In Retrospect

Union Budget 2021-22 : Growth for all

Efficacy of Atmanirbhar Bharat in steering inclusive growth is to be tested on the anvil of time; a more expansionary fiscal stance could have served the purpose

Union Budget 2021-22 : Growth for all

The Finance Minister of India has presented her third Union Budget for 2021-22 at a crucial time when the global economy in general, and Indian economy in particular, are facing an unprecedented crisis due to the yearlong Covid pandemic. In addition to the pandemic, the Indian economy is facing two more challenges — strained relation (including border skirmishes) with the largest and most powerful neighbour, China; and economic downturn that preceded the pandemic. Though the Finance Ministry in their Economic Survey and Budget proposal has repeatedly mentioned 'pandemic-induced crisis', the fact remains that the economic downturn that has been experienced after the nearly eight per cent growth was registered in the first half of 2016-17. Since the fourth quarter of 2017-18, in every succeeding quarter, GDP growth was lower, and in the fourth quarter of 2019-20, which was just before the pandemic, the GDP growth was 3.1 per cent. Indian economy is a classic example of 'co-morbidity' where Covid is not the only disease it suffers from.

In the absence of the Planning Commission, the responsibility on the Finance Minister, a Jawaharlal Nehru University (JNU) alumnus, was huge. Nation's expectations were high and she had a lifetime opportunity to present a roadmap to guide the economy out of crisis and boost the morale of millions of Indian citizens who have been pushed to the wall due to this unprecedented shrinkage of the economy. Her Budget proposal has certainly made two per cent of Indian citizens happy, who invest in the share market, as the share index (BSE) increased by over five per cent within a few hours of her Budget presentation.

Atmanirbhar Bharat-led growth?

The Finance Minister began her Budget speech by saying "In May 2020, the Government announced the Atmanirbhar Bharat package (ANB 1.0). To sustain the recovery, further into the year, we also rolled out two more Atmanirbhar Bharat packages (ANB 2.0 and ANB 3.0). The total financial impact of all Atmanirbhar Bharat packages including measures taken by RBI was estimated to about Rs 27.1 lakh crore which amounts to more than 13 per cent of GDP."

A careful analysis of this much-hyped package reveals that the entire responsibility of the Government was shifted to the Reserve Bank of India's monetary measures. In those packages, the actual component of the Union Government's fiscal measures was limited to around two-three per cent of GDP.

Due to the absence of effective market demand, a large chunk of this money has ended up in Indian share market and inflated the balloon, which in turn, has attracted global hot money to the Indian shore. In November 2020, India saw foreign funds pumping in an unprecedented USD 8.1 billion into its bourses, the highest in a single month since the aftermath of the Wall Street crash. This huge inflow pushed the Sensex up by more than 10 per cent in November. 'Indian Express' reported that some of the USD 11 trillion given out as stimulus by G20 countries to beat the Covid-induced economic blues was slowly making its way to markets like India after swirling through global financial channels. The Economic Survey states that India is to have a current account surplus of two per cent of GDP in FY21, a historic high after 17 years. Net FPI (foreign portfolio investment) inflows recorded an all-time monthly high of USD 9.8 billion in November 2020! This explains how the share market balloon has been inflated in India for the benefit of two per cent citizens and few foreign portfolio investors.

Economists associated with the Finance Ministry are aware of the limitations of monetary measures when an economy faces a crisis like this. It needs increased government intervention in the form of concrete fiscal packages. The primary objectives of the Atmanirbhar Packages were, to quote Nirmala Sitharaman's Budget speech: "The Atmanirbhar Packages accelerated our pace of structural reforms. Redefinition of MSMEs, commercialisation of the mineral sector, agriculture and labour reforms, privatisation of public sector undertakings, One Nation One Ration Card, and production-linked incentive schemes are some of the notable reforms carried out during this period. Faceless income tax assessment, DBT and financial inclusion are the others." The Government has successfully converted the crisis into an opportunity!

