Disappointing Union Budget 2022-23

Surajit Das

The Union Budget for the year 2022-23 has been presented in the parliament on 1st February amidst crisis. Following the Covid-19 lockdowns, the economy is suffering severely from increased unemployment, poverty, inequality and fall in income and savings of majority of common people – many have become indebted. The health crisis is also not over yet as the third wave of Omicron is still on. The demand for universal employment guarantee with enhanced wage rate at least equal to the state specific minimum wage norms is the need of the hour. The cry for the direct cash transfer to the poor and needy and the distribution of free food grains through the public distribution system with wider coverage is louder now than ever. The need to enhance the government health infrastructure substantially is absolutely essential in the country. The central transfer to the states should have been increased as proportion of the GDP. Expansionary fiscal policy is required to ensure faster recovery of the economy by boosting aggregate demand through enhancing the purchasing power of vast majority of masses in this largest democracy of the world.

With utter disappointment we have witnessed that none of the above issues have been addressed in this year’s union budget. The aggregate government expenditure has been proposed to be reduced from 16.2% (revised estimate) in 2021-22 to 15.3% in 2022-23 (budget estimate) – this was 17.8% of GDP in 2020-21 (actual). Therefore, it is a contractionary budget under a demand depression at the aggregate level. In this context it is important to mention here that the total government expenditure has increased in the advanced developed countries by more than 8 percentage points of GDP and that by more than 3 percentage points of GDP in the middle-income emerging market economies to combat the crisis of aggregate demand (IMF: Fiscal Monitor, October 2021). In this year’s budget of the union government, the effective capital expenditure has been proposed to rise from 3.6% (in 2021-22) to 4.1% in 2022-23 but, the effective revenue expenditure would be reduced from 12.6% to 11.1% of GDP in 2022-23. Therefore, the capital expenditure has been increased by 0.5 percentage point at the cost of reducing the revenue expenditures by more than 1.5 percentage point of GDP. As a result, the fiscal deficit to GDP ratio would come down from 6.9% (in 2021-22) to 6.4% (in 2022-23) of GDP despite decline in revenue receipt to GDP ratio from 9% in the current year to 8.5% of GDP (primarily because of the reduction in non-tax revenue) in the coming financial year.

Drastic cut in revenue expenditure has resulted in cuts of Rs.25 thousand crores in the MGNREGS amidst huge unemployment. Food and fertilizer subsidies have been reduced in the middle of increased hunger and poverty following the lockdown in the country. Even the health expenditure has faced reduction amidst huge health crisis under the pandemic. In this context it is important to remember that the government health expenditure including the central and the state governments as proportion of GDP (and also as proportion of total health expenditure) in the country is one of the lowest in the whole world. Most of the country governments spend more than 2% of GDP on health and here it is less than 1% of GDP excluding the water supply and sanitation. Along with food and fertiliser subsidies, the allocation for crop insurance has also come down and the allocation for the PM-Kishan scheme is also grossly inadequate even after the historic farmers’ agitation. Allocation of funds for the welfare of scheduled caste and scheduled tribe people and that for the women component plan are also to be reduced as proportions of GDP or in real terms.

The total Centre to state transfer including tax devolution and grants would be reduced from 6.9% of GDP in 2021-22 to 6.25% of GDP in 2022-23. The tax devolution to GDP ratio would remain at 3.2% of GDP as it is formula based (15th Finance Commission). The other transfers are set to come down drastically by 0.5 percentage points (from 3.7% to 3.2%) of GDP in 2022-23. According to our constitution, most of the human development related expenditures fall primarily under the purview of the state governments. If the fiscal space for the exchequers of the state governments shrinks, all the social sector schemes would suffer and process of recovery from the humanitarian crisis would be prolonged. In general, in order to reduce fiscal deficit as proportion of GDP, if the union government reduce aggregate spending or transfer of resources to the states as proportions of GDP, then the economic recovery would take longer time under demand depression and the common people would suffer more for longer period of time.

The most curious case is mentioned in a footnote of ‘budget at a glance’ document.

“RE 2021-22 for Capital Expenditure includes capital infusion/loans to AIAHL/AI for settlement of past guaranteed and sundry liabilities, not backed by assets amounting to Rs.51971 crore. Excluding this, capital expenditure in RE is estimated Rs.550740 crore.”

In the current financial year 2021-22, Rs.51971 crore has been paid for settling the past liabilities of the Air India. Reportedly, the Air India has been sold for Rs.18000 crores. But the government has received only Rs.2700 crores. The rest Rs.15300 crore was the debt component of Air India. Therefore, in order to get Rs.2700 crores, the government has incurred an expenditure of Rs.52000 crores which is included in the revised estimate of capital expenditure of 2021-22. Then why the Air India was privatised at the first place? For negative 50 thousand crores? Moreover, this Rs.52000 crores of government expenditure would have zero impact on the job creation. So, inclusion of this component as capital expenditure and total government expenditure is misleading. It is more like a negative non-debt capital receipt.

On the whole, this year’s union budget has failed to fulfil the expectation of vast majority of common people in the country who have suffered badly and are still suffering economically due to the lockdown. It is a disappointing budget in that sense.

The author teaches Economics at JNU, New Delhi