The Budget Tightrope Walk

In the best of times, preparing a Budget that pleases the majority of the population is a very difficult task. But when a finance minister has to do that in a completely unpredictable environment, it becomes several times more so. That’s what Finance Minister Nirmala Sitharaman will have to do when she rises to present the Budget for 2022-23, as the third wave of the Covid-19 pandemic, driven by the Omicron variant, sweeps the country. Meanwhile, latest data shows retail inflation rose to 5.59 per cent in December 2021, up from 4.91 per cent the previous month, while growth in industrial output slipped to 1.4 per cent in November, the lowest in nine months. The silver lining, however, is that the ongoing Covid-19 wave is not seen to be as devastating as the earlier ones, allowing the government to continue to focus on pushing growth and boosting investment. Besides, tax revenues so far this year have been very buoyant and are expected to surpass FY22 Budget Estimates.

Most analysts and economists reckon that the Finance Minister will have to hike spending to bolster growth, something that last year’s Budget also focussed on. A Barclays analysis says Sitharaman could continue to push the fiscal pedal to support the economy and, while the FY22 fiscal deficit estimate could be revised marginally upward to 7.1 per cent from the earlier 6.8 per cent, most economists believe the Finance Minister would want to stick to the fiscal deficit glide path she announced in the 2021 Union Budget, where the deficit is sought to be brought down to 4.5 per cent of GDP by FY26. However, balancing the need to push growth by way of expenditure while keeping the fiscal consolidation target in mind will always be a tough ask.

In this pre-Budget issue, we take a close look at what the Finance Minister’s imperatives will be, and how she could raise the resources required to keep the economy on the growth path. One of the most important elements in the resource-raising area is disinvestment where the government has thus far had a very dismal track record. While the FY22 target was an ambitious ₹1.75 lakh crore, the collections so far have been a paltry ₹9,000-plus crore. The focus, therefore, has to be on shoring up resources by way of a mix of disinvestment, asset monetisation and privatisation. Rajat Mishra and Manish Pant examine all these aspects in our cover package and explore the roadblocks the government faces on the monetisation-disinvestment front. The ₹6 lakh-crore National Monetisation Pipeline—where roads, railway stations, stadia and other underutilised assets are sought to be monetised over the next three years—is all very well on paper. But execution will hold the key to its success. On the disinvestment front, the forthcoming Life Insurance Corporation public offer would ease some pressure. The sale of ailing national carrier Air India to the Tata group was an important breakthrough on privatisation, and a signal that the government was keen to push its disinvestment/privatisation agenda. Budget 2022 will need to demonstrate much more of that resolve.