Union Budget 2022: Heavy Doses Of Classical And Keynesian Economics

Dr. Karunakar Jha Dr. Hiranmoy Roy Feb 07, 2022

The outreach and coverage of the budget are very broad. The Finance minister followed a progressive and reformist approach focused on ‘Sabka Prayas’, pro-infra and pro-growth, a digital currency for future are expected to give new wings to the economy of India. In the backdrop of a stronger macroeconomy, Union Budget 2022 presented to create Naya Bharat. Boosting Naya Bharat through infrastructure, jobs, connectivity, health care and push to digitalisation. In addition, this budget gave wings to India through a focus on agriculture, business and social sector, transportation and energy.

Driven by seven engines of Roads, Railways, Airports, Ports, Mass Transport, Waterways, Logistics infrastructure, the national master plan aimed at excellent modern infrastructure and logistics synergy. This will also boost intermodal transportation and interlinking of the rivers. Investment in infrastructure is expected to have a time lag to generate further growth in income and employment. The budget announced 400 new Bande Bharat Trains, 100 new cargo terminals to give a boost to infrastructure. Four multi-modal logistics parks through PPP mode to be awarded. Integration of postal and railways network to facilitate parcel movement.

The surge in capital expenditure to 35 per cent amounting to 7.5 lakhs crores towards government projects is expected to have a Keynesian multiplier effect on rising employment and income in coming years. This is also expected to spur huge growth. The budget targeted 9.2 per cent economic growth for the current fiscal, which is one of the highest economic growth targeted in recent years. The tax revenue growth is expected to the tune of 3-4 lakhs crores higher in the current fiscal compared to last year.

In the area of digitalisation, digital University to set up soon. PM E- Vidya to be telecast in 200 TV Channels. Digital payments, digital banking to be strengthened. Focus on digital payments app and digital platform for health services. India to launch its digital rupee via block chain. RBI will launch this soon. Thus, India will have its own digital currency. Budget also, focused on creating 75 digital baking units in 75 districts of India by nationalized banks. 1.5 lakh post offices to be connected to banks. 5 G spectrum auction to be awarded by the government this year.

Delivery of digital and high-tech services to farmers in PPP mode, launching funds with blended capital to finance agricultural startups. Digitalisation of land records drones to be employed for agricultural monitoring. Digital teaching to integrate rural areas and digital ecosystem for startup and livelihoods. Digital assets tax is imposed at 30 per cent. Gift of virtual digital assets will have tax at 30 per cent and tax to be imposed on digital asset transfer. Tele mental health scheme to be launched for quality counselling and national digital platform for health services.

The introduction of cryptocurrency is expected to smoothen money market management. Hence, Fisher’s macroeconomic equation of the money market will change with the addition of crypto. This will give more legroom space to the economists to analyse the new equation of the money market to see the impact on the macroeconomy. 30 per cent tax on cryptocurrency is subjected to control speculative activities.

The digitalisation measures reflect huge announcements made to give a boost to digitalisation. A few important implications of digitalisation are – due to the introduction of a digital currency by RBI, it will attract investment in it and there are larger ramifications for the Indian money market leading to changes in overall money supply, interest rates and inflation etc. Digitalisation will also be expected to reduce overall transaction costs in the economy to improve ease of doing business as evidenced in transaction cost economics.

Despite all disruptions caused by the global pandemic, India’s BoP remain in surplus through the last two years. This facilitated RBI to accumulate foreign exchange reserve, which stands at $634 billion on 31st December 2021. This is equivalent to 13.2 months of imports and higher than the country’s external debt as stated in the economic survey, 2022. India was the 4th largest foreign exchange reserve holder after China, Japan and Switzerland. This led to the improvement of external vulnerability indicators such as foreign exchange reserves to total external debt, short-term debt to foreign exchange reserves.

The grey area of the budget as opined by experts is the reduction in fertilizer subsidy by 28 per cent, reduction of food subsidy by 25 per cent and reduction of petroleum subsidy by 11 per cent and decline in health expenditure by 0.8 per cent. Since the pandemic is not yet over, reduction in health expenses may be a cause of concern.

Thus, the Indian economy is having a strong background of macroeconomic stability and this budget is expected to put new wings to usher in ‘Naya Bharat; as PM Modi’s philosophy to be the builder of modern India.