XLRI professor decodes Budget 2022

By H.K. Pradhan

The Union budget 2022-23 present by Finance Minister Nirmala Sitaraman keeps medium term growth at the centre stage of fiscal policy, with boost to investments in logistics and infrastructure projects, further broadening of the Production Linked Incentives (PLI), extending Emergency Credit Line Guarantee Scheme (ECLGS) scheme for the MSME sector to the next fiscal, and boosting the start-up ecosystem.

The FM has not ignored the fiscal consolidation path by keeping the deficit target of 6.4 percent in FY 2023. This Budget also embeds the sustainable development strategy with issuance of green bonds, more investments provisions in the renewable energy, urban infrastructure, and agricultural sector allocations.

FM makes further push to the existing thrust on digital economy such as launching of the central bank digital currency backed by blockchain technology, setting up digital banking units in 75 districts, including bring to the tax net digital assets such as crypto currency gains. By formally bringing the crypto currencies assets and non-fungible tokens within the tax domain the FM possibly allays the fear of its outright ban.

Equity market held on to the gains possibly as investors focus has been gradually shifting from growth to value stocks from a broader set of firms. Bond market has also mildly reacted to the substantial rise in the gross borrowing requirements of Rs 14.95 lakh crore during the coming year, with the yields inching up. Market waits for the RBI monetary policy announcement next week  that has to address the current inflationary expectations while supporting growth. Bond market has already priced the expected risk in repo rate and liquidity tapering. The current inflationary pressures remain critical for both the fiscal and monetary policies to reckon with, confronted with the imported inflation such as rise in palm and crude oil and domestic cost push.

(Pradhan is a professor of Finance & Economics, XLRI Xavier School of Management in Jamshedpur)