Budget 2021: Continues with fiscal conservatism

Source: The Hindu

Gs2: Parliament and State Legislatures- Budgeting

Synopsis:  A close analysis of Budget 2021 reveals that the Government is following the principle of fiscal conservatism. The policy of Fiscal spending was the need of the hour.

Why the government resorts to fiscal conservatism?

Falling revenues had forced the government to restrict its aggregate spending. Some of the issues that contributed to falling revenues are,

• • • A sharp reduction in corporate tax rates in September 2019,
    • The underperformance of the Goods and Services Tax regime.
    • Failure of government’s ambitious disinvestment agenda. The government was only able to collect ₹32,000 crores last year, compared to the plan of ₹2.1-lakh crore.
    • The mandate of Fiscal Responsibility and Budget Management (FRBM) Act to reduce the fiscal deficit.

Because of the above reasons the Total expenditure for 2021-22 is projected to rise only by just 0.95% compared to revised estimates for 2020-21.

What are the signs of a continuation of Fiscal conservatism in Budget 2021?

1. First, Allocation to MGNREGA and Food subsidies:

• According to the Budget 2021-22, the allocations for the MGNREGA programme is drastically reduced from the ₹1,11,500 crore spent in 2020-21 to ₹73,300 crores in 2021-22.
• Similarly, the allocation for food subsidies has been reduced from ₹4,22,618 crore in 2020-21 to ₹2,42,836 crore in 2021-22.
• MGNREGA and food subsidies supported the vulnerable section in a big way, in survival during lockdowns.
• Experts see this as neglect of responsibilities by the government to support the vulnerable and marginalized people.

2. Second, Allocation to health and wellbeing

As per the Budget, the government has increased its spending on health and capital expenditure.

• Health spending increased by 137% compared to the previous year. (From ₹94,452 crore in 2020-21 to ₹2,23,846 crore in 2021-22)

However, closer scrutiny of budget allocations for health suggests otherwise. For example,

• The expenditure on the Jal Jeevan Mission is included as a part ‘Health and Wellbeing’ expenditure. It has magnified the figures on Health expenditure.
• Also, an increase in Budget spending on Health is not reflected equally in the allocation for the Department of Health and Family Welfare. For example, the Budget estimate of the Department of Health and Family Welfare for 2021, shows a mere increase of 9.6% compared to last year.

3. Third, the allocation for infrastructure investment

As per the budget, Capital spending is increased by 35% compared to the previous year. (from ₹4.12-lakh crore in 2020-21 to ₹5.54-lakh crore in 2021-22)

But the Budget estimate for infrastructure will also not be adequate. Because of the following reasons,

• The government is planning to finance new investments in infrastructure through disinvestments of equity, strategic sale, and privatization of the public financial sector. It is expected to yield ₹1.75-lakh crore in 2021-22.
• However, after looking at the past performance of disinvestment targets,  It is an overambitious target.

Even before the Pandemic recedes, the government seems on the path to restoring the old normal. i.e., Fiscal Conservatism. It is still continuing with the same path.