A normal budget for abnormal times

Synopsis: The recently released budget appears to be fairly normal. Normal is not sufficient for the abnormal times like the present.

Introduction

The economy contracted by 7.7% in India. The economic survey projects India’s real GDP growth to be 11% in 2021-22. However, this projection looks overestimated. India will have to surpass pre-covid-19 levels to achieve this growth; this will take at least two years.

• The budget required non-standard policy responses given the abnormal times for the economy. However, no such major changes were made to the budget.
• There is only a 1% increase in the overall expenditure of the government.

What are the issues in the budget?

The increase in capital expenditure is expected to be channelized through Investment in infrastructure, However, it is linked with 2 types of risks;

• If there is a delay in the completion of projects, it will lead to more spending.
• It will not provide instant multiplier effects to lift the demand. As the life cycle of these projects is very long.

There are no drastic reforms for the agriculture sector. For example, no rationalizing of the Public Distribution System issue prices of food grains.

• The cash transfers under the Pradhan Mantri Kisan Samman Nidhi Scheme (PM-KISAN) have not been increased.

Second, manufacturing growth would depend totally on private investments.

• There is a lack of concrete policies towards export promotion in the textile sector. This may weaken the competitiveness of manufacturing exports.

Infrastructure provisioning has unaddressed issues such as execution risk and regulatory issues. The introduction of a development finance institution addresses only one issue.

There is no proper plan to tackle urban unemployment. Employment and demand generation will depend on the impulses of growth cycles.

The target of reducing the fiscal deficit from 9.5% to 6.8% of GDP depends upon hypothetical factors, such as:

• • Total revenue might get some boost from better tax revenue.
  • A renewed hope for better divestment revenues.

The Budget sets out some impressive plans but does not provide the specific mechanisms to achieve those plans.

Although the Budget sets fixed some grand targets, it does not provide the precise mechanisms to achieve those.

Budget 2021: Despite some hits, the Budget has crucial misses