4 min read.Updated: 10 Feb 2022, 01:45 AM ISTAjit Ranade
State coffers must ideally and increasingly be filled by taxing those who can best bear the tax burden
The commentary on the Union budget proposals for 2022-23 has been mostly around the theme that it is a bold and aggressive “gamble on growth". A high tide raises all boats. If economic growth is above 8% in real terms, and above 14% in nominal terms, it would spell good news for job creation (from real expansion) and also tax collection (from nominal expansion which benefits from somewhat higher inflation). The latter would be good for some fiscal correction. As for inducing growth, the finance minister has done her bit, by ensuring that all the incremental growth in government expenditure next year is on capital items, which promote long-term growth. But the bulk of the growth-inducing investment spending beyond infrastructure will have to come from the private sector, including foreign investors. It is on this that the “gamble" aspect of this budget will be most watched. Are animal spirits going to be sufficiently unleashed, so that we have a multi-year private sector capex rally? The pre-conditions do exist. Banks have healthier balance sheets, and corporates are now sufficiently de-leveraged. Foreign inflows have been very strong, albeit focused on unicorn sectors. But business confidence for investment expansion will need a boost from consumer sentiment too. That, in turn, will depend on job creation and the employment outlook, which in turn depends on business expansion, completing this self-fulfilling loop. This could be either an optimism- or a pessimism-reinforcing loop. It is difficult to tell which way next year will turn out, although the weight of probability favours optimism.
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