Viewpoint: Budget 2022 - Some Reflections

12 FEB,2022 | MEDC


 

  • Budget 2022 was undoubtedly prepared under a challenging economic environment; both domestic and global. Substantial economic scarring has persisted in the form of record fiscal deficits and unprecedented debt-GDP ratios. Dealing with high unemployment and underemployment (especially in the numerically dominant informal sector) remained high on the policy priority list. Due to the inevitable Covid-induced lockdowns and the curtailment of economic activity; consumption stagnated and private investment stalled. Getting it back to normalcy is no mean task. Apart from the formal sector output recovery; a rebound in the trade balance is also necessary. The massive capex proposed in the budget has fiscal implications; which need to be addressed. Macroeconomic management becomes easier with controllable fiscal deficits. The sooner we get there; the better for policy stabilization.

 

  • The good news is that asset quality in the banking system is improving. As a recent report by the RBI showed; the gross NPA ratio in scheduled commercial banks declined from 8.2% in March 2020 to 7.3% in March 2021. According to RBI estimates; the ratio is expected to have declined to 6.9% by end-September 2021. The financial results declared by banks for the December 2021 quarter also suggest that the banking sector balance sheet continues to improve. However; the RBI has highlighted that credit is not flowing to the lower-rated firms. Thus; at a macro level; although the balance sheet of the financial sector as a whole is improving; systemic risks still remain.

 

  • The budget has wisely imposed a fairly high tax on profits derived from the sale of what it calls Virtual Digital Assets (VDA). The definition of VDAs is broad enough to include all cryptocurrencies. The structure of the tax is identical to that of gambling and lottery winnings. It is appropriate in the sense that it reveals that the government has no delusions about what crypto trading is all about. Since the government has imposed a tax on it; the logic goes that there cannot be a ban on it. But that thought may be premature. The budget suggests that the government is continuing to weigh various options; and an outright ban is still not off the radar. That is understandable; given the ongoing concerns about financial stability and terrorist funding.

 

  • The Budget clarified that entrepreneurship will be encouraged; but the key here is to navigate uncertainty; embrace agility and learn rapidly. To thrive in the face of today’ crisis entrepreneurs need to be nimble and adaptable; and the budget showed that the government was willing to accommodate them to the extent possible. However; some expert mentoring – especially for the smaller players – may be required. Although practical advice abounds on how to innovate; from design thinking to lean startup and sprint methodologies; in-depth guidance on conquering the mental challenges involved is harder to find … and that often makes all the difference.

 

  • The budget is obviously a mixed bag; but one cannot deny that a serious attempt has been made to put in place a framework for navigating large and complex socioeconomic transitions. National policymakers seem capable of managing the change; even as they realize that some challenges cannot be predicted or controlled. The ball has been set rolling by a black swan event that demands a new approach to life and work; as well as our worldview.

 

 *Photo Credit: Google

 

 

Comments



Featured Posts



Recent Posts


EMERGING ISSUES IN AEROSPACE INDUSTRY: AN INDIAN PERSPECTIVE


Tourism and its contribution to the Economy


Interactive Meeting with Mr. Jaykumar Rawal Hon'ble Minister for Tourism & Employment Guarantee Scheme Govt. of Maharashtra


De-coding skills-based pro-bono


FOOD PRICE VOLATILITY


Food Inflation in India: An Assessment




Archive


© Copyright 2019 MEDC, All rights reserved
Website Design and Develop By: SCI Knowledge Interlinks