Whatever criticisms can be levelled against the budget this year ~ and there are plenty ~ but it must be said it did not succumb to the enormous temptation of populism in the face of imminent polls in five states including the jewel in the crown, UP. This is something extraordinary to cheer Ms Sitharaman for. Given the difficult recovery of an economy battered by a raging pandemic, no one expected a big bang budget, and she has certainly done an enormously creditable job. However, the key to success, as always, will lie in implementation and if experience is any guide, there is much to feel cheerless about.

Bureaucracy needs to be far more responsive and proactive if the virtuous cycle promised by her is to kick in. Our GDP is primarily driven by consumption, accounting for 67 per cent. Investment, by the private sector and government together, accounts for only 31 per cent of GDP, with the rest being accounted for by change in stock, valuables and the balance of export over import.

The FM could have chosen the easy way out to earn accolades all around by transferring money to the poor by way of DBTs, doles and subsidies to boost consumption and hence propel growth in the short term. Politicians usually prefer policies where benefits are concentrated and costs are diffused ~ famers’ bills are an example of the opposite kind ~ and in case the FM had so decided, the benefits extended to the poor were likely to fetch votes. But to her credit, she has steered clear of that wasteful trajectory, and in keeping with the government’s philosophy, preferred the tougher course instead, by focussing on creating capacity in the economy through a massive boost in capital investment.

Investment takes time to get translated into jobs and income, hence the benefits would be available only in the long term, but while investments are being made, income will be transferred to the hands of the poor and naturally trigger higher consumption and higher growth. This is the philosophy the FM seems to have followed. Talking about numbers, the capex of Rs 7.5 lakh crore promised in the budget is over 35 per cent more than 2021-22 budget estimates (BE) of Rs 5.5 lakh crore, but only 25 per cent more than the revised estimates (RE) of Rs 6 lakh crore ~ even that is a massive jump by all standards.

Add to it the grants given to states for creation of capital assets amounting to Rs 3.2 lakh crore, and the total capital investment of Rs 10.7 lakh crore would amount to 4.1 per cent of GDP. This forms the most important plank of the budget. The focus of investments would be on “Gatishakti driven by seven engines, namely, Roads, Railways, Airports, Ports, Mass Transport, Waterways, and Logistics Infrastructure.”

The investment targets are ambitious, like Railways (Rs 1.4 lakh crore), Roadways (Rs 1.8 lakh crore), Defence (Rs 1.5 lakh crore), Telecommunication (Rs 0.5 lakh crore), Science and Technology (Rs 0.1 lakh crore), North-Eastern Areas (Rs 0.1 lakh crore), etc., but as always, implementation is the key. For the current fiscal, only 49 per cent of the BE for 2021-22 (45.5 per cent of the RE) was achieved till November 2021. This is far from encouraging and the government needs to focus on implementation.

One must also reckon the inflationary potential of such massive injection of capital into the economy, especially when inflation is definitely on the rising spiral, but between rising inflation and kick-starting the growth of a ravaged economy, the choice cannot be otherwise. Indeed infrastructure investments of this scale made on construction of roads, bridges, railways etc. have huge potential for job creation both for skilled and semi-skilled labour, but how fast they will be created obviously depends on the performance of bureaucrats in the respective departments in completing all procedural formalities and getting environmental and other necessary clearances quickly.

Only when this process gathers steam, the FM’s promise of “Relying on virtuous cycle starting from private investment with public capital investment helping to crowdin private investment” can materialise. Once that happens, investors will not be constrained by resources ~ sustained efforts by the RBI and government have cleaned up the banking sector substantially. Their balance sheets are now in much better shape, and they are well capitalised to provide loans for capital projects.

