Union Budget 2021: A deep analysis of Nirmala Sitharaman’s ‘economic vaccine’

Budget 2021-22: The immediate agenda was to cope with the pandemic and simultaneously course correct the economy dented by Covid and a long period of slowdown even before the virus disruption.

Union Budget 2021: A deep analysis of Nirmala Sitharaman’s ‘economic vaccine’

Tarun Gupta | The union budget for the financial year 2021-22 lived up to the preceding promise and expectation. It is indeed a policy document demonstrating resolve to put up resilience in the face of once in a century crisis. The share markets promptly gave it thumbs up and ended with record intraday gains and the surge continues till the time of writing. The initial reaction of the industry bodies and economists has been encouraging. The opposition leaders promptly and unsurprisingly trashed the budget but that’s more a reflection of the polity of our times than the quality of the budget.

The impromptu-unbiased response of any analyst should really be that the FM has done just what the doctor ordered. The immediate agenda was to cope with the pandemic and simultaneously course correct the economy dented by Covid and a long period of slowdown even before the virus disruption.

What were the key macro demands from the government?

  1. To come out of the throes of Corona
  2. To invest in human capital
  3. To upgrade the infrastructure, create jobs and stimulate demand for economic revival

In the last one year, the world response to our handling of the pandemic has traversed from scepticism to disbelief to cynicism and now hesitant admiration. Could we have done things differently? Maybe. Have we done better than most developed countries? Certainly. Setting aside 35000 crores for vaccination shows the government’s commitment to not allow any slippages. Isn’t saving human life, preventing any avoidable loss of life, the foremost priority at any point in time for any dispensation of whichever hue?

Our 1.30 billion people, the world’s youngest population is a curse or a demographic dividend will be borne out by what we make of it. For aeons, the discussion has been on the need to upgrade our human resource, to increase the social security spending.

This budget provisions the highest health outlay ever both in terms of absolute numbers and percentage of GDP. At 2.23-lakh crore and 1.8% of GDP, it’s a 137% increase over the previous year, the maximum ever year on year growth. In addition to Covid inoculation, a pneumococcal vaccine will be rolled out across the country. The emphasis on nutritional programs and the holistic preventive, curative and well-being approach is the way forward to improve our health standards.

The most crucial transformational factor for any society is education. After over three decades, a national education policy was announced last year. Finance Minister has proposed to back it with an enhanced proposed expenditure of 3.5% of GDP as against 3% in the previous year. The commitment to develop 15000 exemplar schools and national research foundation outlay of 50000 crores in 5 years should serve us well.

In the aftermath of Covid, the economy is afflicted with a demand constraint. The most effective way to boost demand is to leave more money in the hands of people. A universal income transfer is unaffordable for us. The government has decided to go big on infrastructure with the allocation of around 1.20 lakh crore for the ministry of road transport and 1.10 lakh crore for the ministry of railways and consolidated capital expenditure at over 5.50 lakh crores. Besides providing a robust foundation to support a development edifice, the cascading effect of infrastructure spending on other avenues of the economy and job creation can hardly be overstated.

Another critical area for sizeable allocation has been defence. The overall provision of around 4.78 lakh crores may not be a substantive increase over last year but is still the highest outlay ever with the capital expenditure for defence modernization raised by record 19% to 1.35 lakh crore.

There are a lot of welcome ideas in the budget speech. Setting up a long term development financial institution for infrastructure finance, an asset reconstruction company to take over stressed assets of public sector banks, proposed privatization of two PSB’s are all in sync with the need of the times.

Is the Budget 2021-22 a panacea for all our ailments? Well, this isn’t a panegyric. The truth remains that despite higher spends, our social security allocation is still insufficient considering our population and when benchmarked against the developed world. To put in perspective Norway spends 6.4% of its GDP on education and USA around 17% of its GDP on health. It’s a long way before we are counted amongst the top performers on indices of human development or world innovation etc.

There are more avenues where we are punching well below our weight. The disinvestment target has been reduced to 1.75 lakh crore from 2.1 lakh crore for last year, perhaps to bring in line with realism factoring our dismal performance on this front in the recent past. However, in times of stupendous and unprecedented share market rally, it seems an under commitment and would be disappointing if we do not overachieve. The central and state governments are the largest landowners. It will be a travesty if we fail to monetize the so-called non-core assets.

Direct tax rates have been left untouched. While no additional tax may be lauded as an enormous relief, it shouldn’t shift focus from the long-term requirement to rationalize. Standard deduction rise for salaried, dividend taxation in the hands of the recipient, the gap between peak personal tax and corporate tax remain areas of concern. Of course, the FM is straitjacketed by circumstances but the great Indian middle class may feel shortchanged and perhaps an expression of intent would have been comforting. After all, weren’t there few years between Arun Jaitley the then FM indicating corporate tax reduction before it was actually brought down by present FM in September 2019? They say in justice and fairness, perception is as important as delivery.

Our long-term direct tax policy should incorporate two timeless learning’s: you cannot levy Scandinavian level taxation for Africa grade services and societies are far more compliant if they are convinced that their contribution to the exchequer is being used for nation-building rather than sponsoring the opulent lifestyle of the elite.

Well, perfection exists only in a utopian world. On the whole, Budget 2021-22 strikes the apt cords and makes the right sounds. It’s neither a pipe dream nor a nightmare, instead, a well-calibrated document reflecting our resolve and encapsulating our resilience. The focus areas have all been touched by executive largesse. The destination is distant but its progress in the right direction. As with all matters, innovation lies not just in conception but also execution.

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