Union Budget 2021-22 Analysis

• There are mixed opinions about the budget that was presented.
• Some say it was the budget as reformist, bold, conservative, reactive etc. Budget 2021 was a bit of everything.
  • It was reformist in that there were aggressive investments in the future.
  • It was also bold because the decision to go aggressive on fiscal deficit is not easy when rating agencies are coming up with new facts and projections(good and bad).
  • The budget was also conservative in that it avoided too much of adventurism with respect to tax changes.
  • The budget was also partially reactionary(in a positive sense) with enhanced healthcare allocations coming as a response to COVID-19.
• Based on its themes, the budget shows some key features which were by and large appreciated:
  1. Growth first, fiscal prudence later:
     • Despite the three Atmanirbar Bharat packages and the RBI measures to resurrect the moribund economy, there was already an expectation that under such exceptional circumstances all tenets of fiscal disciplines will be breached in the Union Budget 2021.
     • The fiscal deficit was pegged at 9.5% for FY20-21 higher than the budget estimate of 3.5%, and 6.8% for FY21-22.
     • This was primarily due to higher spending, and lower revenue collection on account of COVID-19.
     • The Budget has charted out a path to reach fiscal deficit of 4.5% of GDP only by FY26, giving full 5 years for the Indian economy to gradually reduce the fiscal deficit lower without impacting the growth impetus.
     •  The government intends to reach fiscal deficit of 4.5% by 2025-26. 
  2. Status quo on taxes for the fiscal year:
     • There was a big debate on how the Budget would deal with direct taxes. The budget has also left direct tax rates intact while only focusing on procedural issues. For example, persons above the age of 75 need not file tax returns if income is only from pension and interest.
     • On the same lines, persons with income up to Rs50 lakhs and disputed incomes up to Rs10 lakhs can approach the special dispute resolution committee for speedy redressal.
     • While direct taxes were left untouched, the budget has imposed an Agricultural Infrastructure Cess, especially to be levied on fuel and liquor. The rates of the agri-infra cess will be steep at Rs2.50/litre on petrol and Rs4.00/litre on diesel. Agri Infra cess on liquor will be 100%.
  3. Farmers and depositors rejoice:
     • The budget has committed to link 1000 Agriculture Product Market Committees (APMC) via the electronic national market (e-NAM). A huge investment in APMCs pre-supposes that APMC and MSP are here to stay.
     • The government is tweaking the agreement with DICGC such that if a bank fails then depositors do not have to wait for the bank window to open. Instead, depositors can directly access up to the limit of their deposit or Rs5 lakhs right away from DICGC. This does away with the risk of funds getting locked up.
  4. COVID brings healthcare to centre stage:
     • The Union Budget 2021-22 was founded on the 6 pillars –
       1. Health and Well-being;
       2. Physical and Financial Capital;
       3. Inclusive Development for Aspirational India;
       4. Reinvigorating Human Capital;
       5. Innovation and R&D; and
       6. Minimum Government and Maximum Governance.
     • It is no surprise that health infrastructure comes as a priority for the Government during the pandemic year.
     • The Budget has enhanced the allocation to healthcare for FY22 to Rs 223,846 cr, a growth of 137% over last year.
     • Out of this allocation, nearly Rs35,000cr is allocated for the COVID vaccination program. The enhanced healthcare allocation brings the share of healthcare allocation to just about 1.3% of GDP, which is still too low by EM standards. The idea must be to grow the healthcare budget to 3% of GDP.
     • It is interesting to note that the first five pillars are embedded in the various UN Sustainable Development Goals (SDGs).
     • Therefore, a holistic approach to health (by strengthening Preventive, Curative, and Well-being) is undoubtedly a great move in the right direction! Interestingly, this year's Budget strongly acknowledges the importance of a clean environment, and clean water and sanitation (SDG 6) as a prerequisite to achieving universal health.
     • Taking that into consideration the Jal Jeevan Mission (Urban) will be implemented over the next 5 years with an estimated outlay of more than INR 2.5 trillion.
  5. Revamping the Indian banking system:
     • For FY22, the budget has allocated Rs20,000cr for bank recapitalization. The bigger announcement pertains to the ARC-AMC, also known as a Bad Bank. This Bad Bank will assume the stressed debts of banks at a discounted price after review and then look to sell out parcels or to securitize these receivables. There are enough high-risk investors in India looking for higher yields in riskier investments.
  6. Strategic boost for Infrastructure:
     • The budget has made two significant announcements on the infrastructure front. Firstly, budget has allocated Rs20,000cr to capitalize a new DFI with an infrastructure lending portfolio of Rs500,000cr in 3 years.
     • Secondly, the NHAI and PGCIL will use the INVIT route to monetize specific projects based on future cash flows. This will also be partially funded with an elaborate Scrappage Policy for old cars in the form of a green tax.
  7. Increased CAPEX:
     1. Under various heads, the Budget proposes a sharp increase in capital expenditure (CAPEX) having provided INR 5.54 trillion – 34.5% more than the BE of last year. This will help firm-level bottom-lines and macroeconomic growth.
     2. Additionally, it is also expected to create short and medium-term employment, thereby helping the cause of boosting domestic consumption demand.
     3. It is important to note here that the Indian growth story has so far been an organic consumption-led growth narrative spurred by the growth of the service sector: it was the pandemic-induced lockdowns that further dented domestic consumption demand.
  8. Divestment, privatization, monetization; a mix of everything:
     • The budget has clarified that barring a few very strategic sectors, all other PSU companies would be privatized over time.
     • In an effort to boost privatization, the budget has also enhanced the maximum permissible foreign investment limit in insurance to 74% from 49%.
     • Finally, the government also plans to raise divestment revenues via monetization of infrastructure assets like roads, highways and pipelines.
     • The sale or closure of underperforming firms will help the exchequer stop throwing good money after bad, and funnel it into more productive endeavours. 
  9. Centralizing capital market regulation:
     • One proposal presented in the Budget is that regulations pertaining to the SEBI Act, Depositories Act and the Securities Contract & Regulation Act (SCRA) would be combined into a single umbrella Act to regulate the entire gamut of capital market activities. 
  10. A boost for small businesses:
      • The budget has introduced the idea of One Person Company (OPC) where the incorporation, compliance and subsequent conversion will be very simple. This could come as a boon for small businesses. 

