Budget uses high multipliers of capex spends to boost growth: Amitabh Chaudhry

The standout aspect of the FY23 Budget is the significantly larger capital expenditure outlay, increased from ₹5.54 lakh crore in FY22 to ₹7.5 lakh crore, a rise of over 35%.

Adding the Centre's transfers to state governments meant for capital assets creation, the effective capital expenditure jumps even more to ₹10.7 lakh crore. In addition, another ₹4.7 lakh crore of capex spending is planned for public sector enterprises. This magnitude of public investment in infrastructure development will boost economic growth, leveraging on the high growth multipliers of productive capacity.

These direct spends will be augmented by various measures to enhance the financial viability of projects, including balanced risk allocation of public-private partnerships, thereby crowding in private capital at a significant scale. Additionally, one of the signature projects, Gati Shakti, will increase logistics and transport efficiencies. Various technology and digital tools will be used to better monitor project execution.

Moreover, multiple micro initiatives will foster inclusive development. Multiple steps are proposed to enhance the productive capacity of MSMEs. First, the well-structured ECLGS programme is proposed to be extended by another year to the end of FY23. Its guarantee cover has been increased by another ₹50,000 crore to ₹5 lakh crore, with this additional corpus earmarked for hospitality and related sectors, which had been hard hit. This will promote, inter alia, employment generation and consumption demand.

The corpus of the credit guarantee fund for micro and small enterprises, covering the smallest enterprises, will also be increased and is expected to facilitate additional credit of ₹2 lakh crore. Bank credit to this segment in FY22 April-December had already been fairly robust at over ₹1.5 lakh crore.

The effects on growth are likely to be visible very soon. For instance, the budget has assumed a nominal growth of just 11.1% year-on-year for FY23 budgeting. Actual growth will certainly be higher, probably in a 13-14% range, assuming real GDP growth of 8-9%. The Economic Survey projects FY23 growth in the 8-8.5% range, and the IMF at 9%. This expected higher growth will add ₹6-8 lakh crore to nominal output, opening up scope for higher revenue mobilisation.

Although the FY23 fiscal deficit is higher than expected at ₹16.6 lakh crore, this is completely the result of the higher capex outlay, hence the quality of the deficit is much better. The revenue deficit is projected to be lower.

However, given the tighter financial markets that we expect in FY23, we will need to expand the pool of foreign investors, particularly by expediting India's inclusion in global bond indices. There is also room to garner more disinvestment and dividend revenues compared to the amounts budgeted. This will reduce upward pressure on interest rates.

A holistic view of growth drivers - including agriculture, skill upgradation and education, healthcare and reduction in carbon intensity of the economy will contribute even further in providing the right economic boost.