PremiumCapital expenditure will have its biggest share in total spending in nearly two decades. But the Budget is also about what Sitharaman chose not to say in her speech. To start with, the health sector—and the social sector as a whole—is set to lose in terms of budget allocations even after the pandemic hardships. Here’s more
An aggressive focus on government spending led on the capital side was the big theme of Finance Minister Nirmala Sitharaman's second pandemic budget. As the dust settles on her Parliament speech, it’s time to pore over the numbers, both big and small, hidden in the details. Where will the capex push come from, and will it be enough to spur growth? Which sectors lose, and which ones gain? Was the headline push for the health sector last year a one-off story? We explore Budget 2022 in nine charts:
Dissecting the capex
For an economy emerging out of a pandemic, Finance Minister Nirmala Sitharaman was expected to ramp up the capital expenditure markedly. And so she did: at face value, a capital outlay of ₹7.5 trillion, or 2.9% of GDP, was indeed a major highlight of her Budget speech on Tuesday. At 19% of total expenditure, this is the largest share that the capex has got in 18 years. But the devil, as usual, is in the details.
A huge thrust is coming from an allocation of nearly ₹1 trillion to assist the states in catalysing overall investments in the economy through 50-year interest-free loans. This has resulted in a massive five-fold jump in capex through transfers. Central capital expenditure is set to rise just 18%, against 33% in the year ending on 31 March.
The Budget has set a clear intent that the government is focused on boosting growth through investments. However, successfully carrying out such huge capital spends is only one challenge. The other one is the government’s elevated debt levels that will fund the expenditure. The Centre has pencilled in a fiscal consolidation of 50 basis points to 6.4% of the GDP in 2022-23, but gross borrowing at nearly ₹15 trillion has not played out well in bond markets, with the 10-year benchmark bond yield surging 18 bps intraday.
On the revenue side, the projections are conservative. Gross tax-to-GDP ratio has been pegged lower than 2021-22, with a sharp dip expected in excise duty collections after the highs of two years. The disinvestment target is set at its lowest in six years after a forgettable year on this front.
Will the eye-catching capex announcement remain just on paper? The trend for the ongoing year does not infuse confidence. The Centre met only half of the ₹5.5-trillion capex aim for 2021-22 in the first eight months. Topping this aim by another ₹2 trillion next year, with states’ cooperation needed for half of it, could be a humongous, if not an impossible, challenge.
Welfare cuts
Unlike last year, Sitharaman made no major announcement for the health sector during her second Budget speech of the pandemic. Even after the creaky healthcare system was exposed in 2020 and 2021, the health and family welfare ministry will see no increase in its budget in 2022-23. As a share of the total budget, the allocation for the ministry is set to decline from 2.3% in 2021-22 to 2.2%.
While the covid-19 vaccine cover helped the country withstand the Omicron wave, the faultlines of health infrastructure were gravely exposed during the second wave, but a long-term overhaul doesn’t seem to be on the cards.
The overall social sector spending, which includes education, well-being, housing, and social welfare, is also set to fall next fiscal after some spending boost in 2021-22. From 6.5% of total expenditure in the ongoing fiscal, it will decline to 6.1%. Despite this year's budget going big on capex, the increase in social capex (schools, hospitals, housing) is modest compared to core capex (roads, railways, power plants).
In real terms, major schemes such as the National Health Mission and Pradhan Mantri Awas Yojana will see a decline in their budgets. Amid the prolonged school closures, the National Education Mission will see an increase of 28% in its annual budget next year.
As a share of total expenditure, the allocations for the rural sector will be at a seven-year low. The agriculture ministry will barely see a rise, whereas the rural development ministry is due for a budget cut. Its flagship scheme, National Rural Employment Guarantee Scheme (MGNREGS), which emerged as a safety net for millions of Indians during the migrant crisis during the lockdown, will lose allocations, too, even though the job demand under the scheme is still higher than pre-pandemic levels. The Pradhan Mantri Kisan Samman Nidhi (PM-Kisan), a cash transfer scheme for farming families, will also not see any hike next year.
The debt question
The sharp capex increase and modest GDP and tax revenue projections will increase the Centre’s debt to 59% of GDP in 2022-23, despite the fiscal deficit being pegged 50 basis points lower. The debt level is below that seen in the first pandemic-hit year, but the elevated level means the Centre has a long way to go before debt retreats to around 50% of GDP. Considering the covid-19 disruptions, the government has room to trim debt over the next few years, with economists in favour of doing so by boosting growth first.
When it comes to states, the Centre’s transfers are projected to remain flat at 30% of gross tax collections. While the Centre-states tussle over sharing of resources may not be as palpable as it was in 2020-21, the decline from 37% in 2018-19 may leave some states, especially those ruled by non-Bharatiya Janata Party governments, fuming. The 15th Finance Commission has recommended that states get 41% of the divisible pool, but the Centre has been using other means to boost its own kitty, such as cesses, which are not a part of the divisible pool. Special loans to boost capex and relaxation in states’ fiscal deficit limits may help, but the flat tax transfer share does little to relieve the fiscal federalism tensions.
Lastly, the ministry allocations. As small businesses faced a greater brunt of the pandemic, the ministry of micro, small and medium enterprises has got a fair share of attention, and is one of the top five gainers among all ministries, albeit 70% of its allocation is under the Emergency Credit Line facility to MSME borrowers. Other ministries that gained are food processing, heavy industries, jal shakti, and electronics and information technology, in line with the government’s vision to boost investments, availability of clean water to households, and push to digitisation. Some key ministries such as steel, coal and aviation were the biggest losers in the Budget.
