#16 Implications of Union Budget 2022-23 on Social Impact Ecosystem

This edition takes a macro view on key themes pertaining to the social impact ecosystem, including proposed allocation and actual expenditure, and deep dives into major central schemes across domains.

I have been an avid follower of the union budget for over 10 years now. Be it Mr. Lalu Prasad Yadav’s entertaining railway budget speeches, or the announcement of some strategic initiatives by the Government, it has always been special for me. I have been doing in-depth budget analysis for over 8 years now. However, this is the first time I have taken to writing some of my thoughts and analysis.

In this particular context, I restrict my thoughts to the parts of the Union Budget 2022 pertaining to some of the key thematic issues for the social impact sector. As an active member of the social impact community, I feel this is an urgent analysis that needs to be spread wide and large. This is important for the strategic planning of non-profits and social organisations and also setting the overall tone and direction of various initiatives that shape the day-to-day lives of the disadvantaged communities in more ways than we think.

Grab a cup of coffee, and let’s dive in.

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Pre-requisites - Parameters of Budget Estimates, Revised Estimates, and Actuals

There are a lot of documents that get uploaded on the Union Budget website each year. A lot of terminologies, parameters, and indicators get floated around. The most important are the following three:

1. Budget Estimates: This is the number stated as the allocation of the budget for the current year. This means the budget estimates for this year will be termed as “BE 2022-2022”.

2. Revised Estimates: This number indicates the allocation of the budget which is revised in lieu of the previous year’s budget estimate. Eg. If INR 100 was the number provided as “BE 2021-22”, and due to some reason this allocation does not seem enough, they might revise it to INR 120, under “RE 2021-22”.

3. Actuals: This is the actual spend of the revised estimate of the year two years preceding the current budget year. Eg. For this year, the actuals are provided on the revised estimates of 2020-21.

In terms of charts, for this year, we can prepare the following table:

A good explanation of the following is provided in this excerpt from the Business Standard:

Every year, the Budget is presented before Parliament by the Union finance minister. During the speech, the funds allocated for various jobs and activities and ministries are laid out. These numbers are called Budget estimates. For example, if the government sets Rs 1,000 crore aside for defence, then Rs 1,000 crore will the Budget estimate for defence for the given financial year.

One thing to note here is that these estimates are not exact numbers or the final commitment by the government to any particular sector. These are just estimates of the extent of expenditure the government is willing to go for. The government later gives a revised estimate of how much is possible for it to extend to the said sector. The revised estimates and budget estimates may vary, but the difference may not be huge. The actuals are the numbers that represent the real amount extended by the government to the sector concerned.

Budget estimates represent the government's wishes and ambitions. Revised estimates show how the expenditure is likely to pan out. Actuals give the real number for how much was really extended.

The last paragraph is the most critical. It is important to view the current year’s union budget as the Government’s vision, a probability with a definite momentum in a defined direction, and not the truth.

With this context set let us, deep-dive, into the various aspects of the social impact space and the budgetary implications for the year 2022-23.

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Budgetary Implications of Social Impact Ecosystem - Boundary Conditions

I analyse the impact of the Union Budget 2022-23 on the social impact ecosystem from a macro perspective at this stage. My approach today is to analyse the macro-view of expenditure on the major sections of the social impact ecosystem, as well as study the underlying capital allocation of major central sponsored schemes under the major sections. Some of the sections include

1. Agriculture

2. Rural Development

3. Healthcare

4. Skill Development, Entrepreneurship, and Labour

5. Water and Sanitation

6. Basic Infrastructure - Housing, Power, Petroleum, Renewable Energy

7. Social Justice

8. Education

9. Women and Child Development

10. Minority Affairs

11. MSME

I have also highlighted some of the interesting new schemes that the government introduced as a part of the Union Budget 2022-23 towards the end of this article.

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Key Direction - Innovative Financing Models and Fiscal Deficit

An interesting point before we begin: In the document titled “Budget at a Glance”, one number stood out for me. The actual fiscal deficit (The difference between total revenue and total expenditure of the government is termed as fiscal deficit) before COVID hit India in March 2020-21 was 9.2%, probably the highest in recent times.

This connects to the next point, which I believe was the highlight of today’s budget speech by Nirmala Sitaraman - “Innovative Financing Mechanisms”

The various permutation and combinations of this key phrase of “innovative financing mechanisms” were used about 8 times in the entire speech, especially in some of the key government initiatives that launched today - like the PM GatiShakti, Metro System Infrastructure Development for Railways, Infrastructure Financing, and Road Transport Financing.

While this topic in itself is a separate in-depth article, it is important to highlight the not-so-subtle direction of the government through the budget speech and the capital allocation of critical programmes having a cascading impact on the social impact ecosystem - It is time to collaborate with the private sector and design projects to get in private investments which will then be supported by the government in part. This will especially be true for the aforementioned themes in the social impact space.

The government is trying every single avenue of reducing the fiscal deficit to bring it up to the intended 4.5% target. When this happens, social impact schemes are usually the first that get targeted for budget cuts.

