Home / Budget / Opinion /  The finance minister’s mixed bag of several hits and some misses

I hate to start with a complaint about Union Budget 2021 in the midst of whoopee reactions in stock markets (on top of the whoopee going on for several months), but budget documents this time are downloadable only in portable document format (pdf), unlike last year, when the tables were accessible in spreadsheets that you could immediately work with.

On the key denominator issue, nominal gross domestic product (GDP) is projected to grow in 2021-22 at 14.4 %, below the 15.4 % rate projected by the Economic Survey. The survey estimate was based on expected real growth at 11 %, and inflation at the mandated mean of the monetary policy framework. At that same inflation expectation, the budget projects real growth at 10%—a puzzling difference of opinion between two divisions of the same ministry.

Thus, the GDP projected in the budget for the forthcoming year rounds off to an absolute number of 223 trillion, as against the 225 trillion projected by the survey. As always, we have to go with the budget estimate.

The Centre’s fiscal deficit for 2020-21 is roughly 10.5 trillion more than the 8 trillion budgeted. General government debt, combining the budget estimates of Centre and states, works out to 81.4 % of the reduced nominal GDP at the close of the current fiscal year. (That estimate is based on figures from the Annual Report of the Reserve Bank of India, and follows the practice of the annual Status of Debt reports in adding on all extra budgetary borrowing by the Centre, to the best of my knowledge.) When the incremental debt of the Centre and likely increment of states is added on, we get a closing estimate in the range of 88-90% of GDP, higher than the 85% estimated by the International Monetary Fund.

This points to the key element to look for in the budget document, which is what it will do to ramp up growth. We have to focus on the denominator, and it is worrying that the budget division was not too sanguine about that.

There are a number of growth-promoting budget provisions, which, if implemented, might well grow us out of a fiscal hole. Many of these, like the excellent production-linked incentives started in the current year, display no further expansion to cover more sectors, or vertical integration between sectors, or even more importantly, federal linkages across the three tiers of government, so as to enable local initiatives to scale up. This and other expenditure estimates cover anywhere from three to six years, so it is difficult to get a handle on what is immediately going to get spent (and the aggregates in the annexes did not provide any further clarification).

I thought more explicit attention was needed on promoting mobility of labour, other than the ‘One Nation, One Ration Card’ initiative of Atmanirbhar, which will give migrant labourers access to their share of the family ration card. It was one of the reforms for which states were rewarded with additional borrowing capacity. I found 35,000 crore for vaccination against covid a little paltry. Unless people lose their fear of mobility, we will make no dent in seriously negative growth sectors like mining and internal trade and transportation.

On physical infrastructure, I was disappointed that no attention was paid to incomplete infrastructure projects, which dot the landscape as monuments to delayed payments to contractors. The Department of Economic Affairs has been given 44,000 crore to be used at its discretion towards projects showing good progress and needing further funds. There is a promise to set up a conciliation mechanism to resolve contractual disputes. It is not clear that this will do any better than the arbitration channel presently available.

In the financial sphere, there is a most welcome promise of a new structure for the resolution of stressed assets. Two institutions for asset reconstruction and asset management will be set up. What matters for these is the operational freedom they will have. There is also 20,000 crore for recapitalization of public sector banks, but no mention of the banking sector reform that needs to accompany the additional funds injected.

On the new development finance institution for which an initial allocation of 20,000 crore has been made, I presume an internal study has been done of those three old warhorses we had in socialist India for long-term lending, and their descent into crony lending, before a path out of the mess was crafted for each of the three.

We continue on the path of raising customs duties for the protection of domestic industry. The agriculture infrastructure and development cess on many imports, in some cases with lower basic duty to compensate, will once again raise the hackles of states whose divisible pool goes down with that cess replacement.

There are many good measures for the relief of direct tax payers in terms of the process frustrations they face, and for a reduced compliance burden for small-scale industry. All these will raise a cheer. But the whole country will cheer only with buoyant growth and job creation.

Indira Rajaraman is an economist

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