Integrated Strategic Planning to cope with covid 19 Aftermath

The Post COVID Budget 2021 is being widely considered a pivotal point in the country's economic and social recovery from a deadly pandemic that battered incomes and disrupted countless lives.

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Integrated Strategic Planning to cope with covid 19 Aftermath

As the world continues to navigate through the uncertainties of COVID-19, it becomes evident that the dynamic of the pandemic can easily overwhelm healthcare systems globally and impose serious adverse health, economic and social effects on the population. The risk of exceeding the healthcare system’s capacity has led to social (physical) distancing measures, which frequently mandate strict, horizontal lockdowns with universal restriction of movement affecting the whole population. While using extreme lockdowns as the main strategy at the beginning of the pandemic was expected and defendable, considering the lack of preparedness in dealing with a public health crisis and the uncertainty over the case fatality rate, the second and third waves that are currently in full force throughout the global countries, respectively, have proven that lockdowns are not a measure with long-term and sustained mitigation effects, let alone a viable and definite solution.

The Post COVID Budget 2021 is being widely considered a pivotal point in the country’s economic and social recovery from a deadly pandemic that battered incomes and disrupted countless lives. Economists and market observers have noted that the budget will be a fine balancing act between stimulating long-term growth while also keeping government finances in check. Increased government spending on capital projects and policy measures to promote private and foreign investment will provide a foundation for sustainable growth once the current crisis is past. A much-needed fiscal consolidation has been put on hold as the fiscal deficit reaches 6.8% of GDP this fiscal year, well below the 3.0% target laid out by the Fiscal Responsibility and Budget Management Act (FRBM). The government will finance this deficit through a sharp increase in market borrowing, up 54% in volume terms from pre-pandemic levels, buoyed by accommodative monetary policies and historically low global interest rates.

Importantly, however, the composition of this deficit spending is shifting away from direct income support and toward capital expenditures that have a greater impact on medium-term growth. After spending nearly 13% of GDP since last March on COVID-related disaster relief, the government now plans to increase investment on medium-term priorities in public health, employment generation, affordable housing, support for small businesses, and development of the rural economy. Total capital expenditures are scheduled to rise by nearly 50%, to US$71.3 billion, with significant outlays in defense, railroads, roads and bridges, public works, and power, creating major opportunities for private and foreign investors to contribute to India’s long-term productive capacity.

India’s fiscal deficit – the gap between its revenue and expenditure – for the current financial year is set to rise to 9.5%, the highest since the country opened its markets to the world in 1991.

For the first time since the pandemic began, there is now hope for a brighter future. Progress with vaccines and treatment have lifted expectations and uncertainty has receded. The collapse in employment has partially reversed, but large numbers of people remain underemployed. Most firms have survived, albeit financially weakened in many cases. Without massive policy support, the economic and social situation would have been calamitous. The worst has been avoided, most of the economic fabric has been preserved and could revive quickly, but the situation remains precarious for many vulnerable people, firms, and countries.

Many nations’ trade basket plummeted in May though at a slower pace than the preceding month as countries sealed their borders to arrest the spread of the coronavirus and supply chains broke down because of mobility restrictions including India.

Among the top 13 ministries with the highest allocations, the highest annual increase over 2019-20 is observed in the Ministry of Jal Shakti (64%), followed by the Ministry of Consumer Affairs, Food and Public Distribution (48%), and the Ministry of Communications (31%). GST and income tax collections have also been a major source of revenue for the government in the fiscal year. The gross tax receipts for 2021 – 22 are expected to be INR. 22.2 lakh crore, higher by 16.7%. The increase in tax receipts is to become mainly from corporate income tax, personal income tax, and GST, all of which are forecast to increase by about 22 – 23%. The highlight in the expenditure budget is that the total expenditure in 2021 – 22 is expected to increase marginally to INR. 34.83 lakh crore. A component of the expenditure is a payment towards interest on borrowing.  The fiscal deficit in BE 2021-2022 is estimated to be 6.8% of GDP. The fiscal deficit in RE 2020-21 is pegged at 9.5% of GDP – funded through Government borrowings, multilateral borrowings, Small Saving Funds, and short-term borrowings. Plan to continue the path of fiscal consolidation, achieving a fiscal deficit level below 4.5% of GDP by 2025-2026 with a steady decline over the period. As per our target of US$ 5 trillion economies, our manufacturing sector has to grow in double digits on a sustained basis. Our manufacturing companies need to become an integral part of global supply chains, possess core competence and cutting-edge technology. The Budget proposals for 2021-22 rest on 6 pillars.

