Budget 2021-2022

By Y. Nikhileshwara

The theme of the budget 2021-22 is Atma Nirbhar Bharat that is a vision to become self-
sustainable. Apart from self-sustainability, another main point on which this budget is
focused is on the digitization of the economy, as it leads to unambiguity in the financial
system.

In the speech of budget for this financial year, our honorable finance minister laid down six
pillars on which the budget stands i.e., Health and wellbeing, physical and financial capital
and infrastructure, inclusive development for aspirational India, reinvigorating human capital,
innovation and R&D, and minimum government and maximum governance.

In these dire times, everyone's eyes were on this year's budget as Mrs. Sitaraman said that
"Hundred years of India wouldn't have seen a budget being made a post a pandemic like
this". So, many economists have anticipated reduction in tax slabs, boost in the
infrastructure sector, increase investment in healthcare, relief packages and scheme for
hospitality and aviation sector.

Allocation of funds in this year's Budget started with the announcement of PM Atma Nirbhar
Swastha Bharat Yojana for which Rs.64,180 crores will be spending in over 6 years overall,
the budget estimate for health and wellbeing is pegged at Rs.2,23,846 crore. A huge chunk
of money approximately Rs.5.5lakh crore is also set aside for investment in the infrastructure
sector.

Now looking at the key points on India fiscal position we observe that our finance minister
pegged fiscal deficit at 6.8% of GDP from 9.5% of GDP in FY 21 due to the COVID-19
pandemic to ensure a spurt in the economic growth. Budget estimates for expenditure in
2021-2022 are Rs. 34.83 lakh crores. This includes Rs. 5.54 lakh crores as capital
expenditure, an increase of 34.5% over the previous Budget estimate figure. We all have
seen this unexpected year of 2020, so we need contingency funds at the time of emergency
to stabilize our economy. Therefore, the Contingency fund has also increased from 500
crores to 30000 crores. The government has discontinued the NSSF loan to FCI for food
subsidy and defined food subsidy separately in the budget of about Rs.2.02lakh core, which
has enhanced the transparency in the budget. The government has allowed states for
additional borrowing of up to 4% of GSDP with 0.5% under special conditions.

If we critically analyse the changes in the Fiscal Responsibility and Budget Management
(FRBM) Act, we observe that the government has allocated Rs. 34.83 lakh crore for
expenditure, which is 15.6% of GDP and in the recent past, no union budget has exceeded
the limit of 13.5%. Since the Capital expenditure got a big boost i.e., from Rs. 4.12 lakh crore
to Rs. 5.5 lakh crore so we are able to curtail the risk of inflation in the future by not
increasing the revenue expenditure.
the fiscal deficit trend in India starting with a 4.1% of fiscal deficit in 2014 and now the
revised estimate of fiscal deficit for this year stands 9.5% of GDP, which GoI aimed to
reduce to 3.5% of GDP. However, the current pandemic has changed the growth trajectory
of not only India but all over the world and that's why due to lockdown and shortfall in
revenue, fiscal deficit shot up this high. GOI was able to achieve the desired target of fiscal
deficit in the year 2016-17 and 2017-18 i.e., for two consecutive years because of a
sufficient amount of tax collection. In 2019-20 according to many economists, India was
moving onto the starting path of the middle-income trap. India's GDP was 4% due to
contraction in the secondary sectors mainly the manufacturing and construction sector. Even
though the tax collection in FY 2019 was $3.46 trillion, which was more than the previous
year i.e., $3.33 trillion, fiscal deficit was high in 2019-20. Another reason for the high fiscal
deficit in 2019-20 is because in Q4 coronavirus has hit the country.

The fiscal deficit is a very important concept as it not only affects the growth of a country it
also impacts the price stability and inflation in a country. 
A very bold step has been taken up by the government that it has broken the taboo of the
3% fiscal deficit target laid down in the FRBM act and rather defined this year's fiscal deficit
goal to 6.8 %. As, we know this year a large amount of capital expenditure is on
infrastructure sector so this will create the domino effect and shot up the growth.

During the initial time of the Nehru era, India was in bad shape. Heavy industry sectors have
a long gestation period so, to upturn the economy one of the bold decisions was taken up in
the second five-year plan in which long-term benefits plans were given importance rather
than short-term plans. Mahalanobis model was implemented in which the investment was
made in the heavy sectors like steel, iron manufacturing, heavy machinery manufacturing,
etc. so that India becomes self-sustainable. Employment level increased and wealth of
individuals and nation increased.

Largely, this model proved to be beneficial. Therefore, we can relate this situation to the
present scenario of India where the GDP is showing negative results and to turn the GDP
figures positive GOI has increased investment in the infrastructure sector leading to the
growth in the demand for labour. Simultaneously, there will be demand for other
commodities like cement, steel, power, and many other related commodities and this domino
effect will ultimately lead to increase in the creation of wealth for both individual and nation in
long term. Apart from this, the economy is now operational despite pandemic and may grow
at 11.5% during 2021 as per the projection by IMF.
Fiscal Policy of GoI is very much aligned to the Union Budget 2021 and IMF projection to
achieve the goal.   Now this year fiscal plans mean that high spending will support the high
demand and help recovery and since the more fund is allocated for capital expenditure so
this spending may not be inflationary but if the credit demand recovers and if the government
borrowing will be large then, the government borrowing may crowd out the private sector
investment. So, the government has a broad vision for the fiscal position of India and has
laid down strategic plans to back up the fiscal deficit of 6.8% i.e., via monetization of assets,
disinvestment of BPCL, Shipping Corporation of India, Container Corporation of India, etc.,
and even planning to raise money from financial markets by issuing bonds or IPO, for
example planning to launch IPO of Life corporation of India in FY 22.