Finance Minister Nirmala Sitharaman loosened the exchequer’s purse strings and presented an expansionary Budget for 2021-22 on Monday, with a push for infrastructure and health care spending, even as she sought to reduce the fiscal deficit from an estimated 9.5% of GDP this year without ostensibly raising the tax burden.
While there was no direct support for the middle classes, there was some relief as the Budget refrained from levying a COVID cess or surcharge. The Finance Minister set aside ₹35,000 crore for the COVID-19 vaccination program with a promise to provide more if the need arises. The overall Budget outlay for ‘Health and Wellbeing’, she said, is ₹2.23 lakh crore, marking a 137% rise over 2020-21.
Direct succour for some of the sectors and sections worst-affected by the pandemic may be short, but the government is betting on a real GDP growth of 10%-10.5% in the coming year after the estimated 7.7% decline in 2020-21. It hopes to ride on the multiplier effect of infrastructure spending which the minister said would also spur demand and job creation.
Invoking Rabindranath Tagore’s aphorism ‘ Faith is the bird that feels the light and sings when the dawn is still dark', Ms Sitharaman compared the Budget to Team India’s successful comeback in the test series against Australia and said it provides every opportunity for ‘our economy to raise and capture the pace that it needs for sustainable growth’.
“I want to confidently state that our government is fully prepared to support and facilitate the economy’s reset,” she asserted, before unveiling a few big-ticket reform signals for global investors.
The foreign direct investment limit in the insurance sector will be raised to 74% from 49% and a ‘bare minimum’ number of public sector enterprises will be retained even in strategic sectors like defence, under an ambitious new strategic disinvestment policy that will kick off with the sale of two public sector banks and a general insurance company in 2021-22.
A new development finance institution is being set up to fund infrastructure projects under the National Infrastructure Pipeline, while an asset reconstruction firm or ‘bad bank’ will be tasked with taking over public sector banks’ bad loans to cope with rising NPAs. However, just ₹20,000 crore has been earmarked for recapitalisation of banks, lower than expectations given the festering stress on bank’s books from the pandemic’s effects.
Proposing a capital expenditure of ₹5.54 lakh crore in the year, 34.5% higher than 2020-21, the Finance Minister has targeted a fiscal deficit of 6.8% of GDP with gross market borrowings of about ₹12 lakh crores. Analysts said the Budget’s fiscal arithmetic was perhaps the most credible in recent years but achieving disinvestment and non-tax revenue targets will be critical to meet the deficit target.
“We plan to continue with our path of fiscal consolidation and intend to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period. We hope to achieve the consolidation by first, increasing the buoyancy of tax revenue through improved compliance, and secondly, by increased receipts from monetisation of assets, including public sector enterprises and land,” she said.
The stock markets responded enthusiastically, with the BSE Sensex rising 5%, even as the bond markets reacted with caution over the government’s borrowing plans, leading to a spike in yields on 10-year government bonds.
An agriculture infrastructure development cess has been announced on several items including petrol and diesel but the Minister said there will be no impact on consumers as these entailed reducing certain customs duties and adding a cess component to those products. This will ensure that funds are carved out for the sole purpose of building farm infrastructure, Ms. Sitharaman said, emphasising the government’s commitment to the farm sector at a time it is facing protests over recent farm law changes.