Budget 2022 Analysis: Is Nirmala Sitharaman A Good Investor?

Finance minister Nirmala Sitharaman read out a budget speech devoid of any fireworks and making no announcements on personal income tax. In the last few years, finance ministers have also kept announcements on petroleum products out of budget speeches. She trended the whole day on social media on Tuesday with hashtags which could be seen as neutral or negative.

Sitharaman tabled a budget document about investment. As the economy (hopefully) comes out of the pandemic-induced downward trend, she has proposed to spend around Rs 7.5 lakh crore in FY23. This is a huge amount and, in its enormity, admits that the private sector is not willing or incapable of making investments. The former could be on account of subdued demand that it does not see rising in near future and the latter on account of not being able to raise enough funds.

No one should argue with large capital expenditure in a developing economy. However, with less than desirable contribution from the private sector, the government will either raise this amount through borrowings or continuing to tax the middle class heavily, or through a combination of the two. It means that either this activity will contribute to high inflation or the middle class will continue to pay a high income tax and cess and surcharge on petroleum products, which explains the social media hashtags. 

Now that the government has decided to go with a heavy dose of capex, it is time it tells the citizens about the relative sectoral gains the economy gets out of it. For example, about 25 per cent of this expenditure will go to road transport and highways, 20.3 per cent to defence and 18.3 per cent to the railways. The country has been investing in highways for decades now, the defence investments have been a non-starter and railways sector has been bleeding money.

The government is duty bound to study the impact of these large investments sector wise to be able to get the maximum impact of each rupee spent.