As India revives from the shackles of Covid-19 pandemic and returns to normalcy, the budget 2021-22 was expected to be high on spending across various crucial thrust areas such as ramping up healthcare, reviving the economy and creating employment. Effectively, the budget seems to have ticked almost all boxes of expectations which is also corroborated by the positive response it received from the market in the last two days. A jump of 5.12% is the highest increase in Indian stock markets during any 21st century budget day. This is also a testimony to the faith of India Inc. on the government’s reform agenda and vision. An investment led budget based on the 6 pillars of i) Health and Wellbeing; ii) Physical & Financial Capital, and Infrastructure; iii) Inclusive Development for Aspirational India; iv) Reinvigorating Human Capital; v) Innovation and R&D; and vi) Minimum Government and Maximum Governance of which 5 are aligned to the UN’s Sustainable Development Goals (SDGs), signifies the holistic approach the government has taken when it comes to the budget 2021-22.
A INR 2.24 lakh crore spend on healthcare, a massive 137% increase from the last year’s budget of which INR 64,180 crore is earmarked for health infrastructure, focus on clean energy generation through infusing funds worth INR 2,500 crore rupees on the agencies focusing on non-conventional sources of energy, a proposed ‘Hydrogen Energy Mission’, and investment in energy transmission through bringing out $ 1.1 Billion-worth IPO for the Infrastructure Investment Trust (IIT) remain the thrust areas of the government in the present budget that aims towards clean energy transition. Further, a renewed emphasis on air quality through a sum of INR 2,217 crores earmarked for monitoring and improving air quality across 42 urban centers, push towards scrapping of fuel-inefficient vehicles and extension of the existing Ujjwala Yojana to 1 crore more beneficiaries have been the complimentary steps in the present budget towards this cleaner transition.
A significant increase in capital expenditure to the tune of INR 5.54 lakh crore and an additional 2 lakh crores for the states and an autonomous body has been one of the most significant steps taken up in the budget. This step reiterates the arrival of “New India” where the government has made a decisive move towards an ‘investment-led growth’ model over the traditional ‘consumption-led growth’ model for a country like India. This is a statement on ‘New India’s’ intent and readiness to take up the next leap of growth that would be driven by massive investments across crucial sectors. This is a well-intentioned move as infrastructure spending is expected to create an immediate multiplier effect of 2.5 times the spending and can be instrumental in creating numerous jobs across various verticals. One of the other benefits of investment-led growth is that in the process, the country will also create assets that could be monetized for a longer term. This is very important given the huge debt of INR 12 lakh crore that the country needs to fund growth in the present scenario. Creation of assets will also therefore, help us repay our loans in the longer term by monetizing them and reduce pressure on the future generations to come.
Third, the budget 2021-22 has also tried to focus on improving the ease of doing business in the country. Be it through increasing FDI in insurance from 49% to 74% or by proposing a revised definition of the small companies by increasing their paid-up capital limit to INR 2 crores and turnover to INR 20 crores respectively, the government has been proactive in taking inputs from the industry through its feedback mechanisms and incorporating it in the subsequent budgets.
On the financial front, the proposal to create an ‘Asset Resurrection Company’ which will identify and consolidate the existing bad assets and get it ready for sale for value realization is a welcome step by the government. This will help many PSBs ease up their NPAs. The proposal of a Development Financial Institution (DFI) with a capital infusion of INR 20,000 crores and an aim to manage INR 5 lakh crores in its lending portfolio in the next 3 years is an ambitious project that has been mulled for a long time in the country. However, given that the present budget in itself is unique with its focus on investment-led growth, the idea could take some firm ground this time.
The government seems to have also used the Budget 2021-22 to reaffirm its strong intent to bring in massive economic reforms. For example, coming very clearly on the route ahead for the strategic disinvestment of two PSBs along with one general insurance company in the present budget, the government has made it clear that it is ready to take bold steps within the limits of India’s political economy and make way for changes that are good for the nation in the long term. The budget 2021-22 estimates to generate INR 1.75 lakh crores from strategic disinvestment.
These steps indicate the budget 2021-22 is a budget that makes ample allocations to cushion us from the shocks of the past year, readies us as a country to be a part of the investment-led growth in the present and paves the path for a greener and sustainable economy in the future.
Lastly, the estimated fiscal deficit numbers for the year 2021-22 standing at 6.8% of the GDP as a result of the massive spending in capital expenditure is fairly reasonable given the present scenario. The government plans to bring down this figure through a calibrated approach to 4.5 % of the GDP by 2025-26. This realistic expectation of the government also illustrates the fact that though the government has resorted to massive spending to boost growth, it has not done so blindly.
These steps indicate the budget 2021-22 is a budget that makes ample allocations to cushion us from the shocks of the past year, readies us as a country to be a part of the investment-led growth in the present and paves the path for a greener and sustainable economy in the future. In ways more than one, the Budget 2021-22 will be an integral and one of the most important chapters to India’s future growth story.
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This article has been authored by Dr. Rouhin Deb.