With the economy hit by Covid-19 claiming 1.5 lakh lives and pushing India into a recession, Union Finance Minister Nirmala Sitharaman on Monday freed herself from fiscal constraints to budget for a spending boost massive to boost the incipient recovery of the economy.
What makes Budget 2021-22 probably the boldest of the last six years is its intention to privatize the PSU banks and state insurers, a taboo for all governments, especially at a time when reformist farm laws, facing backlash, have been effectively suspended.
The call from political leaders to ignore fiscal hawks and present a reform-driven growth budget boosted market sentiment with the BSE Sensex registers a profit of 5 percent – the steepest one-day budget increase since 1997. The Sensex jumped 2,315 points to close at 48,600.61 while the Nifty gained 4.74 percent to close at 14,281.20 points.
At the base of the growth strategy, the Budget estimates that GDP will grow by 14.4 percent in 2021-22, there is the government’s position not to extend any income taxes or other subsidies in a year in which the Demand collapsed, forcing many out of work, and still others. suffering pay cuts. Instead, Sitharaman relied on boosting capex, a 34.46 percent increase over budget estimates for 2020-21, which itself is expected to trigger a cycle of growth, which in turn generates employment and increase income.
Sitharaman has also brushed aside concerns about the high fiscal deficit and nasty cuts from sovereign rating agencies, providing a path to reduce the fiscal deficit to 4.5 percent of GDP by 2025-26. Essentially, this means that spending will stay at elevated levels for at least the next several years before growth converges to pre-Covid-19 levels, and then stays at India’s trending growth rates of 6, 5% to 7.5%.
The fiscal deficit – estimated at 6.8 percent of GDP in 2021-22 – would be financed by market loans of Rs 12.05 lakh crore. Given the pandemic, the fiscal deficit in the current financial year has skyrocketed to 9.5 percent of GDP from the budget estimate of 3.5 percent of GDP. While there are concerns that higher spending could fuel inflation, the budget game plan clearly leans more toward growth.
Finance Minister Nirmala Sitharaman brought the first digital budget out of Parliament on Monday. (Express photo by Praveen Khanna)
Along with the aggressive spending plan, Sitharaman also put in place an institutional structure – a bad bank and a development finance institution (DFI) – that will allow low-cost funding for infrastructure investments. The DFI will obtain the legal backing, Rs 20 billion for capital, and will be able to generate loanable resources of Rs 5 lakh crore over the next three years. Along with this, Rs 20 billion has been set aside for the recapitalization of banks.
Sitharaman’s budget follows a series of measures as part of AtmaNirbhar Bharat packages over the past 10 months, which it said amounted to Rs 27.1 lakh crore or 13% of GDP. After the Budget, Prime Minister Narendra Modi said: “It conveys the vision of Atmanirbharta … The government paid due attention to fiscal sustainability while increasing the size of the Budget.”
The massive fiscal expansion has been synchronized with a rebound in economic recovery; unlocking process that is practically over; daily Covid-19 cases of less than 15,000 and the start of an India-wide vaccination program for which Sitharaman has budgeted 35 billion rupees next year. It has also proposed providing Rs 2 lakh crore to states and autonomous bodies in addition to working out specific mechanisms to push them to spend on infrastructure creation.
With the shadow of Covid-19 looming over the economy, Sitharaman raised the allocation for health and welfare by 137 percent to Rs 2.23,846 crore in 2021-22.
Sitharaman and Anurag Thakur address the press after the budget presentation.
Sitharaman also said that the government has accepted the recommendations of the Fifteenth Finance Commission that 41 percent of the Union’s net tax revenue be shared with the states, and 1 percent for the Union Territories of Jammu and Kashmir and Ladakh. To address the mismatch in spending cycles, the FFC’s proposal to create a non-amortizing defense fund was also accepted.
The spending boost is targeting infrastructure sectors including roads and highways, railways, textiles, metro, healthcare and water supply. Sitharaman announced a plan for the textile sector, under which seven parks will be established over three years. Announced new highway projects including states linked to the survey: Tamil Nadu (3500 km – Rs 1.03 lakh crore), Kerala (1,100 km – Rs 65,000 crore), West Bengal (675 km – Rs 25,000 crore) and Assam (1300 km – Rs 34,000 crore).
A highly anticipated personal and commercial vehicle scrapping policy is also expected to boost demand for automobiles. Personal vehicles over 20 years old and commercial vehicles over 15 years old will need to take physical fitness tests.
What really caught the attention of the FIIs tracking the Indian economy was the decision to raise the cap on foreign direct investment (FDI) in the insurance sector to 74 percent from the current 49 percent, and to privatize two banks in the sector. public and one state-owned. insurance company next year. Laws would be modified for these and to facilitate an initial public offering for LIC.
Sitharaman said that the government approved a strategic divestment policy for the UPMs. The policy states that all PSUs will be privatized except for a minimum in four key strategic sectors: from transportation and telecommunications to defense, atomic energy, energy, coal, banking and insurance. Along with this, he launched a monetization plan for the assets of NHAI, PowerGrid, Railways, airports, warehouses and sports stadiums.
As part of AtmaNirbhar Bharat’s policy, the Minister of Finance provided Rs 1.97 million lakhs over the next five years under the productivity-related incentive scheme covering 13 sectors. It also continued with protection measures for the domestic industry by imposing customs duties on a variety of products including electronic items, compressors for refrigerators and AC, auto parts such as electric motors and relays, etc.
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