India budgets for a trickle down ⁠— as slow as that might be

• India’s rural consumers and the urban poor are squeezed between rising cost of living and low wages.
• However, Finance Minister Nirmala Sitharaman’s latest budget was a continuation of last year’s plan to spend more on building modern infrastructure.
• Calls for tax cuts and immediate injection to boost consumer spending were largely ignored.
• With five states going into polls within a month, ignoring the poor and the middle class may be a big gamble. But Sitharaman has chosen to place her faith in good economics over prudent politics.

India’s rural consumers and the urban poor may have had the most amount of interest in Nirmala Sitharaman’s fourth budget as the country’s Finance Minister. However, they were, arguably, the most disappointed after her speech.

There were a few changes to the import duties that could make stuff like edible oils, apparel cheaper and paints cheaper. But she ignored the call for tax cuts and more rebates to cover for rising cost of living, both due to rising prices of everyday items, as well as the added cost of vaccination and medication for families affected by the COVID-19 infection. The rise in rural wages has been slower than the inflation for much of the last 12 months.

However, Sitharaman continued with charting long-term plans to modernise the country’s infrastructure with more roads and highways ⁠— through a dedicated programme called Gati Shakti ⁠— build more protection for local manufacturers of electronic products, solar equipment, imitation jewellery and more emergency loans for small and medium-sized businesses.


Even the equity markets wanted the budget to boost people’s purchasing power because some of the country’s biggest consumer product makers like Hindustan Unilever, Marico and Britannia have struggled to find buyers. There was no extra love for hotels, travel operators or real estate developers, which were some of the sectors still reeling under the effect of the pandemic .

Once the speech ended, markets went into a tizzy for a variety of reasons. The fear, which lasted about 20 minutes, was a mix of disbelief and disenchantment. “As the supply of money in the economy shrinks, interest rates tend to go up, which is what people are worried about because if the government borrows so much then interest rates will go up,” Rajamani Venkataraman, managing director and executive director at IIFL Finance, explained on Business Insider.

But the market made its peace soon enough. After all, there was the promise of profits in the future through highways contracts, production-linked incentives, improved logistics networks and a 35% jump in capital spending by the government. There was the promise of a digital rupee, backed by the Reserve Bank of India ⁠— although profits from cryptocurrencies would be taxable at 30% ⁠— and the launch of 5G networks to look forward to in the coming year.

Meanwhile, middle class people found reasons to laugh, thanks to the memes on social media. They can laugh and share jokes while they wait to be above water, financially, because Modi’s visionary administration wants India to have a digital university, electronic passports, cargo terminals, high-speed trains and dedicated roads for electric vehicles where those running on diesel and petrol won’t be allowed.

A few unusual elements in the budget included the mention of mental health. 23 tele-mental health centres will be launched, with National Institute of Mental Health and Neurosciences (NIMHANS) as the nodal unit, and International Institute of Information Technology (IIIT), Bangalore providing tech support.

Another one was the sharp drop in disinvestment target: from ₹1.75 lakh crore set earlier to ₹78,000 crore now, for the current year, and ₹65,000 crore the next one. “The emphasis is on completion of transaction and implementation. And, if we keep too high a target, sometimes, it also distorts the market. Nothing stops us from achieving a disinvestment as per the plan,” Tuhin Kanta Pandey, Secretary of Department Of Investment and Public Asset Management, told the media.

More money – ₹48,000 crore – has been set aside for subsidised housing projects and to bring tap water to more homes at a cost of ₹60,000 crore before March 2023.

It helped that the government’s own revenue has seen a robust growth in the last one year. The Finance Minister revealed — with a thrilling pause before the emphasis ⁠— that revenue from goods and services tax (GST) had hit a record high of over ₹1.4 lakh crore in January 2022.

The government got kudos from top CEOs for its vision. For its courage to plan for the next 25 years. For its ability to borrow bravely despite its record debt. And, for its willingness to spend that money to build a new, futuristic India.

However, all the praise from the CEOs usually resonates only among a small part of the population. With five states going into polls within a month, ignoring the poor and the middle class may be a big gamble. But Sitharaman has chosen to place her faith in good economics over prudent politics.

SEE ALSO:
Key moments from Nirmala Sitharaman’s budget speech that moved the stock market
Union Budget 2022: This is how the Modi government plans to give more jobs to Indians