ISSN 2330-717X

India’s Budget For Bounce-Back Economy: Americans Upbeat, Japanese Reticent – Analysis


India’s fiscal budget for 2022-23 drew much despair and less cheer. It  missed countermeasures to ebb inflation and generate more employment opportunities. The budget provided little for the poor and middle class. Little was done to push  demand which is crucial to bolster the bottom out of the economy.  No tax stops. Marginal increases were made in education and healthcare budget expenditures. Food subsidy was declined nearly half. Stock market  tumbled. Paranoia was raised on the economy tending towards K – shape, which means rich becoming richer and the poor poorer during pandemic. 


Nevertheless, there is another side of the budget. Even though the media and the stock market were not comfortable with the budget, foreign investors from the USA  and Europe were upbeat, excepting  Japan. Basically, India has two major foreign investors, USA and Japan, albeit Singapore and Mauritius emerged as trend setters in recent years. The angst with Singapore and Mauritius lies with the investors from these countries since they are not original Singaporeans and Mauritius investors. They are mostly foreign subsidiaries in these two nations. For example, major investors from Singapore are Japanese subsidiaries and from Mauritius are American investors. There are many hue and cry  in the  investment  from these two nations, such as violation of FTA rules and misuse of tax breaks for capital gain. They are not considered dependable foreign investors. 

Budget proposed massive capital expenditure for 2022-23. This was the biggest expenditure, sharing 19.2 percent of total expenditure and 2.9 percent of GDP. It increased by 35.4 percent over the previous year budget. In other words, capital expenditure was the main stay for budget 2022-23. Major shares in capital expenditures embody expenditure in infrastructure, such as building roads and other infrastructures and focus on national logistic infrastructure to bolster the supply chain manufacturing, a new vision for Make in India.

Boost in capital expenditure has manifold impacts, the budget advocated. It is not only for development of infrastructure. The collateral impact is that it increases opportunities for employment for poor and middle class who were most affected by COVID 19 pandemic. Capital expenditure will trigger construction boom, which, in turn,  increase scope for MNREG scheme, which ensures 100 days employment in a year to a member of a every rural family. Eventually, this will increase demand, which is crucial to bolster the economy.

Further, capital expenditure will have colossal impact on development of logistic infrastructure and manufacturing. It will pave the way to increase EODB ( Ease of Doing  business). India has already made a challenge since past five years, by revamping its ranking in World Bank EODB .

Given the fundamental directives in the budget for 2022-23, eyebrows were raised how the budget could influence the foreign investors, particularly USA and Japan, against the paradoxical situation  in investment between the two countries.  While USA investment surged  during pandemic, by over 227 percent in 2020-21, Japanese investment declined by 39.5 percent .   


The factors enticing USA investor to chant the budget for  bounce back economy were big E- commerce market, focus on green infrastructure and formulating a National Logistic Policy. President of US-India Strategic and Partnership Forum ( USISPF) , Mr Mukhesh Aghi said “it was a “measured and pragmatic budget“ . Decoding the significance of the budget to bolster bounce back economy, he said “35 percent increase in capital expenditure will support investment in critical infrastructure” . President of US – India Chamber of Commerce, Mr Karun Rishi surmised the budget a massive boost to business confidence with the formulation of National Logistic Policy.   

American investors seemed to have bet India against China during COVID 19. They  splurged investment in India , despite COVID 19 battered the economy. The reversal of US investors’ mindset, focusing India an important destination and showing volte-face to China, portrays a new dimension in  US investment in India. Recent surveys by USA investment suggest that firms are increasingly circumspect  about China’s short and long term perceptions on foreign investment in the wake of trade tensions, hike in wages in China and protectionism.  

In the case of Japan, a dramatic global structural change in Japanese investment during pandemic impacted India.  Globally, Japanese investment waned in manufacturing and spurred in non-manufacturing, reversing the previous trend. Nearly  three-fourth of Japanese investment abroad was made in non-manufacturing in first three quarters of 2021 (74.4 percent), leaving a small space for investment in manufacturing (25.6 percent), as compared  to less than  half in non-manufacturing (41.2 percent) and nearly sixty percent in manufacturing (58.8 percent) in 2021. 

In manufacturing, the biggest investment flowed was in transport equipment, viz. automobile sector, sharing 15.7 percent in 2020 of total investment, followed by electric machinery with 13.4 percent. In 2021 (January–September ), investment in transport equipment dipped to 3.1 percent .

One reason for the dramatic change in Japanese investment abroad in manufacturing  during pandemic could be the disruptions in supply chain. The gradual retreat of China in supply chain owing to lockdown and  US-China trade off  marred the Japanese investment in transport sector in overseas. 

Eventually, the global downturn of Japanese investment in transport equipment  lend  a collateral impact  on Indian automobile sector. This sector attracts largest  Japanese investment in India.  Besides, RCEP seemed to have thrown an  hangover to the  Japanese investment after India withdrew from the trade block.  Japanese investment made a whopping growth in ASEAN despite COVID 19 which  battered the trade block economy, including China. Japanese investment in ASEAN during first three quarter in 2021 ( January- September) excelled investment in full year of 2020.

Hence, the structural change in Japanese global investment faded  Japanese initiative to invest in India during pandemic. It is a misgiving that set back in the Indian economy due to COVID 19 left the Japanese investors in retreat. Some analysts quipped, had India stepped up  liberalization in FDI in multi-brand retail, green shoot of Japanese investment would have been visible. During the pandemic,  Japanese global investment boomed in wholesale and retail trade. In first three quarters of 2021, they increased by 157.3 percent. The accounting for 21.9 percent of total investment abroad, as compared to 9.2 percent during the same period in 2020.  

Subrata Majumder

Subrata Majumder is a former adviser to Japan External Trade Organization (JETRO), New Delhi, and the author of “Exporting to Japan,” as well as various articles in Indian media, including Business Line, Echo of India, Indian Press Agency, and foreign media, such as Asia Times online and Eurasia Review .

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