Saturday, February 6, 2021

Budget 2021-22

Post lockdown, the way Indian economy has shown resilience with continued ‘V’ shaped recovery is very optimistic. It indicates that the Indian economy even after the pandemic shock is on a very strong footing (MoF, 2021c). This optimism in the environment has also been echoed by the stock market. However, it is very important that this optimism in the economy gets strong fiscal support with proper fiscal policy response as well as anchoring from the government in the present budget for the fiscal year 2021-22 to gain on the favourable monetary policy response from the Reserve Bank of India (RBI, 2021).

The government has tried its level best to align the budget 2021-22 with the Atma Nirbhar Bharat Abhiyan which mainly focused on the supply side of the economy. On the basis of the allocations and anchoring, this budget can be termed as a mixed budget as it has provided enough support to the industries to increase the economic activities but to some extent a few services sectors have been left out by this budget particularly the tourism and hospitality sector. There is not much focus on these sectors with minimal provisions for support to the already struggling tourism and hospitality sector in the budget speech of this year (MoF, 2021a). These sectors require proper attention of the government for the recovery. It is unknown why these two key sectors have been ignored although this budget makes provision for better train coaches for the tourist routes. It is expected that it will take longer than expected to revive the demand in the tourism and hospitality sector as there still persists coronavirus related restrictions in these sectors. Perhaps it may be the reason because of which the government might have not provided much attention to these sectors.

There is another interesting point in this year’s budget. There is no provision to provide direct support to increase the disposable income of the taxpayers. Personal tax rates and slabs have been kept unchanged against the popular expectations. Not only this but at the same time, the funds allocation to the MGNREGA scheme has also gone down by 34.5% from ₹1,11,500 crores to ₹73,000 crores (MoF, 2021b). It is important to note that the MGNREGA has provided huge support to Indian economy during the COVID period by providing employment opportunities in rural India. Not only this year but this scheme has been providing employment opportunities to substantial numbers of rural workforce (Upadhyay, 2019). Also it should be noted that post the lockdown there still persists the scarcity of jobs in the market. There is no explanation of this change in the policy direction. However there is one possible explanation to this change in the direction. It is quite possible that the government might be looking for ways to increase the employment opportunities with formal jobs rather than informal jobs. If this is the intention of the government for slashing the allocation to MGNREGA, it is a positive change in the policy direction. However, it is a very high expectation and possibly unachievable in the short term. But to some extent this will ease the fiscal position of the government.

In this budget, the government has allocated the same amount of funds to the PM Kisan Scheme along with the increased fund allocation to the education and healthcare sector as well as Jal Jeevan Mission, metro projects, road construction and smart cities (MoF, 2021b). It has announced a favourable Vehicle Scrappage Policy for the automobile sector. This will result in the increased demand in the automobile and allied sector which will eventually increase demand in other sectors also due to the ripple effect in the economy (Sitharaman, 2021).

Considering the experiences during the Coronavirus pandemic, there is a need for the complete change in the policy perspective and direction relating to the healthcare sector. In this budget, the government has increased allocation to the sector but there is need for the complete transformation of the sector but the government has not been able to provide an anchor to transform the Indian healthcare sector to gain on the vaccine lead. It is quite possible that in the future such virus related pandemics or epidemics may become common and for that India needs to be prepared to avoid stern but not very effective measures like lockdown.

One of the most important and notable developments that has been brought in this budget is the focus on fiscal transparency. It seems that the government has decided to clean-up the fiscal accounting practices. India has been following a practice of not recognizing the borrowings of the Food Corporation of India (FCI) in the budget. This year the government has accounted for the borrowings of the FCI in its fiscal deficit. To some extent this change in the policy is responsible for the higher than expected fiscal deficit this year. Until last year FCI used to borrow from the National Small Savings Fund and these borrowing were part of off budget or extra budgetary resources. In the similar manner, the union budget does not recognize the deficits of the states. Because of this practice, the deficit numbers mentioned in the Union Budget don’t give the right picture of the deficit position of the whole economy.

Bibliography:-

  • MoF. (2021a, February 1). Outcome Budget. Retrieved from Union Budget: https://www.indiabudget.gov.in/doc/OutcomeBudgetE2021_2022.pdf 
  • MoF. (2021b, February 1). Budget Highlights. Retrieved from Union Budget: https://www.indiabudget.gov.in/doc/bh1.pdf 
  • MoF. (2021c, February 1). Macro-Economic Framework Statement 2021-22. Retrieved from Union Budget: https://www.indiabudget.gov.in/doc/frbm1.pdf 
  • RBI. (2021, February 5). Monetary Policy Statement February 3-5, 2021. Retrieved from RBI: https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=51077 
  • Sitharaman, N. (2021, February 1). BUDGET 2021-2022. Retrieved from Union Budget: https://www.indiabudget.gov.in/doc/Budget_Speech.pdf
  • Upadhyay, R. K. (2019, October 31). Slowdown in Indian Economy and MGNREGA . Retrieved from The Deliberation: https://www.deliberation.in/2019/10/slowdown-in-indian-economy-and-mgnrega.html
- Rajeev Kumar Upadhyay

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