Budget 2021-22, presented in the backdrop of Covid-19, has three major challenges: Containment of the pandemic; massive job losses due to the lockdown; and unprecedented contraction of GDP.
The deceleration in growth in eight quarters prior to Covid-19 has further added pressure on growth revival. The massive job losses have hit consumption, resulting in demand deficiency and GDP contraction.
The ‘Atmanirbhar’ Budget is based on six pillars: (1) Health and Well-being, (2) Physical and Financial Capital, and Infrastructure, (3) Inclusive Development for Aspirational India, (4) Reinvigorating Human Capital, (5) Innovation and R&D and (6) Minimum Government and Maximum Governance to revive growth. However, “pillar-wise” resource Budget allocation is not clearly indicated.
The allocation for Health and Well-being has been raised to ₹2.24 lakh crore — an increase of 11.2 per cent over 2021-20 (RE). However, within this Pillar, allocation for health research, nutrition, and health and family welfare have been reduced by 34.4 per cent, 27 per cent, and 9.6 per cent, respectively. Fresh allocation of ₹35,000 crore is for the vaccination programme while water and sanitation allocation gets bumped up 252 per cent .
The PM Atmanirbhar Swasthya Yojna, with an outlay of ₹64,180 crore, in addition to the National Health Mission spread over six years, is focussed on developing capacities of primary, secondary, and tertiary healthcare systems, strengthening national institutions, and creating new institutions for detection and cure of new and emerging diseases.
As for job creation and restoring growth, the Budget seems to have stressed more on a medium-term strategy, as evidenced from resource allocation priorities. Despite a surge in the number of job-seekers following the return of migrant labour, the budget for MGNREGA has been reduced to ₹73,000 crore from ₹1.12 lakh crore in 2020-21 (RE). Similarly, the allocation for the National Social Assistance that puts money into the hands of beneficiaries has been curtailed to mere ₹9,200 crore compared to ₹42,617 crore in 2020-21 (RE).
In contrast, there has been a sharp increase of 26.2 per cent in capital expenditure, to ₹5.54 lakh crore over 2020-21 (RE). The schemes with timeframe of 3-5 years include infrastructure projects covering roads and highways, transport in urban areas, affordable and rental housing, power, particularly green and clean power generation and so on. Strong political considerations such as impending elections in Assam, West Bengal, Tamil Nadu and Kerala have driven the spatial allocation.
Infrastructure creation can bring down the logistics cost and spur industrial investment. With significant backward and forward linkages, infrastructural spending made efficiently can be expected to create jobs and resultant effective demand.
The Budget is pinning its hopes on large capital spending on infrastructure for creating jobs. Thus, the implementation and completion of infrastructure projects is of crucial importance.
The proposal for a National Research Foundation with an allocation of ₹50,000 crore is a step in the right direction. In India, it is still the government that spends massively on R&D with the corporates sector’s share being abysmally low. R&D investments are critical for domestic manufacturing, but the Budget has no specific measures to boost corporate investments in this area.
No help for services
The service sector (trade, hotels, transport, communications and services related to broadcasting) is expected to witness a contraction of real GVA of 21.4 per cent in 2020-21. But the Budget has not proposed any revival plan for sectors like tourism, hospitality, entertainment and education.
Despite the large spending plan, the Budget has continued with fiscal consolidation: the revenue deficit has been reduced to 5.1 per cent of GDP in 2021-22 and fiscal deficit to 6.8 per cent. There is a plan to bring down the fiscal deficit to 4.5 per cent by 2025-2026.
Apart from the usual sources such as market borrowing, external debt, borrowing from State provident fund and internal debt and public account, the Budget has targeted ₹1.75-lakh crore in 2021-22 from PSU privatisation and monetisation of assets like land lying idle with government departments.
Strategic stake sales in Air India, BPCL, Container Corporation of India, and Shipping Corporation of India as well as the planned initial public offering of Life Insurance Corporation (LIC) are expected to come through this year.
It also seems to assume, despite the expeced 7.7 per cent contraction of GDP in 2020-21, a V-shaped recovery will start, leading to better resource mobilisation.
There is nothing in the Budget to address the issue of massive unemployment of around 38.7 million as on December 2020 as against 18 million in the pre-Covid period. Larger provision for schemes like MGNREGA, PM Garib Kalyan Yojana to provide guaranteed job in the informal sector could have put money in the hands of the people to restore effective demand in the short run.
Sarma is Distinguished Professor at CSD, New Delhi, and Shyam Sunder is working with a leading Indian corporate. Views expressed are personal