All eyes are on Finance Minister Nirmala Sitharaman who will present the Union Budget 2022 at 11 am. This is Sitharaman’s fourth budget presentation after her appointment as finance minister 2019. Budget 2022 will decide whether India will be able to keep up its growth momentum in 2022.
The budget comes at a time when India’s economy is remarkably recovering after two devastating waves of the coronavirus pandemic. But there are still a host of challenges that could upset growth.
Inflation, growing unemployment and economic slowdown due to the third wave of the coronavirus pandemic are some key challenges that experts expect the government to address in Budget 2022.
WILL BUDGET PROVIDE IMMUNITY AGAINST INFLATION?
India’s economy faced a fresh hurdle when the Omicron variant of coronavirus led to a request of restrictions across many states, crippling small businesses and contact intensive sectors in what seemed to be a repeat of the second wave last year.
But most economists believe that the economic impact of the third wave will wane soon and is not as concerning as an issue such as inflation and rising unemployment.
Even though India’s growth has been the best in the world in 2021, experts are worried about the combined impact of inflation and growing unemployment on the economy. They believe the government should announce measures to tackle the issue in the budget.
Rumki Majumdar, Economist, Deloitte India, said, “Throughout the pandemic, high inflation has been the result of supply-side disruptions, which did not require the RBI to intervene proactively. This may change going forward as the economy recovers. India must brace for higher inflation with a strong possibility of pentup demand exceeding supply and geopolitical tensions resulting in higher commodity prices. Disruptions in the global supply chain will further add to the challenge.”
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“Recent spikes in inflation have also concerned policymakers in the United States and European Union, where a strong rally in demand has been met with supply constraints because of global supply chain disruptions and shortages. India will also experience the same,” she added.
With higher inflation on cards in 2022, price of essential commodities may rise substantially and it could worsen the situation for middle income and poorer householders.
In view of the situation, the government should introduce a roadmap in the budget to reduce the impact of rising inflation on poorer and middle-income households. The government can do that by rationalizing some areas of income tax or at least by incentivizing taxpayers, given the fact that it has exceeded its tax collection target for FY22. This means the government has adequate firepower to provide some relief to citizens, but it is still not clear if it would provide any such relief as it may try to use the surplus revenue to score brownie points in poll-bound states.
TACKLING JOB CRISIS
Creating adequate jobs for the country’s youth is another area that the government should focus on in the budget, according to experts. A recent Bloomberg report suggested that 20 crore jobs are missing from the economy and restoring balance would be difficult without adequate fiscal policy support from the government.
Coming up with an urban job guarantee scheme, similar to Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), has been a popular recommendation among experts. Eminent economists like Raghuram Rajan and Jean Dreze have been backers of such a scheme ever since the pandemic crippled India’s vast informal sector.
In August 2021, a parliamentary standing committee had even suggested that the government should roll out a MGNREGA-like scheme for urban labourers, given the sheer number of people who lost their jobs in cities.
Other ways through which the government can solve the job crisis is by providing fresh allocation to its national infrastructure pipeline and production-linked incentive (PLI) scheme for a number of sectors.
While there are limited means at the government’s disposal to control inflation, it can try to boost jobs through a mix of schemes and measures. This will not only allow citizens to tackle price rise, but also help maintain steady demand that is necessary for economic growth.
STRESSED SECTORS
A number of sectors remain in focus as they have not been able to recover from the debilitating blow dealt by the pandemic. Some of these sectors including tourism, travel hospitality, MSMEs, startups and entertainment provide employment to millions of people in the country and make up a substantial amount of the nation’s entire GDP.
While businesses from all the aforementioned sectors have requested the government to provide some relief in form of credit guarantee and fresh schemes, it is unlikely that all the sectors will get additional benefits. Experts are optimistic that the government will extend credit relief to MSMEs and the hospitality sector, but other sectors like tourism and travel may get incremental relief later on after the pandemic situation eases.
HEALTHCARE AND EDUCATION BOOST LIKELY
In addition, the government is likely to increase its budgetary outlay for healthcare and education sectors.
The healthcare sector got a boost in last year’s budget due to the pandemic, and the medical community expects a similar commitment from the government in a bid to make healthcare accessible to all.
A survey conducted by Local Circles indicated that most want the government focus on healthcare The findings of the survey are in line with experts who have highlighted how the difficulties faced by the healthcare system during the second wave of the Covid-19 pandemic last year.
Education is another area that could see higher government spending, especially due to how learning and schooling has transformed over the past few years. Besides increasing the overall allocation, concrete steps should be taken in the budget to boost e-learning, create better digital infrastructure and reduced GST for edtech.
THE POLITICAL FACTOR
The fact that the Union Budget 2022 will be announced days before assembly elections in five states is likely to play a big role in how the government announces its spending plan for FY23.
This is because the government could roll out certain measures aimed at gaining momentum in key states like Uttar Pradesh and Punjab, where it faced criticism over its ambitious farm laws.
While the government finally rolled back the three farm laws in November 2021, it could roll out sops to boost farmers’ income. It may be noted that both Uttar Pradesh and Punjab have a large number of farmers.
Furthermore, it could announce measures directly aimed at strengthening infrastructure and healthcare facilities in poorer states like Uttar Pradesh. The government could also announce other measures aimed at job creation to gain popularity among the youth.
Specific schemes aimed at empowering women and improving healthcare infrastructure in key poll-bound states could also feature in Nirmala Sitharaman’s speech.
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