A takeaway is the good infrastructure push

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A takeaway is the good infrastructure push

  • The clear emphasis in the Union Budget on expanding capital expenditure is a welcome directional change since 45.2% of fiscal deficit is being devoted to finance capital expenditure.
  • This should help accelerate growth not only in the current year but also in the years to follow. however fiscal consolidation needs further strengthening.

Perspectives on growth

  • The Center’s Budget 2022-23 provides a nominal GDP growth estimate of 11.1% for 2022-23.
  • The Economic Survey, on the other hand, had provided a real GDP growth range of 8%-8.5% for this year.
  • Taking the lower end of the real GDP growth estimate of 8%, an implicit price deflator (IPD)-based inflation of 2.9% will deliver nominal growth of 11.1%.
  • The real GDP growth of 8% may be considered optimistic since 2022-23 would be the first normal post-pandemic year where any significant base effects may not be available.
  • At the end of 2021-22, real GDP in terms of magnitude at ₹147.5 lakh-crore is estimated to only marginally exceed the corresponding level at ₹145.1 lakh-crore in 2019-20.
  • The second half of 2021-22, when there were no base effects, real GDP growth was only 5.6% using the latest available quarterly data.
  • A real GDP growth of 7%-7.5% in 2022-23 appears to be more realistic.
  • The IPD-based inflation may continue to be relatively high in 2022-23 since WPI inflation rate is likely to remain high at least in the first half of 2022-23 because of high prices of global crude and primary products.
  • A more realistic assumption of IPD-based inflation of 5% and real GDP growth of 7.5% would have given a nominal GDP growth of nearly 13%.

Revenues and expenditures

  • According to 2021-22 (RE), the Centre’s gross and net tax revenues are estimated to grow at 24.1% and 23.8%, respectively.
  • This indicates achieving a buoyancy of 1.4 in each case.
  • In 2022-23 (BE) the buoyancy has been brought down to 0.9.
  • Expanded digitisation and formalisation of the economy and the tax assessees, the Centre’s tax buoyancy may turn out to be higher than 0.9.
  • After under-assessment - tax buoyancy and nominal GDP growth assumption can be marginally corrected to 1.1 and 13%.

Capital Expenditure

  • In 2022-23 - total expenditure is budgeted to grow by only 4.6% in which revenue and capital expenditures are budgeted to grow by 0.9% and 24.5%, respectively.
  • This is a welcome structural change in government expenditure in favour of capital expenditures.
  • These capital expenditures to non-defence expenditures in expanding construction and other infrastructure sectors could be associated with relatively high output and employment multipliers.
  • This would provide greater transparency in a medium-term assessment of the National Infrastructure Pipeline (NIP) undertaken in the Budget indicating the sectors of deficient investment as compared to the original targets.
  • The Budget provides for incentivising the States to expand their capital expenditures by permitting them a fiscal deficit limit of 4% of GDP(0.5% points is marked for expanding power infrastructure).
  • In addition, ₹1 lakh-crore has been allocated to States for capital expenditure in 2022-23 as 50-year interest-free loans, over and above the normal borrowings allowed to them.

Revenue Expenditures

  • There is a reduction in budgeted total subsidies to 1.2% of GDP in 2022-23 from 1.9% in 2021-22 (RE).
  • A welcome structural change provided to the food, fertilizer and petroleum subsidies,
  • Subsidy numbers are not revised upwards during the course of the year due to the pressure emanating from high global crude prices.
  • The burden of interest payments as a percentage of GDP has gone up from 3.5% in 2021-22 to 3.6% in 2022-23.
  • In fact, interest payments may also come under pressure because of the Government’s increased gross and net borrowings from the market associated with high debt-GDP levels.

Debt and fiscal balance

  • According to estimates given in the Economic Survey for 2021-22, the general government debt relative to GDP is close to 90% at the end of 2021-22 and 2022-23.
  • In the Medium Term Fiscal Policy cum Fiscal Policy Strategy Statement attached to the Union Budget, the Centre’s debt at the end of these two years is estimated to be 59.9% and 60.2%, respectively.
  • The fiscal deficit to GDP ratio is going down from 6.9% to 6.4%, but the debt-GDP ratio is still slated to increase in 2022-23.
  • This may be marginally adjusted downwards if the nominal GDP growth increases above what is assumed in the Budget.
  • Such high debt-GDP levels pre-empt a substantive part of the Government’s revenue budget.
  • Interest payments to revenue receipts ratio in 2021-22 and 2022-23 are 39.1% and 42.7%, respectively.
  • The Medium-Term Fiscal Policy Statement indicates reaching a level of 4.5% by 2025-26.
  • This implies an average rate of reduction of 0.63% points per year in the next 3 years.


  • The reduction in fiscal deficit relative to GDP by a margin of 0.5% points between these two years is a welcome directional change.
  • There is a possibility that the Medium-Term Fiscal Policy Statement to clearly spell out the fiscal deficit adjustment path over the course of the next 3-5 years.
  • Government’s high debt-GDP levels, the Centre’s Fiscal Responsibility and Budget Management (FRBM) Act requires it to be re-examined to recast the sustainable levels of debt and fiscal deficit and the adjustment path.