Union budget for slide share
- 2. STRUCTURE OF PRESENTATION • Macro Economic Backdrop • Policy Dilemma • Key challenges • Thrust areas • Fiscal Arithmetic • Impact of Union Budget on Skill development Education and Women Empowerment •
- 3. Macro-Economic Global backdrop • COVID OVERHANG the budget is presented under the cloud of Covid for the second consecutive year Repeated new variants have created supply chain disruptions, inflation, dampened animal spirits, and created challenges for policy makers. • RISING INFLATIONARY PRESSURES Persistent supply-chain disruptions and high energy prices will fuel inflation.
- 4. Source:IMF 3.9 5.9 7 0 1 2 3 4 5 6 7 8 Advanced Economies EME USA Inflaton trends - IMF estimates-2022 Inflationary trends Outlook -2022 Inflationary trends Outlook -2022
- 5. Fed raising rates and Bond Yields Rising FED RAISING INTEREST RATES • The Federal Reserve has signaled that it will start hiking interest rates in March during its first meeting of 2022. • March 2020, it lowered rates to 0, in response to COVID • Till November 2021, Fed viewed rising inflation as transitory • Thereafter, it pivoted to being hawkish • From July 2020, U.S. 10 year roe in yields from 0.6% to 1.95% today. MORE CREDIBLE TARGETS FOR CLIMATE CHANGE • At the same time, lower investment in fossil fuels, and geo-political tension triggered supply shortages All this puts monetary and fiscal policy in a tight spot and in uncharted territory.
- 6. StateoftheINDIAN Economy • High unemployment • Weak rural demand • Tepid consumption, and capacity utilisation. • CAPEX at decadal low • Rising crude oil and vegetable oil prices impacting CAD • Credit growth lower than deposit growth. • Economy re-opening after 3rd wave of Covid. • Software exports have tripled from 2013 levels-Impacting Nx, and cushioning exchange rate • Foreign exchange reserves stood at $634.287 billion on January 2022 .. • Rising Inflation • 3 year CAGR GDP growth at 80s levels of around 3%
- 7. -60.00% -40.00% -20.00% 0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 120.00% 140.00% 160.00% Oct-19 Dec-19 Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20 Feb-21 Apr-21 Jun-21 Aug-21 Oct-2021 IIP Growth Rates -Actual 35.81 31.30 29.19 27.09 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 2000 2005 2010 2015 2020 2025 GFCF as a Percentageof GDP Period Unemployment Rate JULY-Sept,2019 8.3 Oct-Dec, 2019 7.8 Jan-March, 2020 9.1 April-June, 2020 20.8 July-Sept, 2020 13.2 Oct-Dec, 2020 10.3 Jan-March, 2021 9.3 Components of Aggregate Demand Ist RE PE AE 2019- 2020 2020- 2021 2021- 2022 Total Consumption 5.9 -7.3 7 Government Consumption 7.9 2.9 7.6 Private Consumption 5.5 -9.1 6.9 Gross Fixed Capital Formation 5.4 -10.8 15 Exports -3.3 -4.7 16.5 Imports -0.8 -13.6 29.4 GDP 4 -7.3 9.2 Source: Economic Survey
- 8. ConsumptionasApercentageofGDP Consumption as aPercentage of GDP 2019-20 2020-21 2021-22 Total Consumption 71.7 71.1 69.7 Government Consumption 11.2 12.5 12.2 Private Consumption 60.5 58.6 57.5 CPIinflation 8 8.2 7.1 6.1 4.2 -7.3 9.2 -10 -8 -6 -4 -2 0 2 4 6 8 10 12 2015 2016 2017 2018 2019 2020 2021 2022 2023 INDIA GDP Growth Rate-2015-2022 Source: Economic Survey
- 9. Policy Dilemma • In a catch 22 situation of low growth, and rising inflation • To provide income support to informal sector and rural – the most impacted by the pandemic and lockdowns. • To bring the economy back to a high growth path • To raise increasing taxes to spend, or to borrow large amounts to spend. • Spending on revenue items to provide immediate relief (particularly in an important state election year), or to spend on capital items for medium term growth • To keep lowering the fiscal deficit to avoid a credit rating downgrade to junk and ultimately get back to FRBM targets with a glide path. • Among peer countries with the same credit rating, per capita and debt levels are very high outliers for India compared to other countries.