What more could have been done?

• Health Spending:
  • Critics note that a lot more could have been done to address the chronic underinvestment in India’s public health infrastructure by appreciably raising the expenditure. The Union Budget for 2021-2022, instead reveals an estimated health outlay of ₹74,602 crore, almost 10% lower than the revised estimate of ₹82,445 crore earmarked for health spending in the current fiscal year.
• Boosting demand through expenditure: 
  • A sizeable fiscal stimulus to reinvigorate consumption demand could have gone a long way in completing the recovery. While the revised estimates for the current financial year project a fiscal deficit of 9.5% of GDP on account of expenditure surging to ₹34.50-lakh crore, the Minister has opted for a mere ₹33,000 crore increase in the overall expenditure outlay in her Budget estimates for the next fiscal.
  • Far from being an expansionary Budget, the Finance Minister has opted to contain overall spending so as to rein in the fiscal deficit to 6.8% in the coming fiscal year itself. The country cannot afford a reduction in fiscal support at a time of rising inequality.
  • Critics call the low govt spending by the name 'fiscal conservatism'.
• Issues related to consumption related growth perspectives:
  • First issue is increasing the consumer's purchasing power by providing more money in her pocket.
  • Although the government had announced multiple midsized packages during the pandemic to revive domestic demand, the issue of consumption has been a major problem even prior to the pandemic.
  • Despite that, personal income tax has not been reduced as a step towards boosting disposable income.
  • Second issue is the much-discussed concern of inequality.
  • Given that over the last three decades, consumption has been the prime driver of growth, it must be highlighted that the “marginal propensity to consume” (MPC) of the middle-income and lower-income groups are way higher than the higher-income groups.
  • Therefore, incremental income in the hands of middle and lower-income groups would have gone into the consumption chain thereby helping the cause of reviving growth.
  • But the purchasing power of the middle and lower-income groups have been heavily hit during the pandemic, and income disparities are increasing. Governments must realise that the widening income inequality is readily becoming impediments for economic growth.
• Farmers' concerns not addressed:
  • The most critical developmental statement has emerged under Aspirational India where various elements of welfare state in the Indian context, namely, Agriculture and Allied sectors, farmers' welfare and rural India, migrant workers and labour, and financial inclusion, have emerged – a crucial step in view of the ongoing farmer protests in the country.
  • However, the perennial problems of agriculture remain to be addressed: low agricultural productivity cropping from the age-old concern of surplus labour, and inefficient agricultural marketing.
  • It is a fact that a Union Budget cannot resolve these issues as deep-rooted socio-economic-political forces are in vogue here, as can be made out from the various analyses of the farm bill protests.
• Low allocation to much-needed schemes could have been avoided:
  • Allocations for the MGNREGA programme are, to be drastically curtailed, from the ₹1,11,500 crore spent in 2020-21 to ₹73,300 crores in 2021-22. The picture is the same with food subsidies, which are to be reduced from as much as ₹4,22,618 crore in 2020-21 to ₹2,42,836 crore in 2021-22. The time to withdraw the support that was provided during the pandemic hasn't yet arrived.
• Urban unemployment left unadressed:
  • Both employment and demand generation are left largely to the vagaries of growth cycles. extending the social security benefits to gig economy workers is a welcome move, but the lack of a concerted plan to tackle urban unemployment might prove costly, given the demographic profile and pace of urbanisation of the country.
• The budget fails to address the hunger pandemic:
