AFTER A SHAMBOLIC YEAR, THE INDIAN ECONOMY IS TRYING TO BOUNCE BACK THROUGH A BOLD NEW BUDGET. HERE'S HOW.
The Annual Financial Statement, being one of the most crucial annual financial announcements which mould the shape of the economy for a fiscal year, acquires humongous gravity in the wake of a crisis which the world is still battling with. The much intently awaited union budget for the next fiscal which is prepared under the spell of once in a century crisis is finally out in the public domain leaving all stakeholders deliberating the announcements and juxtaposing them with the expectations from the ministry of finance.
A HEALTHY PIVOT
Apart from being India’s first-ever digital budget, the budget has many facets, which have set a high benchmark and safely promised a lot. In the still havoc-wreaking covid 19 pandemic, we closely saw how a global health emergency transited into a socio-economic emergency. This even exposed the gaps in India’s healthcare system and the budget was expected to bridge them up. Taking a note of the expectations, the budget announced a new centrally sponsored health scheme – PM Atmanirbhar Swasth Bharat Yojana which aims to develop capacities of primary, secondary and tertiary health care system and strengthen the existing institutions to cater detection and cure of new emerging diseases. This can be seen as a very promising scheme given that the implementation meets the standards. The infrastructural gaps in our healthcare mechanism which were exposed in the crisis were calling for such a scheme for institutional strengthening, which now seems delivered. However, the implementation will be done in next 6 years, it is a promising move. Health was at the cornerstone of the finance minister’s 110 minutes speech, with focus on nutrition, water supply (through the launch of Urban Jal Jeevan Mission) and cleaner environment.
A LONG HAUL
Announcement of the New Scrapping Policy was welcomed by the market, especially the auto sector. With the rationale of phasing out old and unfit vehicles, the government aims to reduce pollution, increase fuel efficiency, abate fuel import bills and bolster the growth of the automobile sector. The effect was clearly visible on the stock indices. Vaccination was in the spotlight throughout the crisis and the government allocated Rupees 35000 crore for the purpose and intends to allocate more if required. On a broader note, budget took into account, immediate needs with structural strengthening in the long run. It made big headlines owing to 137% increase from last year. But a hot debate pertains to the inclusion of expenditure over the course of next 5 – 6 years in the current AFS. Public expenditure in infrastructure has a multiplier effect which works well to bolster economic growth and transits into development in a long run. The budget took that into account and announced some promising moves. Expansion of National Infrastructure Pipeline (NIP), creation of Development Financial Institution, highest ever allocation for roads/highways, expansion of public transport etc, are some of the announcements. There is a sharp rise of about 35% in capital expenditure pertaining to the development of infrastructure. The PRODUCTION LINKED INCENTIVE scheme which has been announced in 13 sectors aims to bring scale and size and nurture global champions in the manufacturing sector and provide jobs to the youth, is a welcome step. MITRA scheme in the field of textiles aims global competitiveness and attract large investments and boost employment. The infrastructural development and the associated multiplier effect, employment generation capacity and economic development can play a pivotal role in rejuvenating the economy. The government has boldly continued its narrative on privatization and disinvestment. With two public sector banks being privatized and an IPO announcement coming up from the side of LIC seems promising enough. Privatization and disinvestment of PSU’s is a strategic move at this juncture when dire immediacy exists to spend but fiscal deficit disagrees. FDI limit in the insurance sector has also been increased from 49% to 74%. As part of an inclusive growth strategy, the government aims to develop a potentially important sector – fisheries. Starting with 5 major fishing harbours, the government intends to expand them in future. The announcement has also been made pertaining to a multipurpose seaweed park in Tamil Nadu. As part of education expenditure, the government has announced a central university in Leh and setting up 100 new sainik schools. Both the moves are comforting and promising. Focus has also been on the implementation of the NEP where effective implementation remains a rider.
Before analysing the shortfalls, it is important to analyse the revenue source & the expenditure plan.
A PLOT TWIST
Apart from being a safe and promising budget, the AFS has also missed out on some fronts. The budget failed to deliver a targeted employment generation programme and concomitantly allocation for MGNREGA also witnessed a downfall with no mention in the minister’s speech. The budget had no significant announcement for the salaried class, with tax slabs, maintain status quo, disposable income remains unchanged. Apart from that, citizens beyond the age of 75 are exempted from filing ITR (pension and interest income only), albeit this is a welcome move without much pressure exerted on the purse of the government, interest income exemption from the ITR might be misused. The 100 Sainik Schools announced by the honourable minister entails PPP model with private firms and even NGO’s. Private sector role in defence sector might be dangerous. The budget also manifested pro-election announcements keeping West Bengal, Assam and Tamil Nadu in mind. The application of agri cess which is a welcome step on a macro level will strikingly raise up fuel prices which might affect the consumers. The finance secretary disagreed on this which is still not understood. Another contentious issue is about recapitalization of the public sector banks. With just 2000 crores diverted towards PSB’s, intent of the government remains vague. Mixed economies do not mean a 50 – 50 play between public and private sectors, there can be numerous permutations and combinations as to this, but it is the job of every economy to strike out a good balance of a mixed economy after its considering the socio-economic milieu. From time to time, India’s definition of the mixed economy has undergone shifts; this budget also further amends it. With privatization and disinvestment strategies on place, the public role is evidently falling which might be seen as a positive in today’s context. The 5 trillion dollar economy dream has taken a back seat in the wake of pandemic yet the budget presented by the minister holds enough impetus to get all cylinders firing for the economy given the implementation meets standards. Announcements on paper devoid of implementation hold no value. On the whole, the budget is promising, safe and indeed holds the potential to spur the demand.
This was Geopolitik's first Guest article so my kind regards to Deepansh Bhati for this praiseworthy effort. You can find him in LinkedIn here.
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Sources:-
1. https://www.indiabudget.gov.in/
2. https://www.thehindu.com/
3. https://www.financialexpress.com/
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