Budget 2022 Lays the Groundwork for Private Investment Revival in the Economy


It has been reported that The third year of coronavirus pandemic made Budget 2022-23 more crucial than ever with citizens hoping for more liquidity, and growth opportunities in employment and income. Two fundamental metrics for evaluating any budgetary exercise is to understand how much money would the budget leave in the hands of the public, and the size of the fiscal deficit.

A fundamental concept of ‘National Income Identity’ in economics, explains that national output or income comprises – private consumption, private investment, government spending, and net exports. Conventional economic wisdom suggests that during the times of an economic downturn or slowdown, ‘private consumption’ should be given a direct stimulus to get the economy back on a growth trajectory. This is generally done by putting more money or liquidity in hands of the citizens or public, by rationalising taxes and encouraging private consumption spending, the company said.

Budget 2022-23

In continuation with the rationale of previous year’s Budget 2021-22, provides a rather indirect economic stimulus via the unconventional counter-cyclical fiscal policy, wherein the concentration of the Indian dispensation has been on the variables- ‘government expenditure’ and ‘private investment’. Budget 2022 continues to focus on strong capital formation in the economy and puts in place an incentive structure to stimulate private investment in the production sector of the economy. The rationale may be to create a strong accelerator-multiplier effect and put India’s economy on a growth path.

India’s Finance Ministry has given credence to the idea of enhancing government spending through the massive INR 20,000 crore Gati Shakti project which envisages developing the critical connectivity infrastructure in the country.

Such infrastructure projects do have the highest multiplier effect, if implemented in an efficient manner. Budget 2022-23 promises an intent to strengthen India’s social infrastructure by announcing a rise in budget outlay towards the National Health Mission, by over 8 percent in comparison to budget 2021-22, and about 28 percent increase in the outlay for National Education Mission vis-à-vis budget 2021-22.

To magnify the benefits of Information Communications Technology towards ensuring a better-skilled workforce, Finance Minister announced India’s first Digital University, virtual labs and skilling e-labs for ensuring access to education for all in the challenging COVID times, the company said.


The thrust for private investment in the budget continues with the announcement of extending the credit lines by INR 50,000 crore to a total cover of INR 5 lakh crore for the worst-hit sectors during the pandemic- the hospitality and the travel sector. Recognising startups as the key drivers of growth, Budget 2022-23 provides an impetus to entrepreneurial ventures by securing an enabling startup ecosystem, with an announcement of extension of the tax exemption to startups by another financial year; in addition to the previously announced three years tax exemption. To ensure an upbeat animal spirit, Budget 2022-23 announced an increase in the outlay for Aatmanirbhar Bharat Yojana by about 28 percent vis-à-vis Budget 2021-22.

As India reels out of the coronavirus pandemic, budget 2022-23 continues to adopt a nimble approach to support India’s economic recovery. During the global unprecedented times, economies witnessed an adverse demand shock and a breakdown of the supply chains. Supply-side bottlenecks weaken the fundamentals of any economy, which may give rise to inflationary tendencies. Before pandemic India was facing a slowdown, during the pandemic demand further plummeted. But as lockdowns began to ease, demand in the Indian economy returned, a significant part of this demand was pent-up demand.

Economy Dream

But as employment levels have bounced back, the demand recovery could be real. India’s growth trajectory has always been discussed to be driven on the back of strong domestic demand that is ‘private consumption’ in our national income identity. Ensuring strong supply-side fundamentals which the current budget 2022-23 focuses on, may create a strong accelerator-multiplier effect to enable India to unleash the US$5 trillion economy dream. Budget 2022-23 proposes to augment capital expenditure by 35.4 percent from INR 5.54 lakh crore in the year 2021-22 to INR 7.5 lakh crore in 2022-23. This increase in capital expenditure is in continuation of 34.5 percent rise from financial year 2019-20 to 2021-22. Investment in business activity and impetus to the animal spirit in the economy could also help create jobs for India’s massive workforce, the company said.

Budget 2022-23 appears to be an abridgment of the measures taken by the Government of India to combat COVID-induced slump and not a populist stimulus budget that usually one expects before the election cycle. Generally, populist pre-election budgets tend to be inflationary in nature. All-in-all, budget 2022-23 is prudent, promises a long-term growth strategy. It intends to provide an economic stimulus while ensuring strong fiscal prudence. It envisions building India’s productive capacity and easing the supply bottlenecks. The success of India’s growth story will be conditioned on how well the intent of the budget is executed, and how efficiently and effectively each rupee of the Indian Treasury is spent and accounted for. (Economic Times)