  • The partial National Family Health Survey-5 results released recently showed that child malnutrition levels in 2019 were higher than in 2016 in most States.
  • In this context, direct nutrition programmes such as the anganwadi programme and school mid-day meals, which make a crucial contribution to the diets of children and pregnant and lactating women, have received low budgetary allocations compared to last year.
  • Nutrition schemes, which have been suffering from poor budgetary support for many years now, therefore do not see greater allocations despite the increasing prevalence of malnutrition.
  • Other social protection programmes such as old age, widow and disability pensions, which could also contribute to better nutrition, also do not see any increase compared to last year. 
• Privatization goal looks too ambitious:
  • the government is still likely to face challenges in achieving its ambitious disinvestment goal given that private investment is still anaemic. 
• The pro-capitalist measures:
  • A lenient tax regime that favours private capital, restrained debt-financed spending, and excessive reliance on disposing of public assets to finance limited expenditures signify the neoliberal fiscal stance of the govt, according to some experts.
• Complete ignorance of the threat of global warming and climate change: 
  • There is no doubt that the pandemic has rendered the world even more alive to the very real threat of climate change. If this is an inadvertent oversight while addressing other developmental challenges, it must be stated that this oversight will prove very costly!
• Ecologically illiterate Budget:
  • Budgetary allocations for the Ministry of Environment, Forest and Climate Change (MoEFCC) have consistently fallen as a percentage of total allocations. This also includes some crucial institutions such as the Wildlife Institute of India and the Indian Council of Forestry Research and Education. 
  • Even when there are increased allocations, such as for cleaning up the Ganga, their usage is ridden with such design flaws, inefficiencies and corruption that the environment is no better off than before. Steadily increasing levels of pollution, biodiversity loss, decline in forest health and destruction of wetlands is testimony to the dismal gap between governmental rhetoric and the environment.
  • In this budget, even though there is an emphasis on Renewable energy projects, the fact remains that massive energy parks take up huge areas of land, displacing people and wildlife.
  • Another worrying issue is the allocations to non-environmental sectors that have a negative impact on the environment. For instance, the Budget proposes 11,000 km more of national highway corridors. In the last few years, massive road and dam construction has fragmented fragile ecosystems and disrupted local community life in the Himalaya, Western Ghats, north-east India and elsewhere. 
• The continuation of the protectionist trend:
  • The Budget seeks to remove exemptions on a number of items and increases rates on some others, including some agricultural products such as cotton, raw silk and silk yarn. There is a broad-based infrastructure cess as well. 
• Populism:
  • Sceptics have pointed out the huge allocations made to states that are going to polls in the near future like Kerala, West Bengal, Tamilnadu and Assam.

In conclusion, overall, the Budget has been one of the most compassionate of sorts, but it wouldn't be fitting to say that the proposals were “like never before” in its entirety. Yet, one may always call this the “budget with a human face”. Given that the Budget 2021 attempts to address the SDGs and business in an attempted integrated framework, it seems that the Indian policy-making is transcending the contours of myopic growth-driven economic vision to a holistic development-centric approach. Only time will decide the efficacy of this development vision for India's post-pandemic economic recovery process.

On the whole, the budget presented an effort to revive economic growth, as India looks to get out of recession and achieve double-digit economic growth. It laid out the balance sheet of a stressed economy and offered the best solutions possible.