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.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 nation’s 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. The nation’s newly instituted 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 be come 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 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. One of the important sector which has not been given its due is the Education sector where it is hoped corrective actions would be taken.
Plan to continue on the path of fiscal consolidation, achieving a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period. As per our target ofUS$ 5 trillion economy, 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%.
In 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%.
Most economists are unanimous in their view that India needs to prioritise 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, 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 for a deficit of around 5.6%, according to consensus of estimates. Centre’s borrowings and liabilities has been the highest source from which money has come into the economy. Hard – pressed for funds, the government restored to borrowing more in order to uplift a sluggish economy through spending boost. 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. Here Government needs to take very innovative measures for National growth on a Self-sustained model. Here Secured Governance doctrine 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.
Beyond taxes, the government’s major source of revenue comes from selling assets. The asset sales that are budgeted are to be done very strategically, here also Secured Governance can play a vital role. Along with these measures the government will have to cut down on its unnecessary spending that won’t be optimal for economic momentum. The government proposed to increase Foreign Direct Investment (FDI) limit in the insurance sector 74%, a move aimed at attracting greater overseas capital inflows to help enhance insurance penetration in the country.
Dr. P. Sekhar
Chairman, Unleashing India, Global Smart City Panel, MTGF