The document provides an overview and analysis of the macroeconomic backdrop for India's 2021-2022 Union Budget. It discusses factors like rising global inflation, interest rate hikes by the Federal Reserve, and challenges facing the Indian economy like high unemployment, weak rural demand, and declining GDP growth. The budget aims to balance fiscal prudence with populism and growth initiatives. It provides a large infrastructure spending push and increases capital expenditure. Key areas of focus include manufacturing (PLI schemes), startups, and skill development, though gender budgeting allocation declined slightly.

1. Union Budget
2021-2022
MacroEconomicbackdrop
Dr. SARIKA RACHURI

2. STRUCTURE OF
PRESENTATION
• Macro Economic Backdrop
• Policy Dilemma
• Key challenges
• Thrust areas
• Fiscal Arithmetic
• Impact of Union Budget on Skill development Education and Women Empowerment
•

3. Macro-Economic Global
backdrop
• COVID OVERHANG
the budget is presented under the cloud of Covid for the second
consecutive year
Repeated new variants have created supply chain disruptions,
inflation, dampened animal spirits, and created challenges for policy
makers.
• RISING INFLATIONARY PRESSURES
Persistent supply-chain disruptions and high energy prices will fuel
inflation.

4. Source:IMF
3.9
5.9
7
0 1 2 3 4 5 6 7 8
Advanced Economies
EME
USA
Inflaton trends - IMF estimates-2022
Inflationary trends Outlook -2022
Inflationary trends Outlook -2022

5. Fed raising rates and Bond Yields Rising
FED RAISING INTEREST RATES
• The Federal Reserve has signaled that it will start hiking interest rates in March
during its first meeting of 2022.
• March 2020, it lowered rates to 0, in response to COVID
• Till November 2021, Fed viewed rising inflation as transitory
• Thereafter, it pivoted to being hawkish
• From July 2020, U.S. 10 year roe in yields from 0.6% to 1.95% today.
MORE CREDIBLE TARGETS FOR CLIMATE CHANGE
• At the same time, lower investment in fossil fuels, and geo-political tension triggered
supply shortages
All this puts monetary and fiscal policy in a tight spot and in uncharted territory.

6. StateoftheINDIAN Economy
• High unemployment
• Weak rural demand
• Tepid consumption, and capacity utilisation.
• CAPEX at decadal low
• Rising crude oil and vegetable oil prices impacting CAD
• Credit growth lower than deposit growth.
• Economy re-opening after 3rd wave of Covid.
• Software exports have tripled from 2013 levels-Impacting Nx,
and cushioning exchange rate
• Foreign exchange reserves stood at $634.287 billion on
January 2022 ..
• Rising Inflation
• 3 year CAGR GDP growth at 80s levels of around 3%

7. -60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
120.00%
140.00%
160.00%
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
Feb-21
Apr-21
Jun-21
Aug-21
Oct-2021
IIP Growth Rates -Actual
35.81
31.30 29.19
27.09
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
2000 2005 2010 2015 2020 2025
GFCF as a Percentageof GDP
Period Unemployment Rate
JULY-Sept,2019 8.3
Oct-Dec, 2019 7.8
Jan-March, 2020 9.1
April-June, 2020 20.8
July-Sept, 2020 13.2
Oct-Dec, 2020 10.3
Jan-March, 2021 9.3
Components of Aggregate Demand Ist RE PE AE
2019-
2020
2020-
2021
2021-
2022
Total Consumption 5.9 -7.3 7
Government Consumption 7.9 2.9 7.6
Private Consumption 5.5 -9.1 6.9
Gross Fixed Capital Formation 5.4 -10.8 15
Exports -3.3 -4.7 16.5
Imports -0.8 -13.6 29.4
GDP 4 -7.3 9.2
Source: Economic Survey

8. ConsumptionasApercentageofGDP
Consumption as aPercentage of
GDP 2019-20 2020-21 2021-22
Total Consumption 71.7 71.1 69.7
Government Consumption 11.2 12.5 12.2
Private Consumption 60.5 58.6 57.5
CPIinflation
8 8.2
7.1
6.1
4.2
-7.3
9.2
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
2015 2016 2017 2018 2019 2020 2021 2022 2023
INDIA GDP Growth Rate-2015-2022
Source: Economic Survey

9. Policy Dilemma
• In a catch 22 situation of low growth, and rising inflation
• To provide income support to informal sector and rural – the most
impacted by the pandemic and lockdowns.
• To bring the economy back to a high growth path
• To raise increasing taxes to spend, or to borrow large amounts to
spend.
• Spending on revenue items to provide immediate relief (particularly
in an important state election year), or to spend on capital items for
medium term growth
• To keep lowering the fiscal deficit to avoid a credit rating downgrade
to junk and ultimately get back to FRBM targets with a glide path.
• Among peer countries with the same credit rating, per capita and
debt levels are very high outliers for India compared to other
countries.

