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MUMBAI: Finance minister Nirmala Sitharaman’s budget speech on Monday ran into 17,031 words. This was around 19% shorter than the speech last year, which was 20,931 words long. The Budget for 2021-22 has several new ideas to get the economy going again. At the same time, it doesn’t do much harm by introducing new taxes or stop-gap policies, even though it could have done without higher import duties. Here’s a one-stop shop for the most important details of the Budget.

Where’s the fiscal deficit headed?

The fiscal deficit for 2020-21 is expected to balloon to 18.49 trillion or 9.5% of the GDP. It was budgeted at 3.5% of the GDP. Fiscal deficit is the difference between what a government earns and what it spends. The gross tax collection is expected to fall short by 21.6% to 19 trillion this year. In a pandemic year, other than union excise duties, collection of all other major taxes fell, pushing up the deficit. Excise duty collection went up to 3.61 trillion against the budgeted 2.67 trillion, thanks to an increase in the excise duty on petrol and diesel. The fiscal deficit for 2021-22 is expected to be at 15.07 trillion or 6.8% of the GDP.

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Apart from lower tax collections, is there any other reason for this jump?

The Food Corporation of India (FCI) buys rice and wheat directly from farmers and sells it at a much lower price through the public distribution system. The government has to compensate FCI for this subsidy. In fact, until last year, the government did not compensate FCI completely for this. Among other things, the FCI had to borrow money from the National Small Savings Fund, where all the money from small savings schemes ends up, to meet the gap. The government has decided to discontinue this and take on subsidies as a part of its overall expenditure. Due to this, the food subsidies offered to FCI this year have jumped to 3.44 trillion against 75,000 crore last year. This has pushed up the deficit for the next year as well.

Are there any goodies for the middle class?

The good news is that tax slabs and tax rates stayed the same. There was also good news for senior citizens who only earn a pension and interest income. They will now be exempted from filing income tax returns. This should be of some help particularly to retired public sector and government employees. Also, there was no introduction of wealth tax or any fiddling around with the capital gains tax on stocks. This led to the BSE Sensex rallying by 2,315 points or 5%, from Friday’s close. Over and above this, the additional deduction of 1.5 lakh which is currently available on interest paid on a home loan to buy an affordable house, will continue to be available next year.

By how much has the government stepped up spending?

The government expenditure this year will stand at 34.50 trillion, up by around 13.5% against the budgeted 30.42 trillion. Close to 34% of this expenditure will be made between January and March 2021. The government is stepping in as the spender of the last resort, in an environment where consumer spending and industrial expansion has taken a beating. Interestingly, the total expenditure budgeted for the next year is at 34.83 trillion, which is more or less similar to this year. This, despite the fact that the government is initiating many new road projects.

So where does that leave the fiscal stimulus?

When one takes into account the fact that the government will be spending 8.1 trillion towards paying interest on its debt next year, against 6.93 trillion it will pay this year, net net, the real expenditure next year will actually come down. In that sense, the fiscal stimulus from the government has come in 2020-21, with expenditure going up a massive 28.4% in comparison to 2019-20.

Hasn’t there been a massive jump in spending on the health front?

An amount of 35,000 crore has been provided towards the covid-19 vaccine for 2021-22. Also, the total allocation towards health and wellbeing for 2021-22 is at 2.24 trillion, up by 137% in comparison to this year. This also includes a grant of 36,022 crore towards water and sanitation. The government also plans to launch a new centrally-sponsored scheme, the PM Atma Nirbhar Swasth Bharat Yojana, to strengthen the current health systems in the country. The scheme has an outlay of around 64,180 crore over six years.

Is the government finally going to pursue major disinvestment?

The government hopes to earn 1.75 trillion through the disinvestment route next year. It hopes to sell its stake in many companies including BPCL, Air India, Shipping Corporation of India, BEML, etc. It also hopes to privatise IDBI Bank and two other public sector banks and a general insurance company. The government also hopes to bring in the initial public offering of the Life Insurance Corporation of India. The target seems a little stretched given that the government had hoped to earn 2.1 trillion through the disinvestment route this year and has been able to earn only 15,220 crore as of January 20. If the government needs to achieve this target, it needs to start selling stakes as soon as 2021-22 starts.

What are the new things proposed in the Budget?

One of the innovative proposals is sale of surplus land lying with government ministries and public sector enterprises. This is a good way to raise money to fund infrastructure projects. The government has increased the foreign direct investment limit in insurance companies to 74%, from the current 49%. It also plans to launch a development financial institution (DFI) to finance Indian infrastructure. There are also plans of launching a “bad bank" to take over the bad loans of public sector banks and help them clean up their balance sheets.

Why has happened to allocations to Mahatma Gandhi National Rural Employment Guarantee Scheme (MRNREGS)?

The MGNREGS proved to be one of the saviours of the Indian economy this year, by creating work in rural India, with the government allocating 1.12 trillion towards the scheme. Nevertheless, the allocation for 2021-22 has been cut to 73,000 crore by 34.5%. This is a tad surprising given that the economy is still struggling. Over and above this, the government plans to extend the Ujjwala Scheme which has benefited 8-crore households to cover 1 crore more beneficiaries.

What about higher import duties on goods?

Like the previous few years, the finance minister has increased the import duties on a whole host of goods across sectors like agriculture, chemicals, plastics, automobiles, gems and jewellery etc. This is in line with the narrative of Atmanirbhar India. The idea is that by making imports expensive the domestic producers will become competitive and hence, gain market share. The trouble is that the Indian consumer will end up paying more because of this. Also, it doesn’t help if Indian businesses have to compete internationally because to be able to be export competitive they first need to be able to compete domestically.

(Vivek Kaul is the author of Bad Money.)

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