Union Budget 2021: Puzzle at First, then a Rude Awakening

India will spend a massive nearly Rs. 35,00,000 crores over FY 2022. Therefore the Finance Minister is expected to make clear announcements on the government's spending plans. However, this did not happen, and the details revealed, days later, that the budget is lacking on several fronts, writes AMIR ULLAH KHAN.

——-

THE Sensex zoomed 2,000 points on 1 February, the day Finance Minister Nirmala Sitharaman presented the Union Budget 2021-22. It is now firmly ensconced in the 50,000-plus range. The correlation is almost always robust—if the Sensex is rising, the news on the development front cannot be good. However, the headlines on the day after, 2 February, harped on the budget's focus on healthcare and whopping hikes in allocations. The infrastructure sector was gushing with joy and the news media seemed to be applauding from the ringside.

However, the clouds soon cleared. The budget tables were uploaded and those who cared started looking for the numbers that the Finance Minister had promised. At first, there was puzzlement, then a rude awakening. The outlays for the social sector were nowhere near what the headlines had screamed the day before. It was revealed that almost all heads of expenditure had been slashed—nutrition, health, education, and many other social services. The euphoria over the budget announcements began to ebb and people started trying to figure out where the country stood.

The Union Budget is an Annual Financial Statement of the government. In it, the government is expected to inform the Parliament what it would spend on during the next financial year. This must be done diligently and responsibly, as with any financial matter, especially one of this scale. India will spend a massive nearly Rs. 35,00,000 crores over FY 2022, and therefore it is expected of the Finance Minister to make clear announcements on the government's spending plans.

The outlays in Sitharaman's budget can reveal where the focus of growth and development would be. All of us need to understand not only the various expenditure categories but also the revenue mobilisation that will fund the outlays. The various allocations also indicate the direction in which the country is headed.

As the FinMin spoke, it was clear that she was giving a great deal of attention to the health sector, and rightly so. It has been a bad year for the country due to the COVID-19 pandemic and lockdown, during which a large number of patients died waiting for hospital beds, ICUs and, oxygen cylinders. It was expected, therefore, that Sitharaman would say that health care was her biggest responsibility. She announced Rs. 2.4 lakh crores for the health sector, an unprecedented sum.

However, the details in the budget reveal that the actual figure allocated is less than half of Rs. 2.4 lakh crore. At a time when the healthcare sector needed a huge hike in expenditure, the Finance Minister decided to ignore the demands.

The budget intends to achieve GDP growth through growth in infrastructure investment, which is academically-speaking correct. However, this has come with a jump in the fiscal deficit. The impact of this could be an increase in inflationary pressures in the economy, which could adversely impact the ability of the country to attract foreign capital. The budget has not addressed the needs of the MSME sector or the issues of the migrant labourers. The philosophy behind the budget is politically and fiscally correct, but sustaining this will be a major challenge.

Many analysts have expressed mixed feelings about the Union Budget. A big push on infrastructural investments is welcome. If past trends are indicative, it is very clear that unless public investment is initiated, corporate-sector investments may not fructify. The projected V-shaped recovery is exaggerated and the ground realities remain depressing. Unless consumption picks up, and if the savings rate stays low and job losses continue to haunt the urban sector, there is little hope of recovery.

Given the backdrop of the pandemic and the global economic contraction all over the world, it was a tough ask for the Union Budget. While there is no increase in the tax rates, there is a rationalisation of the procedural aspects of the GST, including the removal of audit and reconciliation with the financial statements and emphasis on self-certification basis, which broaden the scope of supply, input tax credit claims based on supplier invoices, interest on net output liability, a penalty in case of E Way bill default to 200% and other transactions related to SEZ operations.

The stock markets reacted positively due to the budget's focus on infrastructure spending, banking, and insurance. This year's budget, overall, is capital expenditure-related, which talks more about roads, ports, and building structures. This will certainly translate into revenue in the years to come. Further, the disinvestment of the Life Insurance Corporation (LIC) and other state-owned enterprises is also a welcome move, for it will make the actions of these companies disciplined.

A thrust on agriculture and rural development was also expected, but the budget did not address these sectors. It was widely expected that the financial year would be synchronised with the calendar year for tax purposes in line with international standards.

It is important to realise the importance of the budgetary exercise in a country that is transitioning from low income to middle-income levels. The budget becomes an important tool in the hands of the state to enable inclusive growth and deliver services to the most marginalised and the vulnerable.

Given the shocks to the Indian economy over the last four years, a robust intervention by the government would have helped rebuild the economy and improve peoples' access to health, education, and employment to those impacted by the COVID-19 pandemic and the economic slump that has set in ever since 2016. What people expected was a development-oriented budget, what we have got is great news for the infrastructure industry folks.

(Amir Ullah Khan teaches economic policy at the MCRHRDI in Hyderabad. The views are personal.)