Editorial: A tightrope walk for Sitharaman

Come February 1, Finance Minister Nirmala Sitharaman will present the Union Budget 22-23, her fourth, as India battles the third wave of the pandemic. It’s also a Budget that will be unveiled ahead of an important set of polls as five States head to Assembly elections this year. In these tough times, the demands of the Indian salaried class remain the same — cuts in income tax, boosting demand, reducing fuel prices, better healthcare and education — but the prospects of those demands getting fulfilled get bleaker with each passing year.

Retail inflation rate rose to a six-month high of 5.59 per cent in December, while wholesale inflation, which reflects prices at producers’ end, stood at 13.56 per cent. If the government keeps the expenditure growth at 8 per cent over FY22 estimates at Rs 38 lakh crore in FY23 and receipts grow by around 10.8 per cent, it would lead to fiscal deficit of around Rs 16.5 lakh crore or 6.3 per cent of GDP in FY23.

One could argue that the consistent collection of around Rs 1 lakh crore via GST in the current fiscal makes for a feel-good factor. India’s exports have also surged nearly 50 per cent year-on-year in the first nine months of this fiscal, putting the country on track to hit the target of $400 bn in merchandise exports. But the semiconductor shortage owing to supply chain disruption of imports from China, is still worrisome. This has impacted several industries and how Sitharaman addresses this challenge in the Budget will be worth watching out for.

A ray of hope has come from start-ups-turned unicorns that the country produced last year. India saw the birth of 44 unicorns with a total valuation of $ 92.77 bn as Bengaluru, Delhi NCR, and Mumbai dominated the new-age ecosystem. Sitharaman is expected to revisit some of the tax law regulations applicable to start-ups, including providing a comprehensive uniform tax code for them as well as the funds, as an attempt to unlock the power of domestic institutional capital.

While there are enough and more reasons to be optimistic about this year’s Budget, there are also pain points that need to be looked into on a war footing. On the infra front, less than 5% of the projects under the National Infrastructure Pipeline (with an estimated investment of Rs 111 lakh crore over a five-year period till 2025) has been rolled out till mid-November. Rolling back the farm laws was a bitter pill to swallow for the NDA-led government. But this will necessitate it to take an alternative approach to agri-reforms.

There’s also the big elephant in the room: disinvestment. While Air India’s return to its ancestral home at the Tata Group bodes well for the Centre’s portfolio, its handling of LIC’s IPO will be a much-awaited spectacle. If the exercise does go through, the Centre may end with a cash surplus of Rs 3 lakh crore, which could help support a large part of the fiscal deficit without taking recourse to market borrowings. The auto industry, which is showing signs of slow recovery, expects FM to incentivise EV production by making funding options easily available, apart from other demands. There are also calls for hiking tax on the super-rich, a move that has earned criticism in economies like the US.

Sitharaman will have a tall order on her hands when she opens her bahi khata (account ledger book) next Tuesday. Like the proverbial breadwinner and homemaker rolled into one, the Finance Minister might have to walk a tightrope all over again as she tries to strike a balance on whatever little is earned, and how judiciously it can be spent.