Macro effects of the Budget : Financial Express 2nd Feb 2022

 he Budget impact can be analysed from the point of view of how different economic indicators are affected. Here there does appear to be some clear indications given by the proposals. Some of the variables that Budgets have the power to influence are growth, savings, investment, interest rates, inflation, and consumption. The Budget presented for FY23 does provide some clues.

First, can this be called a growth-oriented Budget? While it has assumed a growth rate of 11.1% in GDP which is lower than that in FY22, the proposals do not quite provide direct incentives in the form of tax breaks to push growth. Given that the Economic Survey spoke of growth in real GDP of 8-8.5%, can one say that inflation will be just around 3%?

Second, will this spur investment? It is done however to a sharp extent on the expenditure side where the spending on capex will help to push though not accelerate growth as it is as high as Rs 7.5 lakh crore or Rs 10.68 lakh crore if grants to states for capex are also included. However, states and the private sector have to also chip in with their contribution to make the investment wheel move.

Third, is there something for savings? The answer is really no. The Budget has not quite looked at enhancing savings which could have been done by providing incentives like enlarging the limits under Section 80C.

Fourth, will the Budget lead to higher consumption. This would normally get related to the disposable income of the households.

The provisions in the Budget do not give a push to consumption directly for sure. Given that there has been cumulative inflation of nearly 12% in the last two years consumption has been at the cost of savings. However, if one looks at the increase in GST collections assumed in the Budget then it appears that the Budget is betting big on consumption reviving as these collections are to rise by 15.5%.

Therefore, there could be a wee bit for the consumer oriented industries.

Fifth, will employment increase? Here the answer is yes as the expenditure of the government directed at capex as well as channelling of funds to the needy sections will provide scope for job creation. But this will come with a lag and hence we may have to wait for some more time.

Sixth, is the impact on inflation. The GST is outside the purview of the Budget and hence commodity price inflation driven by the Budget is minimal in terms of impact. Now the Budget has lowered both the fertiliser and fuel subsidy and hence the indication is that if crude oil prices rein high, we cannot escape higher inflation.

Seventh is industry-specific impact. The Budget provides a distinct thrust to industries like cement, steel, and capital goods to the extent that capex is higher. Others to benefit would be technology related like telecom, data centres, defence, etc.

Last, how about interest rates? Bond yields climbed just after the announcement of the Budget as the gross borrowing programme is almost touching Rs 15 lakh crore.

This indicates that interest rates will definitely increase next year and while the RBI will have to rise the repo rate as inflation climbs, the markets will hasten the pace.