- 10. Significance of Union Budget • Under this backdrop, the Finance Minister had to keep a fine balance of Fiscal Prudence, populism and real economic growth • Union budget is a potent fiscal tool and not merely accounting arithmetic • It has far reaching ramifications on the macroeconomic identity • Y = C + I + G + nX • C = a+Byd • I =I –φi • G-T • NX = X- mY • The tax revenues and tax rates typically also has far reaching impact on influencing the size of the multiplier, • While the composition of expenditure goes a long way in influencing GDP • Its a powerful tool for re-allocation of resources
- 11. Budget – Fiscal DeficitKey Parameter Total expenditure – 39.45 lakh crores • 31.95 lakh crores on the revenue account, • 7.5 lakh crores on the capital account, still lower than pre- pandemic levels. Total receipts other than borrowing • 27.58lakh crore from taxes and • 2.7 lakh crore from Non tax revenue in FY23, • Fiscal Deficit –16.61 lakh crores YEAR Fiscal Deficit Revenue Deficit 2016-17 3.5 2.1 2017-18 3.5 2.6 2018-19 3.4 2.4 2019-20 4.6 3.3 2020-21 9.2 7.4 2021-22 6.9 5.1 2022-23 6.45 Year Revenue Deficit as a Percentage of Borrowings 2016-2017 59 2017-2018 73.77 2018-2019 66.64 2019-2020 68.92 2020-2021 79.73 2021-2022 68.4 2022-2023 59.61
- 12. INFRASTRUCTURESpending- RenewedThrust • Top thrust areas – infrastructure, manufacturing (PLI), start ups, skill India. Infrastructure • PM GatiShakti National Master Plan to provide stimulus to infrastructure by expansion of national highway network ,huge railway network , cargo terminals etc • Big push to Infrastructure has been a hall mark of the FM since few years. • PPP model continues to remain at the core of infrastructure policy • Yet there is an increase in outlay on this sector year on year • The proposed issuance of Sovereign Green Bonds for mobilizing resources for green infrastructure
- 13. INFRASTRUCTURE – BIG PUSH • In order to achieve the GDP of $5 trillion by 2024-25, Year Rs. Trillion Spending 2014-2015 1.81 2015-2016 2.50 2016-2017 2.20 2017-2018 4.94 2018-2019 5.97 In 2019, announced Rs 100 lakh crore (US$ 1.41 trillion) to be invested on infrastructure over the next 5 years National Infrastructure Pipeline: • Rs 103 lakh crore (US$ 1.45 trillion) worth projects; launched on 31st December 2019. • More than 6,500 projects across sectors, to be classified as per their size and stage of development. • In India, the capital expenditure multiplier is around 2.45,
- 14. BudgetComposition-ChangingtheBudgetaryArithmetic 3.38 27.86 39.45 0 5 10 15 20 25 30 35 40 45 1 2 3 4 5 6 7 8 9 1011121314151617181920212223 Total Expenditure in trillion % of Capital expenditure in total Budge outlay • Source: Budget Estimates
- 15. Capex Multiplier • Stepping up capex by a whopping 35 percent to Rs 7.5 lakh-crore or 2.9 percent of GDP is a move that will have a multiplier impact on the economy. • 2.45 for capex, and 0.98 for revenue. 3.38 27.86 39.45 0 5 10 15 20 25 30 35 40 45 1 3 5 7 9 11 13 15 17 19 21 23 Total Expenditure in trillion % of Capital expenditure in total Budge outlay • Source: Budget Estimates
- 16. Manufacturing – PLI and Atama Nirbharta • PLI scheme addressing 14 sectors including solar modules • The government first announced three schemes in March 2020, while 10 new PLI schemes were introduced in November 2020. • (electronics manufacturing, Automobiles & Auto Components, Speciality steel, Textile, Drone and drone components, Pharmaceuticals drug, Telecom and Networking, among others.) • Outlay of 1.97 lakh crore and additional 19500 crore Rs • it could be to boost exports, while for others, it could be aimed as import substitution towards becoming Atma Nirbhar (self sufficient).
- 17. Start Up • Tax incentives for startups increased from three years to four years of incorporation. • Defence sector to be opened up through SPV route • finance start-ups for agriculture and rural enterprise pertinent to the farm produce value chain.
- 18. Union budget and Women Empowerment • The Gender Budget has further shrunk this year with its share in the expenditure declining from 4.4% to 4.3% for financial year 2023 • The Budget for the Ministry of Women and Child Development as a portion of the expenditure has also declined from 0.57% to 0.51%. The Ministry received ₹20,263.07 crore. •