Against the backdrop of the disruption caused by Covid-19 to an economy that was already weak with growth tapering, as everyone looked forward to a budget that prioritizes growth over fiscal prudence, the Finance Minister presented a budget which indeed intends to step up public investment in infrastructure by about 34.5% in the coming fiscal compared to the FY21 to revive sentiments and get the economy back on track.



The infrastructure spending by the government, as advocated by the Economic Survey, is supposed to have higher fiscal multipliers because of which it is likely to not only ‘crowd in’ private investment but also augment the immediately required aggregate demand. It is also hoped to address the structural weaknesses that are hitherto holding back the growth potential. Thus, the Finance Minister could boldly declare a much higher than expected fiscal deficit of 9.5% of GDP for FY21 and 6.8% for FY22.

Another noteworthy feature of the budget speech is that out of the six pillars on which the vision of the budget is said to rest, health is announced as the first pillar. Accordingly, it allocated Rs 223,846 cr towards ‘health and wellbeing’ of people as against Rs 94,452 cr—an increase of 137%—spent in 2020-21. But there is a catch: it being only a ‘road map’ for spending over the coming six years, the yearly outlay, which alone matters for the current year, lost sight amidst the whopping allocation figures. For, allocation to the Ministry of Health and Family Welfare for the current year does not reveal any significant rise.

That aside, there is nothing much in the budget that talks about meeting the bare necessities of the marginalized lot and employment generation, except for the stepped-up infrastructure investment creating demand for labor. The Covid-19 induced reverse-migration of labor has only swelled up the rural unemployed lot. Yet, the budget allocations for the MGNREGA program are drastically reduced, if what the figures indicate is right, from Rs 111,500 cr spent in 2020-21 to Rs 73,300 cr in 2021-22. Similar is the case with food subsidies: allocation is reduced from Rs 422,618 cr in 2020-21 to Rs 242,836 cr in 2021-22. If this is looked against the findings of partial National Family Health Survey (NFHS-5) results, which showed a rise in child malnutrition levels in 2019 vis-à-vis 2016, plus the fall in income levels noticed in the lockdown-hit 2020, it becomes evident that the urban and rural poor are left to mend themselves. Intriguingly, the budget does not speak anything about the alarming rise noticed in the inequality levels emerged during just the last year.

Interestingly, there is a considerable allocation in the budget for the states that are going to polls: Kerala has got Rs 65 000 cr towards the development of NH 66 corridor besides developing Kochi fishing harbour and the second phase of Kochi Metro; An amount of Rs 34 000 cr was announced for projects covering 1300 Km national highways passing through the state and Rs 25 000 cr was allocated for new “Economic Corridor” covering 675 km of national highway in West Bengal. Similarly, Tamil Nadu too got a good chunk of allocation for highways and Chennai Metro Rail – phase II. 

Over and above all, the fiscal arithmetic does not reveal any substantial increase in the overall budgeted expenditure: the projected expenditure for 2021-22 is Rs 3,483,236 cr as against the expenditure of Rs 3,450,305 cr for the year 2020-21, a mere rise of less than 1%. Even this expenditure has loose ends. Given the fact this year’s GDP, net of inflation, is expected to decline by 7.7% over the last fiscal, the government is likely to lose much of its revenue base. Therefore, budget is proposing for strategic stake sale in government-owned companies. In the FY21-22, it plans to mobilize as much as Rs 1.75 lakh cr through disinvestment of public sector assets. But looking at the past experiences in generating revenue through disinvestment that had fallen short of targets for years, one wonders if the Pandemic-hit economy could deliver the intended largesse.

The budget has, of course, made certain important reform-signals: Provides Rs 20,000 cr for recapitalization of public sector banks, proposes to establish an Asset Reconstruction Company and an Asset Management Company to purchase the bad assets of banks—all to revive our stressed financial services ecosystem. Budget also proposes to increase FDI in insurance companies to 74%. There is also a proposal to establish a Development Finance Institution to cater to the needs of long-term credit for infrastructure investment, though sourcing its funding through Foreign Portfolio Investments is a risky proposition for it involves currency and maturity-mismatch. Nevertheless, these are welcome steps.   

That said, it must also be pointed out that the budget reflects a protectionist trend. Under the goose of ‘self-reliance’, we seem to return to pre-reform days: Budget proposes to remove exemptions of tariff on a number of items while increasing rates on certain items such as cotton, raw silk and silk yarn. It also proposes a broad-based infrastructure cess. These measures may not gel well with market economy. Indeed, protectionism does not augur well for India to attract FDI and integrate with global value chains so as to become a five trillion economy by 20 24.  

There is yet another challenge to both the government and the RBI: they have to work together towards containing inflation below the targeted level of 6% while financing the budgeted expenditure, which is almost 60-70% higher than in the immediate previous years.

Amidst these challenges, the Finance Minister has presented a budget that is quite transparent and its numbers are credible. She deserves to be congratulated for restoring credibility to budget numbers, which has been a missing phenomenon in the recent years.

To conclude, it must be said that the budget intends to do a lot of good, but the conflicting signals tell that a lot depends on how effectively it is executed.

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