After contracting for the first time in 41 years, by 7.3% in FY2020-21, the Indian economy has bounced back to pre-pandemic levels. Advance Estimates of GDP released by the National Statistical Office project a 9.2% real GDP growth for India in FY2021-22. In terms of magnitude, real GDP is estimated at Rs 147.5 lakh crore, which is marginally higher than Rs 145.7 lakh crore posted in 2019-20.
In addition to better-than-expected GDP growth, the Purchasing Managers Index (PMI) has been consistently in the expansion zone, core sector growth has improved, and GST collections have been over Rs 1.3 lakh crore for six consecutive months and the unemployment rate has been falling too.
That’s a lot of the good news.
But the intimidating news is that the pandemic has set the country back considerably, wiping out nearly two years of growth and derailing near-term plans and targets on various fronts. From the cherished goal of making India a $5 trillion-dollar economy by 2024-25 to doubling farmer incomes by 2024 to meeting longer term export targets, everything has been pushed forward into the future, as Covid disrupted supply chains and work environments.
Against this backdrop, Budget – 2022 is easily one of the most difficult balancing acts that any government has had to address. The concerns will be how the economy should move ahead and what the priorities should be in FY23 and beyond, in the face of various headwinds such as high inflation, exodus of foreign funds due to indications of monetary tightening, possibility of new strains of coronavirus, challenges in consumption expenditure of households, flagging private sector and MSMEs investments, etc.
Yet there are some inherent situational and demographic advantages that the country inherently enjoys and others that have been presented by the crisis. The craftsmanship of this budget could be gauged based on how well the finance minister leverages these opportunities to compensate for the lost momentum and catapult the economy ahead in future. The opportunities that the Budget- 2022 could leverage are:
Boosting public and private investment to initiate pump-priming
As green shoots are visible, private sector investment is expected to pick up and without any cannibalization, government spends on infrastructure development could continue to remain strong. In addition, the budget could contain proposals to attract foreign direct investment (FDI) inflows, especially at this time of tectonic shifts in global supply chain bases.
Boosting consumption to drive economic momentum
There are finally signs that discretionary consumption is picking up. While the impact of Covid is still unfolding, the initial disruption in consumption patterns has settled at a new normal and appears ready to receive some impetus. This impetus could target the young demographic, with rising incomes and aspiration levels.
Boost exports through bilateral trade and incentivization
Globally, there is a robust ongoing economic recovery. Budget – 2022 could contain proposals that set the tone for India becoming a global supply hub, with global manufacturing and trade seeking bases that can effectively replace China. Utilizing tailwinds and the China+1 strategy, the Budget could incentivize sectors like textiles, chemicals, manufacturing, etc., which simultaneously have positive implications for employment.
There are various other issues that Budget 2022 will have to tackle, such as containing inflation and marking a calibrated return to the fiscal consolidation path that was initiated in 2018. It will also have to explore the impact of Covid on social sectors – specifically healthcare and education – and propose remedies for the gaps that it has created or at best, exposed.
All in all, it will have to ensure that it manages its balancing act effectively enough to get India to the other side of the deep chasm over which it is tight-rope walking and then resume its uphill climb to reach all the goals the country set out to achieve before the abyss (read: pandemic) appeared.