It is also to be remembered that it is the states where these investments will occur, and without their cooperation in acquisition of land etc., the ambitious targets will remain a chimera. Perhaps it is to seek their cooperation that the FM has enhanced the outlay for the ‘Scheme for Financial Assistance to States for Capital Investment’ to a whopping Rs 1 lakh crore, from Rs 15,000 crore in RE 2021-22, which itself has been enhanced from the BE of Rs 10,000 crore, “to assist the states in catalysing overall investments in the economy.” This money will be provided as 50-year interest-free loans, over and above the normal borrowings of the states.

Cooperative federalism should create win-win situation for all. Some good news about the economy came on the eve of the budget. GST collection has exceeded a record Rs 1.4 lakh crore in January ~ a fact the FM quoted in her speech, indicating increasing economic activities. But it was the growth of export that was reassuring ~ after stagnating for years, during the first 9 months of 2021-22, exports crossed a record $300 billion, against the revised target of $400 billion for the entire fiscal.

Further, this export growth was driven by manufacturing ~ engineering goods, gems and jewellery, readymade garments, electronics, etc. Imports too have registered record increases during this period, driven mostly by rising commodity prices including that of petroleum, but growth in merchandise exports is a definite sign that recovery is firmly on the way.

Perhaps these buoyed the FM to continue on the path of fiscal consolidation by reducing the fiscal deficit target to 6.4 per cent of GDP for the FY23, against the RE of 6.9 per cent for the current year. Her target is to reduce the fiscal deficit to 4.5 per cent by 2025-26. The Economic survey projected the GDP to grow between 8 and 8.5 per cent, a conservative estimate compared to IMF’s projection of 9 per cent. If physical infrastructure was one pillar of the budget, the other was digital infrastructure, building further upon the country’s impressive performance in digitisation.

The FM uttered the word ‘digital’ 34 times during her speech, laying emphasis on “promoting digital economy and fintech, technology-enabled development, energy transition” as well as climate action in keeping with the targets announced by the PM at COP26 at Glasgow. The digital push covers a wide gamut of areas from the delivery of digital and hi-tech services to farmers, creating a digital ecosystem for skilling and livelihood, digital tools of teaching and digital university to rolling out of a National Digital Health Ecosystem, taking digital banking and digital payments “to every nook and corner of the country”, etc. But the major surprises sprang by her were launching of a “digital rupee” powered by blockchain and other technologies by the RBI during 2022-23 and taxing of digital assets and cryptocurrencies which was widely anticipated. Cryptocurrencies are not yet legal in the country, though a crypto regulation bill is likely to be introduced in Parliament.

Government’s stance on such virtual assets was ambivalent, and with the RBI cautioning against cryptocurrencies, speculation was rife that these may be banned. Now the budget levying a 30 per cent tax on gains made from cryptocurrencies, at least such speculation will cease. Now it is to be seen what kind of regulatory architecture would be created for cryptocurrencies and other virtual assets. As in every budget, there were many negatives also ~ like insufficient or even reduced allocations in some vital areas like health, especially when the devastation caused by the pandemic has exposed decades of underfunding. But strangely, its allocation has been reduced from Rs 1.24 lakh crore in the RE for FY22 to Rs 1.13 lakh crore in the BE for FY23. Same for rural development, whose allocation has been reduced from Rs 2.85 lakh crore to Rs 2.48 lakh crore.

Allocations for education ~ especially when formal education has been seriously jeopardised by the pandemic ~ and agriculture, a sector which was the only one growing during the pandemic and requires huge investments in infrastructure to deliver on the PM’s promise of doubling the farmers’ income ~ have been increased only marginally comparted to the RE for the last year.

Allocation for MNREGA has also been curtailed substantially from Rs 98,000 crore in FY22 RE to only Rs 73,000 crore in FY23 BE. It was quite amusing to see some senior government functionaries trying to defend these by arguing that BE should only be compared with BE and not with RE, since allocations can always be increased at the time of RE, if needed. Let the next budget be presented only with BE figures for all three years, without the actuals and RE figures of the past years to facilitate ‘objective’ comparisons.

(The author is a commentator, author and academic. Opinions expressed are personal)