10. Significance of Union Budget
• Under this backdrop, the Finance Minister had to keep a fine
balance of Fiscal Prudence, populism and real economic growth
• Union budget is a potent fiscal tool and not merely accounting
arithmetic
• It has far reaching ramifications on the macroeconomic identity
• Y = C + I + G + nX
• C = a+Byd
• I =I –φi
• G-T
• NX = X- mY
• The tax revenues and tax rates typically also has far reaching
impact on influencing the size of the multiplier,
• While the composition of expenditure goes a long way in
influencing GDP
• Its a powerful tool for re-allocation of resources

11. Budget – Fiscal DeficitKey Parameter
Total expenditure – 39.45 lakh crores
• 31.95 lakh crores on the revenue account,
• 7.5 lakh crores on the capital account, still lower than pre-
pandemic levels.
Total receipts other than borrowing
• 27.58lakh crore from taxes and
• 2.7 lakh crore from Non tax revenue in FY23,
• Fiscal Deficit –16.61 lakh crores
YEAR
Fiscal
Deficit
Revenue
Deficit
2016-17 3.5 2.1
2017-18 3.5 2.6
2018-19 3.4 2.4
2019-20 4.6 3.3
2020-21 9.2 7.4
2021-22 6.9 5.1
2022-23 6.45
Year
Revenue Deficit as a
Percentage of
Borrowings
2016-2017 59
2017-2018 73.77
2018-2019 66.64
2019-2020 68.92
2020-2021 79.73
2021-2022 68.4
2022-2023 59.61

12. INFRASTRUCTURESpending- RenewedThrust
• Top thrust areas – infrastructure, manufacturing (PLI), start
ups, skill India.
Infrastructure
• PM GatiShakti National Master Plan to provide stimulus to
infrastructure by expansion of national highway network
,huge railway network , cargo terminals etc
• Big push to Infrastructure has been a hall mark of the FM since
few years.
• PPP model continues to remain at the core of infrastructure
policy
• Yet there is an increase in outlay on this sector year on year
• The proposed issuance of Sovereign Green Bonds for
mobilizing resources for green infrastructure

13. INFRASTRUCTURE – BIG PUSH
• In order to achieve the GDP of $5 trillion by 2024-25,
Year
Rs. Trillion
Spending
2014-2015 1.81
2015-2016 2.50
2016-2017 2.20
2017-2018 4.94
2018-2019 5.97
In 2019, announced Rs 100 lakh crore
(US$ 1.41 trillion) to be invested on
infrastructure over the next 5 years
National Infrastructure Pipeline:
• Rs 103 lakh crore (US$ 1.45
trillion) worth projects; launched
on 31st December 2019.
• More than 6,500 projects across
sectors, to be classified as per
their size and stage of
development.
• In India, the capital expenditure
multiplier is around 2.45,

14. BudgetComposition-ChangingtheBudgetaryArithmetic
3.38
27.86
39.45
0
5
10
15
20
25
30
35
40
45
1 2 3 4 5 6 7 8 9 1011121314151617181920212223
Total Expenditure in
trillion
% of Capital
expenditure in total
Budge outlay
• Source: Budget Estimates

15. Capex Multiplier
• Stepping up capex
by a whopping 35
percent to Rs 7.5
lakh-crore or 2.9
percent of GDP is
a move that will
have a multiplier
impact on the
economy.
• 2.45 for capex,
and 0.98 for
revenue.
3.38
27.86
39.45
0
5
10
15
20
25
30
35
40
45
1 3 5 7 9 11 13 15 17 19 21 23
Total Expenditure
in trillion
% of Capital
expenditure in
total Budge outlay
• Source: Budget Estimates

16. Manufacturing – PLI and
Atama Nirbharta
• PLI scheme addressing 14 sectors including solar modules
• The government first announced three schemes in March
2020, while 10 new PLI schemes were introduced in
November 2020.
• (electronics manufacturing, Automobiles & Auto Components,
Speciality steel, Textile, Drone and drone components,
Pharmaceuticals drug, Telecom and Networking, among
others.)
• Outlay of 1.97 lakh crore and additional 19500 crore Rs
• it could be to boost exports, while for others, it could be
aimed as import substitution towards becoming Atma Nirbhar
(self sufficient).

17. Start Up
• Tax incentives for startups increased from three years to four
years of incorporation.
• Defence sector to be opened up through SPV route
• finance start-ups for agriculture and rural enterprise pertinent
to the farm produce value chain.

18. Union budget and Women
Empowerment
• The Gender Budget has further shrunk this year with its share
in the expenditure declining from 4.4% to 4.3% for financial
year 2023
• The Budget for the Ministry of Women and Child Development
as a portion of the expenditure has also declined from 0.57%
to 0.51%. The Ministry received ₹20,263.07 crore.
•