The Indian economy has not witnessed a unanimous approval or appreciation to any Union Budget releases by the governments all these years. But just like the previous year was different with the coronavirus pandemic sitting like a vulture on a tree to feed on the economic precipice of the Indian subcontinent.
With everything bound to be different in itself, this year’s budget which was announced by the Finance minister Nirmala Sitharaman has received a resounding approval. Not only the stock markets but also various corporates, bankers, economists, and experts have appreciated and welcomes the “never seen before” budget. A lot of people who were tracking the Indian economy have had a positive and optimistic response to the budgetary proposals. However, on the other hand, the proposals have also received chiding and massive criticism. One such example is of P Chidambaram calling the budget “For the rich, by the rich”. Some investors seem to be very enthusiastic, others do not. On a comparative scale, this time we can see very few people complaining about the new ideologies and prescriptions brought forth by Sitharaman for bringing India out of the devastation caused by the pandemic.
The size of the Budget 2021 is roughly similar to the current year’s Budget (Budget 2020). The similarities can be drawn in areas such as overall receipts, which are likely to fall 2 per cent, and expenditure, which is likely to rise by 1 per cent. Even though the absolute overall numbers in both the budgets are same, the difference lies in their deft realignment and allocation of available resources with the aim of once again bringing the pandemic hit economy to the growth path. The budget looks towards stimulating investment in key areas like healthcare and infrastructure. Several bold and ambitious government disinvestment proposals have also been announced to generate more resources, perhaps to take care of the growing fiscal deficit.
The government succeeded in putting together its countercyclical fiscal policy approach in connections to the suggestions by the Economic Survey. Under this strategy, the government aims at pumping in more and more public funds into more impactful and money multiplicative areas until private sector investments come back into the forum.
Keeping all this in mind, we come across a few results. There has been a 137 per cent increase in allocation for health, no additional tax burden, a 32 per cent increment in allocation for infrastructure development. Let’s discuss the main properties and characteristics of this new Budget in a little detail.
What do we mean by the “Counter-Cyclical Approach”?
The current budget adopted a lot of suggestions stated in the Economic Survey 2021. One of those was to adopt a counter-cyclical fiscal policy taking the centre-stage in order to keep the economy buoyant during a crisis. It takes a different path from the fiscal consolidation path as it lays more emphasis on the fiscal deficit at 6.8 per cent of the gross domestic product (GDP).
For the current fiscal year, that is 2020 to 2021, the deficit is pegged at 9.5 per cent of GDP which was way higher than the budgeted 3.5 per cent.
To curb this, the finance minister has made it clear that it would look towards funding higher expenditure through additional borrowings such as government borrowings, multilateral borrowings, small saving funds and short-term borrowings. She said that the government would need another 80,000 crores to approach markets in these two months.
The underlying assumption for such enormous borrowings is that if the borrowed amounts lead to growth coming back, the higher GDP will facilitate a rise in the revenues. This would ultimately, neutralise the higher fiscal deficit and higher government borrowing working according to the denominator effect.
When GDP Shrank
India has presented its budget only three times after a contraction in the economy, with all such contractions arising due to typical situations in India. But this time, the contraction because of a global factor, the pandemic.
This forms an imperative context for the Budget 2021 and Budget 2022 because special attention had to be paid in undoing the adverse effects of pandemic-linked lockdowns and hefty loss to the healthcare sector. Last year was marked by weak revenue inflow and high expenditure to assist the population with essential relief in general.
According to the data by the National Statistical Office (NSO), the real GDP for 2020/21 is estimated to contract 7.7 per cent in comparison to the estimated 4 per cent growth in the previous year.
Fiscal deficit of 9.5 per cent in the current year from 4.6 per cent in FY20 will be a huge leap. More money was spent to curb the supply disruptions. A series of announcements, called “mini-budgets”, was made by the prime Minister Narendra Modi. Cumulatively, the three ‘Atmanirbhar Bharat packages and the measures by the Reserve Bank of India (RBI), added nearly Rs 27.1 lakh crore. This was tantamount to 13 per cent of GDP.
The transparency level of the Budget
Finance minister Nirmala Sitharaman altered the way Budgets are reported with more than Rs 1.86 lakh crore worth of extra-budgetary resources being integrated with the budgeted expenditure this year. This inclusion comes as one of the reasons for the steep rise in the estimated fiscal deficit. However, the inclusion of off-budget expenses is likely to deliver more transparent accounts.
Challenges being faced in the coming year
One of the biggest challenges is the Rs 1.75 lakh crore disinvestment target set by the government for the fiscal year 2021-22. India’s disinvestment strategy has not been very good in the past years with the government time and again failing to meet the estimated targets. Except for a couple of years, meeting disinvestment targets have been far from true.
The current budget has proposed disinvestment of two public sector banks and one general insurance company. This has become one of the major hot topics for the budget-related debates with people calling for reconsideration of this disinvestment proposal. For this, the government is eyeing to amend the Insurance Act to increase the Foreign Direct Investment cap from 49 per cent to 74 per cent.
Atmanirbhar Bharat 4.O
Highlighting Atmanirbharta as the prime focus of the Budget 2021/22, the government has increased attention over the vocal for local purpose. The targets fiscal deficit signals the government’s propensity to spend more than what it earns. The government is planning to bring down the fiscal deficit to 4.5 per cent by the year 2025 to 2026.
This year’s fiscal budget has been structured on six pillars – healthcare, jobs, innovation, infrastructure, inclusive development, and governance. The highlights and important statistical data derived from the budget are mentioned below:
- The Revenue receipts have been estimated at Rs 17.88 lakh crore in 2021-22 in comparison to the revised estimate of Rs 15.55 lakh crore 2020-21.
- The total expenditure is set at Rs 34.83 lakh crore against Rs 34.5 lakh crore during 2020-21.
- Healthcare Reset: With an increase as huge as 82 per cent in the allocation for the health sector alone, the government has made healthcare the prime focus. This 82 per cent becomes 137 per cent if the allocation for drinking water and sanitation is also included. a huge component of this marginal rise is due to the Rs 35,000 crore allotted for Covid-19 vaccination.
- Physical and financial capital and infrastructure building: The second pillar of the budget is also expected to have similar ripple effects with an outlay of Rs 1,18,101 crore provided to the Ministry of Road Transport and Highways. Out of this allotted amount, Rs 1,08,230 crore is for capital expenses, the highest ever allotted for this purpose.
- Development Financial Institution (DFI): The Budget has a development financial institution to take care of the infrastructure financing requirement of the country.
- The National Monetisation Pipeline: This will work towards monetisation of existing infrastructure in power transmission, roads, oil, airports and railways, complementing the National Infrastructure Pipeline. Both the projects when put together will bring synergy between operations to revive the infrastructure lifecycle.
- Inclusive development: Targeting to reach a higher level of aspirational India, the third pillar covers farmers’ welfare, agriculture and allied sectors, financial inclusion, rural India, migrant workers, and labour. Key allocations on value addition and augmenting allied infrastructure have been substantially increased. A special part of this pillar is the Agri credit target. It has been increased to Rs 16.5 lakh crore along with the Rural Infrastructure Development fund being increased to Rs 40,000 crore from Rs 30,000 crore in Fiscal Year 2021.