With these boundary conditions and context settings, let us try and analyse the budgetary implications on each of these themes.

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OVERALL EXPENDITURE TRENDS IN THE SOCIAL IMPACT ECOSYSTEM

On the overall expenditure trend across the last three years, the government has tried to maintain underspending to about 5% of the revised estimates for key themes in the social impact ecosystem. The table below gives a high-level view of the trends.

It is interesting to see a massive 15%+ increase in the allocation going towards the education and social welfare sectors. In my view, this seems to be a positive step in the right direction, addressing the need of the hour.

My expectations with the healthcare expenditures would have been higher, in the range of at least a 20% hike. However, the powers that be have barely shifted their stance on public health spending. Even more interesting is the allocation for Rural Development, which remains almost unchanged.

The food subsidy expenditure went 28% above the estimated in 2020-21, at the time when COVID had not even hit the country properly. However, the subsequent food subsidy allocations for the past two years (2021-22 and 2022-23) have been almost halved, in comparison to the actual expenditure numbers of 2020-21. The only other section in which we see a drop in the budgetary allocation on a similar trend is that of the fertiliser subsidy numbers. Innovative financing mechanisms.

A 40,000 Cr drop in these fertiliser subsidy numbers for this year as compared to the last year might have the potential to see some transformative shift in the entire agriculture ecosystem, especially for smallholder and marginal farmers.

Combining the rising inflation, especially food inflation, decreasing agricultural productivity and the low percentage of GDP contribution of agriculture, cutting food subsidies is a worrying signal.

My hypothesis: A lot of the money is being shifted to infrastructure development, especially roads. With the ambitious target of creating roads over 25,000 km, in conjunction with a heavy push towards reform for the MSME, renewable energy, and startups as well, there is a push towards increasing jobs and livelihoods in the non-agriculture sector to the rate of over 3 crores per annum.

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Capital outlay towards major schemes in the social impact ecosystem

Core Rural Development Schemes

To analyse the core rural development schemes, I analyse some of the critical schemes that form the backbone of the social impact ecosystem especially in the rural areas, that are managed by multiple departments like

1. Ministry of Rural Development

2. Ministry of Minority Affairs,

3. Ministry of Women and Child Development

4. Department of Food and Public Distribution

5. Ministry of Labour

6. Ministry of Panchayati Raj

7. Ministry of Social Justice.

The overall numbers are captured in the table below:

What works

Minority Affairs: An overhaul of allocation towards the key umbrella programme towards the development of minorities is excellent news. This also includes an overhaul of child protection services and child welfare services with a budget increase of over 60%.

Labour Schemes: The two major labour schemes saw a sharp increase in allocation in the last year, and continue to remain in focus for the current year as well. In the particular case of the Aatmanirbhar Bharat Rojgar Yojana, the budget has doubled, from 3000+ Cr to 6400Cr for 2022-23, which shows the government’s commitment towards labour force reform in India as a high priority segment.

Potential areas of focus towards strengthening existing interventions

MGNREGA: The allocation towards the flagship programme of MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Program) has remained consistent at INR 73000 Cr, a sharp decline of over 34% from the actual spending just before COVID hit India in 2020-21. Even though the demand for MGNREGA picked up during COVID, the revised estimates have been increased for 2021-22, and have remained unchanged for 2022-23.

Social Assitance Programme: This has seen the most drastic fall from 2020-21 actual expenditure being over 43,000 Crores, to a capital allocation of a meagre 9652 crores in 2022-23. The revision of the budget estimates in 2020-21 saw an additional allocation of INR 33,000 Crore. However, it back to the original estimates of the pre-pandemic time, even though there is a slight increase.

Food Subsidies: Similar trends are observed in the domain of the National Food Security Act, with the food subsidy to the FCI as well as the decentralised procurement being slashed. This is along the lines of the earlier comment on an overall 40%+ drop in food subsidy allocation by the central government. In the current scenario where the nation heals and the economy recovers, this move may be prudent from a cost optimisation perspective taking into account the existing surplus grain bank in India. However, there is a potential for this to have a medium-term impact on grain pricing, which in turn will adversely impact the farmer income in the long term.

Remains the same:

The rest of the allocations are more or less the same, with some conservative revisions made by the government. This might also be perceived as under-promising to over-deliver. In any case, there have been no major shifts. However, this may shift as I deep dive into individual departments in the next couple of editions.

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Agriculture and Allied Activities

The domain of agriculture and allied activities is one of the most important focus areas of the government, that accounts for 1.5 lakh crore of allocation of the budget estimates of 2022-23. This is one domain where the core analysis of the department spending will shed more light on the key priorities of the government, and the steps required to achieve the same. However, my attempts in analysing the macro-view have been fuzzy. The overall snapshot is captured in the image below:

What works

Food Processing Industry: A major push is observed in the space of food processing, with a budget increase of over 80% for the formalisation of the food processing industry. This is a major shift that was in the works for some time. The last two years have seen a lot of private players entering the agriculture domain in a heavy manner. This is a small yet crucial part of strengthening the value chain of post-harvest dynamics of crop produce, making it easier for integration into the industry that demands most of the processed end-product.

