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As the business management guru Michael Porter pointed out, strategy is about making choices and trade-offs. So are Union budgets. Which ones did finance minister Nirmala Sitharaman make in the budget for the coming year? The ways and means she chose to achieve the budget’s goals are important, too.

The first thing that macroeconomists check for is the size of the fiscal deficit. The pandemic threw all previous calculations and estimations out of the proverbial window. The ‘glide path’ for the Centre’s deficit now aims to bring it down to 4.5% of gross domestic product (GDP) over the medium-term, which most experts consider ‘sustainable’.

The government’s objective is to bring it down to at least 6.4% this coming year, down from 6.9% that it reached in the current financial year (as estimated in the Economic Survey). The key word here is ‘sustainable’. Several experts believe that a slightly higher deficit target for the coming year would not have affected the government’s conservative credentials, or its ‘glide path’ towards the 4.5% of GDP target by 2025-26.

Which brings up a second major trade-off: Consumption versus investment. Even a casual reading of the budget demonstrates an emphasis on investment. The government’s hugely-expanded capital expenditure plan for 2022-23 is the most obvious sign of it.

The budget allocation made for infrastructure spending builds on similarly large investment programmes put in place in the current and previous years. ‘Build Bigger’ seems to echo the US administration’s ‘Build Back Better’ campaign, which has a huge infrastructure bill of $1 trillion at its centre.

Consumption—especially rural consumption—has driven the Indian economy over the last few years. It has slowed, and that is a worry. Sustaining the revival of over the current financial year—the government estimates that GDP has or will grow by around 9% in 2021-22—will need a healthy dose of consumption.

To its credit, the government hasn’t pulled back on existing social welfare programmes, and public investment will most certainly drive the economic growth momentum, but will need a consumption push. Perhaps a little leeway on the fiscal deficit could help consumption if trends of the first two quarters of 2022-23 indicate that it’s needed.

There is no real trade-off between public and private investment; the government has to ‘crowd in’ industrial and other business investment. Over the last two years, companies have largely chosen to reduce their debt over making fresh capital investments. Bank credit to industry—a proxy for private investment—hasn’t grown much, and still runs at an annual rate of less than 10%. It needs an extra push.

However, some trade-offs remain to be made. For example, financing matters, particularly for public investment. The trade-off here is between borrowing and other means. Borrowing comes at a cost, and one that may be higher than what the government is willing to pay. To compound matters, public debt has grown significantly to an estimated 90% of GDP—the Centre’s share is about 60%, and that of all states put together is 31%—putting pressure on interest rates.

There are other means in the government’s arsenal, such as implementing the asset monetization programme announced in October 2021. It has also drawn up a list of assets that are ripe for it. Now is the right time to go through with asset monetization’s implementation. It will create fiscal space without affecting anything else. True, there are political considerations to account for in undertaking an innovative idea like this one. In a sense, this may have been on the government’s long-term agenda for a while. Since 2014, the government has talked about “minimum government, maximum governance". Implementing the National Monetisation Pipeline would underscore that goal better than anything else can.

Investment capital can come from foreign and domestic savings, with both domestic and foreign private equity (PE) funds playing an important role in developing what is arguably the world’s largest startup economy. Domestic PE funds of significant size and operational capacity exist too. PE funds have put in an estimated 5.5 trillion in 2021-22 so far. Foreign funds are seen to have faith in India’s capacity to grow and offer good market returns, besides adding sustainable, long-term capital.

Setting up a committee to resolve some of the remaining ‘regulatory friction’ is among the key actions that the government proposes to take. Another initiative involves setting up thematic funds, with the government putting in 20% of the corpus. Managing the assets, however, would be the purview of private managers.

The government prides itself in taking the long view, and appropriately so. Its strategy for the country’s development is grounded in a vision for ‘India at 100’. In her budget speech, the finance minister referred to it more than once.

Atmanirbhar Bharat would imply that domestic ownership of national assets will be preferable to foreign ownership. The finance minister can pave the way for this by incentivizing the shift of a large amount of unproductive domestic savings—almost all of which is currently in gold—into investment capital that can be invested in a perpetual bond that pays an appropriate interest rate and is indexed to inflation, for example. It would change the term structure of government debt; perhaps 30-year, even 50-year bonds can be issued. There is enough fertile ground for a lot of ideas, some conventional and many that are innovative.

Within these complex trade-offs, one concern remains: the threat of inflation. Which is not lost upon the finance minister or other officials in the government. How much of an issue that is likely to be and how it may influence economic decisions are something we will get a better sense of when the Reserve Bank of India (RBI) reveals the outcome of the Monetary Policy Committee’s deliberations this week.

On strategy, choices and trade-offs, Michael Porter said, “It’s about deliberately choosing to be different." This budget can be an example.

Sanjay Nayar is a former banker and a private equity investor

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