Has not gone the full distance

There are two ways to evaluate a Budget: as a document detailing the choices being made with respect to expenditure and revenue, or as a roadmap towards a new way of conceiving the functioning of the economy. It is often the case that crises lead to Budgets which are of the latter kind — perhaps the clearest example being the 1991 Budget that re-charted the Indian growth story.

The 2021 Budget comes at such a time. The immediate backdrop is of course Covid, but the medium-term history is of steadily decreasing growth as the 'finance-construction' model in Ashoka Mody’s felicitous phrasing has sputtered out. Even with a sharp rebound next year, the Indian economy will probably be about the same size as it was at the start of the pandemic. At the same time, certain features of India’s growth — particularly its relatively lopsided nature — calls for a different way of navigating the economy.

Nirmala Sitharaman’sBudget does provide an inkling of an alternative vision but, by and large, it does not rock the boat much. It is seemingly tossed between liberalism and Atma-nirbhartha — continuing the long, slow march in the former track but making some gestures towards the latter. Because it is unclear what is meant concretely by the term (Make-in-India? protectionism? self-sufficiency in key sectors like finance?), Aatma-nirbharta is a useful signifier.

Some of the key (welcome) support measures— to MSMEs, migrant labour, real estate, discoms and the like — come as part of the package, but they would be part of any reasonable plan of support in a time of crisis. What may be genuine attempts at greater self-sufficiency — production-linked incentive (PLI) scheme for manufacturing and the new development finance institution — are also part of this bundle. In the latter, there may be an implicit recognition that the universalisation of banking did not work as intended. And, of course, initiating further tinkering with customs duties suggest a reversal of more liberal practices. By contrast, in other areas, the needle is decidedly tilted in another direction — FDI in insurance being raised significantly to 74 per cent, a Bill to privatise public sector banks is on the cards, and taxes remain unchanged (this, of course, makes eminent macroeconomic sense). Now one could take this as expediency, but it is certainly unclear what path is the medium-term future of the Indian economy.

In terms of actual expenditure, the key feature that commentators seemed to have seized on is the substantially higher fiscal deficit numbers. The Economic Survey seemed to hint at this stance and the Budget confirms it. Indeed, the headline fiscal deficit figure is estimated at 6.8 per cent in the coming year. In that sense, the FRBM Act and its revisions are, for all practical purposes, a dead letter. Promises of consolidation by 2025 or 2026 allow for a pretence of fiscal rectitude, but it is simply that. This is all for the better.

There may be a new fiscal consensus at some point, but the current requirements of resurrecting demand, restarting economic activity and simply saving lives rightly trump such considerations. But as with the rest, the Budget seems unwilling to fully go the distance. It should be noted that the actual additional expenditure is roughly ₹4 trillion, while revenue is lower by ₹4.6 trillion due to lower output. This is roughly of the order of 2 per cent of GDP additional expenditure planned.

Taken as a whole, this was a Budget that is trying to balance a number of difficult choices. But because it does not seem to be motivated by a clear vision of what the drivers of the Indian economy ought to be in the future, it fails, despite the initial hoopla that preceded it.

The writer is Professor of Economics at Azim Premji University, Bengaluru

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