Evaluation of Budget 2021

Source: The Hindu

Gs2: Parliament and State Legislatures- Budgeting

Synopsis: The evaluation of Budget 2021 is done on three parameters. First, on the credibility of the Budget. Second, it’s potential to deliver adequate domestic output and jobs. Third, on how the Budget raises resources.

What is the Credibility of the Budget 2021?

• Budget 2021 scores high on credibility. Because, unlike previous budgets, Budget 2021 has taken into account the real estimates of revenue receipts. Moreover, it has recognised the ‘off-balance sheet’ expenditures.
• This has resulted in arriving at real fiscal deficit numbers that are much higher than expected. It is 9.5% of the GDP for FY21 and 6.8% of the GDP for FY22. But disclosing real fiscal deficit has the following Significance
  1. One, realistic revenue budgets will reduce the pressure on tax authorities to engage in tax terrorism.
  2. Two, it will allow governments to release its payments and refunds on time.
  3. Three, focus on the ‘real’ numbers will help in informed decision-making and planning to improve our fiscal balance.

Steps taken to provide adequate domestic output and jobs

1. Budget 2021 signals a shift away from the revenue expenditure towards Capital Expenditure. Capital expenditure in FY22 is budgeted to increase by 26% over FY21 due to increased focus on areas such as infrastructure, roads, and textile parks.
2. The budget also promises to improve health, education, nutrition and urban infrastructure.
3. Along with this, efforts are being made to increase domestic jobs. It includes reform of labour laws, corporate tax rate cuts, and production-linked incentives.

What steps were taken to raise resources and improve investment?

• The Budget focuses to raise resources through disinvestment and asset sales, rather than via additional taxes. It reduces the tax burden on people.
• The Finance Minister also announced the creation of a new Development Financial Institution to facilitate and fund infrastructure investments.
• There were also efforts to revive our stressed financial services ecosystem. The Finance Minister announced the creation of a government Asset Reconstruction Company, or ‘bad bank’, to reduce the non-performing assets that are spread throughout the industry.

Way forward:

• The government should also help to revive other sectors who are suffering from chronic stress. Examples are financial services, power, real estate, telecom, airlines and shipping, contact-based services and micro, small and medium enterprises.
• Also, taking lessons from the global financial crisis in 2008, the government should not assume that a revival in consumption and government spending would automatically result in durable growth. Hence, the Government needs to make efforts to ensure adequate growth in domestic output and jobs.