The poor, the migrant labour, the daily wage earner, the small farmer, the owner of the MSME, the unemployed (and their families) and the middle class felt cheated.

 CONTEXT:

1. Budget 2021-22 was an opportunity to bridge the differences between the Government and the Opposition. It was also an opportunity to make amends to sections that felt wronged by the policies, actions and inactions of the government such as the abjectly poor classes, farmers, migrant workers, the MSME sector, the middle class and the unemployed.
2. The most deserving were left to their fate. The Budget has aggravated the divide between the very rich and all others.

 

Budget is Contextual

1. There is a rule in Tamil grammar: Place, Subject and Opportunity are wasted like a lamp in the hands of a person without sight. It means that actors and actions must be judged by the place, subject and opportunity (time).
2. It is the context that determines the merit of a decision. The Finance Minister was presenting Budget 2021-22 under extraordinary circumstances characterised by:

a. 2 years of declining growth rate (from 8 per cent to 4 per cent) in 2018-19 and 2019-20;

b. 1 year of recession beginning on April 1, 2021;

c. Massive disruption in the lives of everyone, especially the poor who constitute, on average, 30 per cent of every village, panchayat, town and city;

d. Millions pushed below the poverty line and burdened with mounting debt;

e. Millions who had lost their jobs or livelihoods;

f. 64.7 million who dropped out of the labour force; of them 22.6 per cent were women;

g. 28 million actively looking for a job; and

h. An estimated 35 per cent of MSMEs that have closed down permanently.

3. Apart from the above economic factors, there are two other hard facts:

a. China’s illegal occupation of land belonging to India threatens national security and

b. Huge investments need to be made to augment health infrastructure.

 

Failed on all but one

1. The Budget failed the Armed Forces of the country. The FM did not mention the word ‘Defence’ in her speech, which was unprecedented.
2. The allocation for Defence in 2021-22 was Rs 347,088 crore as against RE of Rs 343,822 crore in the current year — an increase of just Rs 3,266 crore. Allowing for inflation, the allocation is lower in the next year.
3. On health, the FM announced that the allocation was being increased by 137 per cent from Rs 94,452 crore to Rs 223,846 crore in the next year. The Budget division had disclosed the true numbers in the ‘Budget at a Glance’ (page 10).
4. They are RE 2020-21: Rs 82,445 crore and BE 2021-22: Rs 74,602 crore. Far from an impressive increase, there was a decrease in the allocation!
5. One-time cost of the vaccination programme, the allocation to the Department of Drinking Water & Sanitation and the FC grants to the states for Water & Sanitation and Health was allocated.
6. Keeping the two non-negotiables aside, the FM did not have a kind word (not to speak of money) for the 20-30 per cent of families at the bottom of the economy or for the MSMEs and their unemployed workers.
7. Neither announcement related to sector-specific revival packages for ailing sectors like Telecommunication, Power, Construction, Mining, Aviation and Travel, Tourism & Hospitality, nor reduces the GST rates; on the contrary increasing cesses on a range of products, including petrol and diesel, that dealt a blow to states’ finances.

Bury FRBM, pander to rich

1. Even on capital expenditure, there was nothing bold or imaginative. By March 31, 2021, the FM will borrow an additional sum of Rs 10,52,318 crore, but the additional capital expenditure will be only Rs 27,078 crore!
2. India may add grants in aid for creation of capital assets, which was an additional Rs 23,876 crore. The rest was accounted for by the increase in revenue expenditure of Rs 3,80,997 crore, the shortfall in revenue receipts of Rs 4,65,773 crore and the shortfall in disinvestment proceeds of Rs 178,000 crore.
3. The poor, the migrant labour, the daily wage earner, the small farmer, the owner of the MSME, the unemployed (and their families) and the middle class felt cheated.

 

SHIFTS IN BUDGET FROM THE PAST:

1. Higher capex spend is being paid for by disinvestment and privatisation. Effectively, therefore, non-core public-sector assets that don’t generate positive externalities — and, in fact, potentially distort the sectors they compete in — are expected to be replaced with much-needed physical and social infrastructure, which typically emanate positive externalities and necessarily suffer from under-provisioning by the private sector. If successfully executed , this will not be a case of selling the family silver to pay a credit card bill. 
2. Intellectual departure is how the budget envisions infrastructure financing. In stark contrast to the PPP model — where the private sector had to grapple with upstream implementation and regulatory risk, which it often struggled with – infrastructure will now be financed off public sector balance sheets and, once operational and viable, will be monetised so as to recycle proceeds into the next project.
3. In theory, this is the appropriate division of public-private risk sharing. It marries the public sector’s ability to better mitigate upstream risk while banking on the glut of global liquidity potentially attracted to downstream projects.
4. Shift is towards more conservative and transparent fiscal accounting. There has been much focus on bringing the Food Corporation of India (FCI) liabilities back on the budget. Less appreciated is the conservatism with which tax revenues have been budgeted for.

 

WAY AHEAD:

1. Budget’s impact on shaping the macroeconomic narrative will depend on the speed and efficacy of implementation on both sides of the ledger: Simultaneously building and selling public assets.
2. It will be important, for instance, to front-load disinvestment and strategic sales to take advantage of buoyant equity markets before global central banks become more cautious.
3. It will be equally important to identify shovel-ready projects to deliver the promised public investment in time.
4. With debt likely to rise to almost 90 per cent of GDP this year, it’s now incumbent on all stakeholders to consistently deliver the 10 per cent nominal GDP growth that’s needed to first stabilise debt at these levels and then bring it down.
5. Fiscal policy is being appropriately counter-cyclical at the moment, it must be equally nimble in the other direction. When the recovery gets more entrenched, policy support should be withdrawn with equal speed and alacrity.
6. The more relaxed fiscal glide path should be treated as a ceiling, with the actual path tied intimately to the pace of the recovery.

 

CONCLUSION:

1. The budget must be commended for embarking on important paradigm shifts. But its success, and in turn the sustainability of India’s recovery, will now come down squarely to policy execution and coordination.