Fiscal expansion

The Economic Survey has suggested a 'continued expansionary fiscal stance' by the Government to ensure that growth returns to pre-Covid levels. A recovery in growth will boost revenue collections and help India get back on a sustainable fiscal path, it said. A rebound in economic activity and the Government's reforms can help the Indian economy go past its pre-Covid level in two years, the survey added. It seems Finance Minister has overruled her learned colleagues and decided not to rely on fiscal measures and public sector enterprises (PSE) when even IMF has been emphasising on the use of fiscal policies and has been also reminding the governments about the increasing role that public sector enterprises (PSEs) have been playing in advanced countries, especially in the aftermath of the global financial crisis of 2008.

The Government proposes to spend Rs 34,83,236 crore in 2021-22. As per the revised estimates, the government spending in 2020-21 would be around Rs 34,50,305 crore. If we take inflation into account then the Government expenditure in the coming fiscal year would be lower than the current year. Moreover, the Government of India has been increasing the pace of privatisation of PSEs. Capital receipts (without borrowings) are estimated to record an annual increase of 66 per cent over 2019-20. Through disinvestments of PSE, the Government is expecting to mobilise Rs 1,75,000 crore in 2021-22, as compared to Rs 50,304 crore in 2019-20. In the name of Atmanirbhar Bharat, public sector insurance companies and banks are also added to the long list of 'strategic disinvestment' of PSEs. Equipped with this strategy, the Finance Minister Sitharaman expects a V-shaped recovery of the Indian economy from a 7.7 per cent contraction in 2020-21 to 14.4 per cent expansion in the next year!

A right deviation

The fiscal deficit is targeted at 6.8 per cent of GDP in 2021-22, down from the revised estimate of 9.5 per cent in 2020-21 (4.6 per cent in 2019-20). The estimated fiscal deficit looks high in 2020-21 due to the unprecedented contraction of the economy. For a 'continued expansionary fiscal stance', as suggested by economic advisors, the Government had two options. First, increase government spending by printing notes to boost immediate market demand by designing appropriate fiscal packages. Most of the pandemic-affected countries including the USA and the UK have done this to boost their economy. Second, mobilise funds by imposing steep wealth tax and capital gains tax on the affluent section of the citizens. The Government has availed none of these options.

Moreover, this year, the Union Government has, quite rightly, deviated from the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, which demands fiscal deficit to be restricted to 3.5 per cent of GDP. This year's fiscal deficit has reached 9.5 per cent. But the same Finance Minister has denied the state governments to deviate from the FRBM norm and borrow money to meet their expenses during the crisis period. It may be recalled that repeated requests from the Chief Minister of West Bengal to allow the state to mobilise funds from the market when cyclone Amphan had devastated the state during Covid pandemic, was denied by the Central Government. India cannot grow unless its states prosper. The basic principles of cooperative federalism have to be followed in the right earnest.

Dependability of 'the six pillars'

The Finance Minister has claimed that the Budget proposals for 2021-2022 rest on six pillars — health and well-being; physical and financial capital and infrastructure; inclusive development for aspirational India; reinvigorating human capital; innovation and R&D and minimum government maximum governance. A brief analysis of budgetary allocations reveals a contradictory picture of what she has claimed.

For 2021-22, the total amount allocated to the Union Health Ministry, and all the schemes that fall under it, is Rs 73,932 crore. This is less than the revised estimate of Rs 82,928 crore for 2020-21. It seems the Government has not learned from last years' experience. There is no reason to believe that the pandemic is over or the nation will not face a similar health crisis in the near future. However, a new centrally sponsored scheme, PM Atmanirbhar Swasth Bharat Yojana, has been announced with an outlay of about Rs 64,180 crore over six years. 'This will develop capacities of primary, secondary, and tertiary healthcare systems, strengthen existing national institutions, and create new institutions to cater to detection and cure of new and emerging diseases.' Basic healthcare service should be left with the states. Instead of infringing into primary, secondary and tertiary healthcare services, the Centre should focus mainly on healthcare research. The performance record of central programmes like Ayushman Bharat is not very encouraging.

