03 Feb
The Budget envisions growth as a driving factor for development; could have been more cautious on privatisation and explicit in employment generation
The Budget 2021-22 has received wide acclaim and the Sensex has given its thumbs up to it. The Government has responded to the unprecedented once-in-a-century crisis brought about by the Coronavirus pandemic which saw GDP plummeting down to -23 per cent in the first quarter and it is likely to be -7.7 per cent by the end of the financial year. This led to problems of large scale unemployment and hardship to a lot of people but the last few months have shown a v-shaped recovery brought about by the liquidity enhancing measures of the Government and the resilience of the economy. The Budget speeches always give an indication of the economic philosophy of the government and the Finance Minister outlined this by stating that this Budget is based on six pillars — health and well-being, investment in human capital, more research and development, infrastructure development, inclusive development for aspirational India and maximum governance. She went on to elaborate on how these pillars have led to the areas of focus — health, education, agriculture, youth empowerment, women empowerment, inclusive growth, increase in capital expenditure and innovation. This represents sound economic thinking and is an indicator not only of the desire to handle the current economic situation but also to give a vision and a roadmap for the future. In this regard, it is really a very welcome and laudable Budget.
The Economic Survey had been very clear in saying that growth was the main objective and the Government would be focusing on it. From time immemorial, economists have been debating the issue of growth versus equity but this survey and the Budget is clear that growth is the mantra which will pull all sections of the society forward and also contribute to the reduction in disparities. Personally, I feel that at this particular moment, to come out of the depths to which the economy has been pulled down by the pandemic, growth is the only way out. However, looking into the future for a country like India, where millions have been pushed into poverty by the pandemic, direct intervention by the Government to bring about distributive justice is required. To my mind growth alone is not enough. There are a lot of data showing that the Coronavirus pandemic has led the widening of inequalities, and all over the world including the World Economic Forum at Davos, the economic thinkers are talking about a “reset of capitalism” implying that we need to have growth along with a reduction in inequalities. This is a growth-oriented Budget and this fact must be appreciated because the economy has to come back on the rails as fast as possible. However, a major pillar of the Budget, as enunciated by the Finance Minister, is inclusive development which I think should be the main guiding principle for the future to make this growth sustainable.
The emphasis on infrastructure is indeed a very positive step with over one lakh crore increase proposed in capital expenditure including a 33 per cent hike in Rural Infrastructure Development Fund. There are increased allocations for construction of roads, development of an ambitious National Rail plan to develop rail infrastructure by 2030 and to increase the share of rail in freight from the current level of 27 per cent to 45 per cent and 100 per cent electrification of broad gauge routes by 2023. The infrastructure of the ports, to double recycling capacity by 2024, is being improved and major reforms in power distribution outlined with an outlay of Rs 3,05,984 crore over five years. For financing infrastructure, a new development finance institution would be introduced and a national monetisation pipeline of brownfield infrastructure assets created. We all know that infrastructure has a huge multiplier impact on the economy and these steps should lead to a high level of growth and employment. However, it is important to keep in mind that there is always a time lag in reaping the full benefits of investment in infrastructure, and therefore, certain sections of society would need immediate support to get gainful employment. It is for this reason that I think the Budget should have come out with some measures to boost immediate consumption demand which has a direct bearing on the growth rate as well as lead to the creation of employment. As an example, I would like to say that the services sector, hospitality sector, in particular, is likely to take another year or so to fully get back on its feet and some direct cash support for this sector would have been more useful.
The Budget has been bold in declaring privatisation of public sector banks and undertakings as a policy moving away from hesitant and time-taking disinvestment processes. I read the statement of the Disinvestment Secretary that even organisations like Steel Authority of India could be considered for privatisation. This brings to my mind a dilemma which is whether a profitable and cash-surplus public sector undertaking should be privatised? It would definitely lead to the generation of resources but may not lead to any better management or their more efficient allocation. I do not think anything and everything that goes under the name of the public sector should be given a bad name. There are a large number of public sector enterprises performing extremely well and fulfilling multiple objectives. Moreover, already the farm sector reforms which are in the right direction have got the farmers up in arms and this kind of a bold no holds barred approach to privatisation would similarly lead to agitating the minds of the labourers and employee unions. Privatisation of PSU’s is a path full of pitfalls and the Government will have to tread carefully.
The biggest issue even before the pandemic was rising unemployment but the Budget has not directly confronted this problem and it appears that the belief is that growth by itself will lead to a situation where employment is created. The reduction in MNREGA allocations as compared to the revised estimates of 2020-21 is a little surprising, especially when one was looking forward to concrete schemes for generating employment like starting an urban version of MNREGA.
A redeeming feature of the Budget is that there have been no new taxes and the Government is relying on borrowings to meet its expenditure. This again is a very positive step and makes economic sense also as the Economic Survey has pointed out that the Government is in a position to handle this debt burden. The Budget has rightly not been squeamish about a high fiscal deficit of 6.8 per cent for the Budget year and fully recognising that fiscal prudence can take a back seat today to economic growth and let things normalise by 2025-26.
The increased allocation to health raising to 1.8 per cent of GDP from 1.3 per cent is a very positive step, though 35,000 crores out of this is to go for vaccination and the 15th Finance Commission grant for health has also been included in the proposed outlay of 2.23 lakh crore along with items related to water, sanitation and nutrition. In any case, this is a welcome beginning
and the Government should aim to raise health expenditure to 2.5 per cent of GDP next year. Though investment in human capital and agriculture development has been mentioned as areas of focus, I feel the education sector deserved a higher outlay, especially, for early childhood care education and for improving the quality of education across all levels. The Government has reaffirmed its commitments to maintaining the agriculture mandis and MSP, and has also introduced a special cess for financing agricultural infrastructure. I feel this sector also needed a little more attention. However, the focus on animal husbandry and fisheries and developing them as agri-business enterprises is worth appreciating.
There is no doubt that this is a Budget that would lead to growth and it is based on a strong economic philosophy which should form the blueprint for future budgets and bring about sustained economic growth in the future.