  • Health and Wellbeing – 2.24 lakh crore
  • Physical & Financial Capital, and Infrastructure – 1.97 lakh crore
  • Inclusive Development for Aspirational India
  • Reinvigorating Human Capital
  • Innovation and R&D – 50,000 crore
  • Minimum Government and Maximum Governance.

Taking a look at the avenues from where the money comes from, here is a break-up for the same. According to the Budget 2021, the major contributor is borrowing and other liabilities – 36%, goods and service tax – 15%, income tax – 14%, corporation tax – 13%, union excise duties – 8%, non-tax revenue – 6%, non-deb capital receipt – 5% and customs – 3%.

Integrated Strategic Planning to cope with covid 19 AftermathIn the current financial year, the interest payments will get the maximum portion, 20%, followed by states’ share of taxes and duties – 16%, central sector scheme – 13%, finance commission, and other transfers – 10%, other expenditure – 10%, subsidies – 9%, centrally sponsored schemes – 10%, defence 8%, pension 5%.

Integrated Strategic Planning to cope with covid 19 AftermathMost economists are unanimous in their view that India needs to prioritize growth by spending more. The Indian government needs to stimulate growth and push for job creation through a spending boost. Analytic thinkers and Economists said that with GDP expected to rebound sharply in the coming fiscal, some of the tax revenues that were lost in the last two years can be recovered. To lower the fiscal deficit, the budget can expand spending by 20-21% over the current fiscal. Increasing expenditure will also have a positive knock-on effect, it noted. “Higher spending would further boost growth and thus tax receipts as well.”

Still, the government will need to keep long-term debt sustainability in mind. With the country’s debt-to-GDP ratio likely to hit close to 85% in FY21, an attempt will need to be made to bring that down. That means a steady decline in the fiscal deficit will need to be targeted. The budget gap in the ongoing fiscal is expected to rise to 6.5-8% of the GDP. For the next fiscal, the government is expected to target a deficit of around 5.6%, according to a consensus of estimates.

The Centre’s borrowings and liabilities have been the highest source from which money has come into the economy. Hard-pressed for funds, the government restored to borrowing more to uplift a sluggish economy through a spending boost.

Beyond taxes, the government’s major source of revenue comes from selling assets. The asset sales that are budgeted do not materialize, then the government will have to cut down on its spending. And that won’t be optimal for economic momentum. The government proposed to increase Foreign Direct Investment (FDI) limit in the insurance sector by 74%, a move aimed at attracting greater overseas capital inflows to help enhance insurance penetration in the country.

Conclusion

To foster the emergence of such world-class Indian companies, India’s private sector will have to invest more in research and development (R&D), particularly for solutions to challenges facing emerging markets, where India has already established a leadership position. Indeed, our economic model shows that India’s Winning Leap will require an increase in R&D spending from 0.8% of GDP to 2.4% in 2034.

We have to take cognizance of four important factors for the leap to happen. Firstly, harnessing the untapped potential of the nation and we need to understand the demographics of the country. Secondly, understand the advantage of value and valuation of infrastructure thereby yielding higher returns and we need to look at the way global markets and the regulatory environment is moving. The third aspect is upgrading the Skills and Training to adopt the technology required to create a skilled workforce. And lastly, we need to permeate into untouched rural markets.

Growth will be the central theme around which budget initiatives will revolve. COVID-19 has severely disrupted India’s growth trajectory and getting growth back on track in FY21-22 will be the foremost priority. Secured Governance offers a strategy to get capital cost of infrastructure development with a negligible investment by Indian Government & Private Bodies through value and valuation of infrastructure thereby yielding higher returns. Infrastructure investment is key for growth, and we are likely to see higher allocations as well as the formation of a Development Finance Institution for infrastructure financing.


By,
Dr. P. Sekhar,
Chairman,
Unleashing India,
Global Smart City Panel,
MTGF
Dr. P. Sekhar the policy times

By,
Dr. Uppiliappan Gopalan,
Award-winning Globally acclaimed corporate expansion and Turnaround Specialist; Asia’s most admired Business Leader, Peter Drucker Awardee & Advisor in the Panel of World Economic Forum.
Dr Uppiliappan Gopalan


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Integrated Strategic Planning to cope with covid 19 Aftermath
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The Post COVID Budget 2021 is being widely considered a pivotal point in the country's economic and social recovery from a deadly pandemic that battered incomes and disrupted countless lives.
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THE POLICY TIMES
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