The allocation to the Education Ministry for the coming financial year is Rs 93,224 crore which is less than what was initially promised, Rs 99,312 crore, in 2020-21. Reopening of schools and colleges would require additional expenses for sanitisation and proper maintenance of health safety norms.

The Centre's planned spending on agriculture has come down to Rs 1,31,531 crore in 2021-22 from Rs 1,42,762 that was budgeted for 2020-21. Actual expenditure in 2020-21 is estimated to fall to Rs 1,24,520 crore during this pandemic year. It may be reminded that agriculture is the only sector which has registered growth in 2020-21

In 2020-21, the revised estimate for MNREGA was Rs 1,11,500 crore. But for 2021-22, the Budget has drastically curtailed to Rs 73,000 crore. Ideally, to boost market demand this allocation should have been increased. In 2019-20 MNREGA allocation was Rs 71,687 crore


While it is heartening to note that the Government has increased budgetary allocation of food subsidy by 49 per cent (compared to actual allocation of 2019-20), the allocation for fertiliser subsidy, petroleum subsidy and 'other subsidies' has been reduced by one per cent, 40 per cent and one per cent respectively. Subsidy on kerosene, distributed through PDS, has been withdrawn. Budgetary allocation for children welfare has been reduced from Rs 96,042 crore in 2020-21 to Rs 85,713 crore in 2021-22.

A new Agri Infra Development Cess (AIDC) has been announced which will be applicable from February 2. AIDC will be imposed at the following rate on these select commodities — 2.5 per cent on gold and silver; 35 per cent on apples, 30 per cent on 'kabuli chana', 10 per cent on peas, 50 per cent on Bengal gram/chickpeas, 20 per cent on lentil (mosur); 5 per cent on cotton, Rs 2.5 per litre agri infra cess on petrol and Rs 4 on diesel. It is interesting to note that AIDC will be imposed on many agri-products. Second, the earnings from cess are not shared with the states. This is another financial instrument that is increasingly used by the Union Government to deprive state governments of their legitimate earning.

Exports vis-à-vis Bangladesh

The most noteworthy feature of this year's Economic Survey is the comparison of India's export performance with that of Bangladesh. It is remarkable because the usual practice is to compare India's policies with industrially advanced countries of the West. Comparison with small southern economies is not used by

policymakers as a benchmark. However, the Economic Survey 2020-21 reads "In the past decade, Bangladesh's exports have grown at 8.6 per cent annually while that of India's remained stuck at 0.9 per cent. That outperformance is because Bangladesh is exporting commodities where it has a competitive advantage."

Bangladesh, which got independence from Pakistan in 1971, has emerged as the next Asian Tiger. West Bengal's per capita income is lower than its counterpart East Bengal (Bangladesh), which also had faced the ills of partition. According to data from the International Monetary Fund (IMF), as reported by Business Standard, Bangladesh's per capita GDP was USD 1,905 in 2019 against West Bengal's about USD 1,600 in 2018-19 — economically the most developed state in eastern India. As of 2020, the regional SDG score for East Asia and Pacific was 63.3 (out of 100), while that of India was 61.92 and Bangladesh, 63.51. Though both India and Bangladesh have shown improvement in their SDG scores over the last five years, Bangladesh has overtaken India in 2018. And it is estimated that Bangladesh, one of the world's densely populated countries, will exceed India's per capita income in the next couple of years.

The 'two-nation theory', which created Hindu-dominated India and Muslim-dominated Pakistan by partitioning Bengal and Punjab in 1947, has failed both the nations. The socio-economic performances of India, Pakistan and Bangladesh are cases in point.

Views expressed are personal

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