New Delhi: Finance Minister Nirmala Sitharaman is likely to strike a fine balance between being fiscally prudent and growth supportive when she presents her fourth straight budget Tuesday. The budget is expected to have plans to boost spending to revive investment and create jobs. The budget for the fiscal year starting April 1, 2022 is likely to raise spending on infrastructure to set the economy on a firmer footing.
The stage for the Budget presentation was set by the Economic Survey. It said that the government has the fiscal space to do more to support the economy that is forecast to grow at a healthy 8-8.5 per cent growth in the 2022-23 fiscal.
The budget comes days before the first phase of voting in Uttar Pradesh, which along with four other states is going to the polls to elect a new state government. And naturally, it is expected to contain measures for higher rural and agriculture spending.
Asia’s third-largest economy is estimated to expand 9.2 per cent in the fiscal year that ends in March, following a contraction of 7.3 per cent in the previous fiscal.
Analysts said the finance minister will have to strike a fine balance in the budget while keeping up the momentum of the country’s promising but fledgling economic recovery and tax collections. However, at the same time Sitharaman will have to look at bringing in measures to spur demand, create jobs and tackle inflation as the country deals with the ongoing third wave of the Covid-19 pandemic.
While being ‘fiscally prudent’ as well as ‘growth supportive, Sitharaman is widely expected to continue growth agenda via higher capex allocation, which will accelerate the investment cycle and employment while at the same time taking a fiscal conservatism approach.
With a goal to reach a USD 5-trillion economy by FY25, capital expenditure allocation is expected to continue to remain higher while healthy tax revenues and mega disinvestment pipeline may help contain the fiscal deficit to five per cent in FY23.
The buoyancy in tax revenues, relatively contained spending and higher nominal GDP growth is expected to have contained the fiscal deficit in the current fiscal to 6.3 per cent, below the projection of 6.8 per cent.
Within infrastructure segment, higher allocation towards roads, railways and water are expected.
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Also, the focus would be on ease of tax compliance, simplification and digitisation as well as ease of doing business. Measures to support small businesses and the rural economy are also likely to form part of the Budget.
To boost domestic manufacturing, the budget presentation may also touch upon the government’s Production Linked Incentive Scheme (PLI) applicable for the telecom, pharmaceuticals, steel, textiles, food processing, white goods, IT hardware and solar sectors.
It is unclear if Sitharaman will tinker with income tax rates but there is an expectation that the exemption limit of Rs 2.5 lakh will be raised.
Sitharaman would use the budget as the cornerstone to put the economy on an accelerated growth path after the impact caused by the pandemic. Amendments in the tax law to bring about sustainable growth, infrastructure investment, focus on R&D spending, nurturing incentives to the core sectors, including manufacturing and services, tapping the huge experience of running captive centres are some of the priority items on the agenda of the government.
