This piece was first published by The India Cable and The Wire and has been republished here.
The Union Budget for 2022-23 can be seen as Prime Minister Narendra Modi’s last-ditch attempt at reviving private sector investment, which has stagnated for eight years. It must be worrying Modi that he is close to finishing a decade as prime minister, and his legacy could be remembered for poor growth in incomes, private investment, employment, savings and capital formation ― the most unenviable record for any prime minister since reforms began in 1991.
With higher revenue mobilisation and the government asset monetisation programme, the Budget aims to give a big push to public investment in infrastructure under the National Infrastructure Pipeline programme, which has identified specific projects in which Rs 20 lakh crore is to be invested annually for five years. This is the cornerstone of what finance minister Nirmala Sitharaman described as “crowding in private investment” through massive capital investment by the government. This is the core initiative to revive growth and employment. But will it succeed?
The budget allocates a 35% increase in funding for infrastructure, with Rs 7.5 lakh crore for 2022-23. It hopes that state governments will contribute their share of infrastructure funding under the PM Gati Shakti project, which aims to monetise government assets to fund new infrastructure projects earmarked in the National Infrastructure Pipeline. But to what extent will the “crowding in of private investments” be triggered by the government’s big public investment push?
The key risk flows from rising global inflation, which is at 30 year highs, and moves by central banks in the developed world to rein in liquidity and raise interest rates rapidly in 2023. The US Federal Reserve intends to raise interest rates three or four times to combat inflation, which can be the biggest dampener for growth and employment. India cannot be insulated from this broader trend and assumptions of GDP growth and employment generation based on massive infrastructure investment cannot but be impacted by global liquidity conditions and inflation.
M.K. Venu is a Founding Editor of The Wire. As an active economic and political writer, he has held leadership roles in newspapers such as The Economic Times, The Financial Express and The Hindu. He has written extensively on economic policy matters.