Irrigation and Water Conservation in Agriculture: A positive stead towards making the agriculture ecosystem’s outlook towards improved irrigation practices and water conservation is a step in the right direction. The budget allocation doubling in the last year indicates that the government is wanting to step up its efforts in improving irrigation mechanisms, and promote water conservation through water harvesting. This is also a huge area with the private sector players engaging slowly but surely.

Green Revolution – Krishonnati Yojana: This is the Umbrella Scheme in the agriculture sector that has been implemented since 2016-17 by clubbing several schemes/missions under one umbrella scheme. The Umbrella scheme comprises 11 Schemes/Missions. The budget for this scheme has increased drastically, with over 80% increase in allocation in the last year or so.

These schemes look to develop the agriculture and allied sector in a holistic and scientific manner to increase the income of farmers by enhancing production, productivity and better returns on produce. Key focus areas under this scheme include horticulture, agri-mechanisation, seed and planting material, agri-extension, etc.

The trend continues even in this case, as the aforementioned key focus areas are priority areas for startups and other large private-sector companies to actively participate across a variety of modes and interventions.

Remains the same:

The rest of the allocations are consistent with the trends, with the focus remaining on PM-KISAN, and other flagship programmes. No major overhaul or exciting news in the budget in this domain. However, I do wish to take a peek under the hood of the entire Ministry of Agriculture’s demand for grants to understand more into some of the specific areas that might be a priority for the government.

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Rest of the schemes

The budgetary allocation for the other half of the remaining schemes that do not fall into the core rural development and the agriculture domain continue with the trend of being conservative, with no major shifts. The snapshot of the same is captured in the image below:

What works

Education: Major push towards education, as indicated in the macro-view section. Some of the key interventions have seen a capital allocation increase of over 40%.

Housing: The PM-Awas Yojana get a massive boost, with over 70%+ increase in capital allocation over for 2022-23, similar to the revised estimates of 2021-22. This is again a push towards job creation towards infrastructure development as mentioned earlier. This might also tend to align with the push towards increasing the larger housing and real-estate sector that has seen a decline since the COVID-19 pandemic hit India in 2020. This is a rabbit hole in itself, and I shall refrain from entering it at this stage.

MSME: As indicated by our finance minister, MSME is getting a push through various sources, but the one critical to the stakeholders in the social impact space is towards credit linkages and financing of small businesses. The Guarantee Emergency Credit Line (GECL) facility to eligible MSME borrowers, as well as the government’s efforts towards recapitalisation of regional rural banks (RRBs) are a step in the right direction.

Potential areas of focus towards strengthening existing interventions

Mid-day meal scheme: The capital allocation for mid-day meal schemes is missing from the entire document. This scheme is one of the most important components of the national education scheme, with a capital outlay of over 10,000 crores. Not keeping any allocation is not a good indicator.

Remains the same:

The Jal Jeevan Mission, the national education mission, and the environment forest and wildlife scheme remain a consistent priority for the central government. Each of these schemes has received a sizable increase in capital allocation in 2022-23.

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List of new schemes introduced in the budget

In line with the tradition, the union budget of 2022-23 saw some new schemes getting massive capital expenditure this year, across various sectors. Most of these schemes are yet to be launched and have no literature per se to analyse. Hence, I am providing an exhaustive list is provided in the section below:

1. ASPIRE: Accelerating State Education Programme to Improve Results - 600 Cr

2. Pradhan Mantri POSHAN Shakti Nirman Yojana - 10234 Cr

3. Rashtriya Krisi Vikas Yojana - 10433 Cr

4. Revision of norms for Central Assistance released to State/UTs for meeting expenditure on intra-state movement, handling of food grains and dealer margins under NFSA - 6572 Cr

5. Modified Interest Subvention Scheme - 19500 Cr

6. Production-linked Incentive Scheme for Food Processing Industry - 1022 Cr

7. Pradhan Mantri Ayushman Bharat Health Infrastructure Mission - 979 Cr

8. Pradhan Mantri Ayushman Bharat Health Infrastructure Mission - Biosecurity Preparedness and Strengthening Pandemic Research and Multi-sector and National Institutions and Platform for One Health - 690 Cr

9. Raising and Accelerating MSME Performance - 723 Cr

10. Khadi Gramudyog Vikas Yojana - 749 Cr

11. Solar Power Grid - 3304 Cr

12. Kisan Urja Suraksha evam Utthaan Mahabhiyan (KUSUM) - 1716 Cr

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What are your thoughts? Write in at aashir.sutar@gmail.com

How did you like this edition? Let me know your thoughts, comments, inputs, and suggestions. Happy to discuss, learn, and explore.

The Enterprise Labs is a collaborative space discussing topics at the intersection of social impact, innovation, strategy, sustainability, public health, and enterprise development.

P.S. It has been 71 days since I last wrote the last edition of the newsletter. However, I intended to regularly write, at least thrice a month starting today, Feb 2022.