisition, tendering, monitoring, and this should be the focus of state and central governments.
A large part of implementation is with state governments. Hence, the increase of financial assistance to state governments for capital investments, which has been increased from ₹10,000 crore to ₹1 trillion in terms of 50-year interest-free loans, is a commendable step and reflects the true spirit of a federal structure in building a new India. Further, initiatives like bringing tap water to additional 38 million households with the allocation of ₹60,000 crore and the affordable housing programme of building 8 million additional homes is an investment in the right direction that will pay rich dividends.
Digitization is another theme that is quite pervasive in the budget. Creating job portals, setting up a digital university, offering e-passports, initiating digital currency, extending digital banking, creating incentives for payment platforms, auctioning of 5G spectrum, setting up optical fibre networks are initiatives that make the country more competitive and build on the services capabilities which are our inherent strengths.
So, what is missing in this budget? Given the pandemic’s impact on the country’s physical health, more aggressive investments or incentives for healthcare were expected. India can become the supplier to the world of vaccines and generics. Also, India has one of the lowest hospital infrastructures for its population. An imaginative approach of public-private partnership and PLI type of incentives for hospitals would fulfil the deep-seated void in our society. The other sector, one of the largest employers of blue-collared workers, i.e. the real estate sector, was missing in terms of suitable incentives, given that it is still to recover from the pandemic. Another longstanding demand of the Indian Diaspora has been to treat the OCI investments at par with the resident investors, thereby using the diaspora as an additional economic engine. Perhaps the FM could have given it due consideration.
In closing, it must be said that the finance minister has prepared a good wicket. The run rate required for achieving 8.5% growth for FY23 would place India as the fastest-growing large economy. There are risks, of course—rise in oil prices, tensions in the Middle East and stresses in Ukraine. These could swing the ball in the other direction. But our batting has depth, and the budget has been inclusive without being populist. Now the batsmen must come and bat. That is the real challenge. An 8.5% on top of a 9.2% puts India on notice for the investing world. For the sake of 1.3 billion aspiring Indians, let us hope the batsmen deliver to the promise of the budget.
G.P. Hinduja, co-chairman, Hinduja Group
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