2022 Budget may focus on low consumer spending, commodity pricing, unemployment: Experts

As India’s economy recovers towards a modest growth trajectory, experts see low consumer spending, commodity pricing and unemployment as the major economic challenges that the upcoming Budget will likely seek to address. The general consensus is that the government must intervene to boost demand with high capital expenditure and by removing supply-side bottlenecks, a survey of economists and analysts conducted by Financial Express Online showed  “Biggest challenge for the budget is the weak private sector demand situation, especially the household sector which faces high unemployment and feeble income growth, and persistently weak private capex,” Dhananjay Sinha, MD & Chief Strategist, JM Financial Institutional Securities Ltd, said.

Available data shows that the expansion in fiscal deficit is averaging at 12 per cent in FY 21-22 and public debt at 92 per cent of GDP, while the government’s contribution in resurrecting the demand shock has been negligible when private spending is still substantially weak, Sinha said. “The role of the fiscal policies to crown in private demand is very crucial at this juncture,” he added.

Weak private demand

The weak private sector demand is due to increasing unemployment rate in the country amid the ongoing pandemic. According to the Centre for Monitoring Indian Economy, India’s unemployment rate hit a four-month high of 7.9 per cent in December 2021. The month of January is already pointing to a figure upwards of 8 per cent. Urban unemployment rate rose to 9.3 per cent in December from 8.2 per cent in the previous month while the rural unemployment rate was up 7.3 per cent from 6.4 per cent.

“We have a lot of slack in the market, from a data perspective. Addressing both the unemployment concerns and also managing global headwinds – higher commodity prices, greater geopolitical uncertainty, etc. is something that the budget should focus on addressing. While these are not something the budget can directly address, it at least needs to focus on the areas that could make the situation better,” said Rahul Bajoria, Chief Economist, Barclays.

Revive & sustain growth

After witnessing a contraction of around 7.3 per cent in 2020-21, the Indian economy, though recovering, has been hit again by the Omicron surge and subsequent localised restrictions. “The budget is happening in the backdrop of uneven growth, reversal in global and domestic monetary policies and risks of slowing global growth (which poses risks to India’s firming exports),” said Upasna Bhardwaj, Senior Economist, Kotak Mahindra Bank. In a situation like the present one, the government needs to revive the growth process and also work towards sustaining it.

“The biggest challenge obviously is to revive and sustain growth. While we have done reasonably well to recover from the throes of the pandemic but to sustain that momentum is going to be equally challenging. So, that really is the biggest priority,” Rahul Bajoria added.

Factors such as high oil and commodity prices, disruption in global supply chains, coal shortage, tight monetary policy to contain price rise, etc. might continue to pose challenges and it will become an imperative for the government to find ways to sustain the growth through a slew of measures in the upcoming budget.

“Boosting and stabilising growth would be the biggest priority. Boosting agricultural/rural income, improving the conditions of MSME and providing an alternative to farm sector revival (post the repeal of the three farm laws) would be key focus areas. At the same time, boosting growth through revival of the capex cycle would continue to be the main plank of development strategy,” said Sujan Hajra, Chief Economist and Executive Director, Anand Rathi Shares & Stock Brokers.

Sectors in focus

With a heavy election calendar in 2022, the government is sure to focus on ‘supporting especially the informal, small scale units and low income sectors’. Priyanka Kishore, Head – India and South East Asia Economics, Oxford Economics, told Financial Express Online, “As was the case last year, the government will try to dampen the impact of fiscal withdrawal on growth by increasing allocation to infrastructure spending. However, this will come at the cost of lower allocation to other sectors. While some sops for farmers and other vulnerable sections will likely feature ahead of the upcoming state elections, social sector spending is unlikely to get a boost.”

While kick-starting growth in the ‘era of global slowdown with limited fiscal flexibility is a big challenge that the budget will seek to address’, Deepak Jasani, Head of Retail Research, HDFC Securities, said, “The budget will try to give a boost to a lot of industries. Agri related, infra and construction, capital goods, housing finance, retail, hospitality, textiles, healthcare and efficient manufacturing companies generally could do well.”

According to Aditi Nayar, Chief Economist, ICRA, “Infrastructure, manufacturing and health are likely to be the chief focus areas of this budget. Also, the biggest challenge that the budget will seek to address will be to target spending towards a durable and sustainable growth amidst uncertainty related to the potential impact of any future waves of Covid and a looming rise in global interest rates.”

NR Bhanumurthy, Vice-Chancellor, Ambedkar School of Economics University, felt that the budget could not affect industries majorly since taxing issues are no longer in its purview; nevertheless, ‘the focus could be labour-intensive industries’, he said.

Source: FE Online