Editorials - 02-02-2021

In a year of economic slowdown and growing inequality, we have been presented with a stingy Budget that fails to ensure the bare necessities for all

While the country continues to grapple with the health and economic crisis as a result of COVID-19, widespread hunger and food insecurity is a silent emergency that has not been getting sufficient attention. Unfortunately, the Union Budget also does not include any significant measures to address this.

The partial National Family Health Survey-5 results released recently showed that child malnutrition levels in 2019 were higher than in 2016 in most States. The fall in incomes witnessed by most poor and working-class households in the last one year would have made this situation even worse. Recent field surveys conducted by Hunger Watch and the Azim Premji University between October 2020 and December 2020 found that for two-thirds of the respondents, food intake was still not back to pre-lockdown levels. Malnutrition has multiple determinants with access to food, health and care being the immediate. A global pandemic and an economic slowdown, which has come on the back of years of jobless growth and stagnant rural wages, has hit household food security hard. Data show that even before COVID-19, nutritious diets for most Indians were unaffordable.

No greater allocation

In this context, direct nutrition programmes such as the anganwadi programme and school mid-day meals make a crucial contribution to the diets of children and pregnant and lactating women. The 2020-21 revised estimates for anganwadi services is Rs. 17,252.3 crore, compared to a Budget estimate of Rs. 20,532.4 crore, which was itself less than the projected demand of Rs. 24,810 crore. This shows that the anganwadi services have been badly affected by the closure of anganwadi centres. There are large gaps in delivery of supplementary nutrition. It is not clear whether the revised estimates reflect a true picture, because data of the Controller General of Accounts show that the expenditure of the entire Ministry of Women and Child Development (which implements anganwadi services among other things) up to December 2020 was only Rs. 14,607.1 crore (49% of Budget estimates).

In the current Budget, different schemes have been clubbed together and anganwadi services are now part of something called ‘Saksham Anganwadi and Poshan 2.0’ which has an allocated budget of Rs. 20,105 crore. The total budget allocation of the schemes that were included in Saksham in 2020 was higher at Rs. 24,557.4 crore.

Two other important nutrition-related interventions of the Ministry of Women and Child Development also saw major underspending with the revised estimates for the national nutrition mission (Poshan) for 2020-21 being only Rs. 600 crore compared to a Budget estimate of Rs. 3,700 crore. For maternity benefits under the Pradhan Mantri Matru Vandana Yojana (a cash transfer of Rs. 5,000 for pregnant women), the revised estimate is Rs. 1,300 core compared to the Budget estimate of Rs. 2,500 crore. This scheme is now part of Samarthya, along with other schemes such as Beti Bachao Beti Padhao and Mahila Shakti Kendra. These schemes have also seen a reduced allocation compared to last year (Rs. 2,522 crore vis-à-vis Rs. 2,828 crore). The allocation for the mid-day meal scheme for 2021-22 is Rs. 11,500 crore which is lower than the revised estimate of Rs. 12,900 crore for 2020-21. Nutrition schemes, which have been suffering from poor budgetary support for many years now, therefore do not see greater allocations despite the increasing prevalence of malnutrition.

Other social protection programmes such as old age, widow and disability pensions, which could also contribute to better nutrition, also do not see any increase compared to last year. Even for migrant workers, other than setting up a portal, there is no announcement of any special measures. The One Nation, One Ration scheme has not taken off and is mired in complications.

Food subsidy

While the food subsidy seems to have increased by more than three times, it must be understood that this does not reflect higher distribution of subsidised grains. This only reflects a correction in the Budget books, where the government is paying back Food Corporation of India (FCI) arrears rather than forcing the FCI to take loans. The total FCI debt as on December 31, 2020 was Rs. 3.7 lakh crore (accumulated over the last few years because adequate amounts were not allocated for food subsidy), and the additional amount being shown in the revised estimate over last year’s Budget estimate is Rs. 3.1 lakh crore which matches the debt that FCI has with the National Social Security Fund. The food subsidy allocation for 2021-22 (Rs. 2.4 lakh crore), while much higher than last year’s Budget estimate, is more realistic in terms of what is required to meet the National Food Security Act entitlements. But it is clear that there is no provision for an expanded or universal PDS which many have been recommending.

In fact, it is shocking that even the health budget has not been increased, with the allocation for health this year being lower than the revised estimate for 2020-21 (Rs. 74,602 crore versus Rs. 82,445 crore). The only increase here seems to be in the allocation for the COVID-19 vaccine which is a one-time expenditure and does not contribute to strengthening the health system.

Missing the mark

Overall, from the point of view of addressing hunger or providing a demand stimulus, this Budget misses the mark. The total expenditure of Rs. 34,83,236 crore is only Rs. 32,931 crore above last year’s revised estimates. While it is Rs. 4,00,000 crore more than previous year’s budgetary allocation, much of this difference is because of the correction in the food subsidy numbers. What we have been presented with in a year of economic slowdown and growing inequality is a stingy budget that fails to ensure the ‘bare necessities’ for all.

Nutrition schemes, which have been suffering from poor budgetary support for many years now, do not see greater allocations despite the increasing prevalence of malnutrition.

While the Budget promises to revive the economy faster, it continues to emphasise the protectionist trend

Besides impacting the disposable incomes of the people, the Union Budget is significant for three reasons. First, it delivers the balance sheet of the government and informs us about what happened in the past year and what is proposed to be done in the next year. Second, it shapes the macroeconomic environment of the country in terms of its proposed impact on macro economy due to decisions on raising resources and spending. Finally, it provides reform signals on which economic agents place their expectations.

The Union Finance Minister has presented the 2021-22 Budget which, if effectively implemented, promises to revive the economy faster and take it on a higher growth trajectory. It not only addresses the immediate requirements to augment aggregate demand by increasing infrastructure spending, but also initiates reforms in critical areas to take the economy on a higher growth trajectory in the medium term. With people having navigated 2020 with considerable pain, there were expectations that the Budget would help revive the economy. Unlike in normal times, when the concern is on deficit and debt, the focus this year is on how the Budget helps in increasing aggregate demand, particularly by increasing investment expenditure, and more importantly, how it addresses several structural weaknesses which had reduced the growth potential.

Reviving the economy

In some ways, the Economic Survey had prepared the intellectual background for the Budget. It had reiterated the need to have counter-cyclical fiscal policy, focused on accelerating growth for ensuring debt sustainability, and emphasised the importance of public investment expenditure which have higher fiscal multipliers to ‘crowd in’ private investments. It had also argued that the rating agencies are biased and advocated increased borrowing for public investment spending by quoting Rabindranath Tagore. The market too hoped that the Finance Minister would keep the agenda for fiscal consolidation in abeyance and increase public investment expenditure to revive the economy.

It was clear that the pandemic badly impacted the balance sheet, but it was important to know how bad the impact was. The estimated contraction in revenues in 2020-21 was almost 23% from the Budget estimates. The tax revenue shows a decline of 17.8% and non-tax revenues are lower by 45% from the Budget estimates. Despite this, contrary to expectations, the government has not compressed expenditure. Although until October, the expenditure incurred was lower than the corresponding period in the previous year, the revised estimate of public expenditure is higher than the Budget estimate by 13.4%. Both revenue and capital expenditure have gathered pace since October and the revised estimate for 2020-21 is higher than the Budget estimate by 14.5% and 6.1%, respectively. It is thus not surprising that the ratio of fiscal deficit to GDP for 2020-21 is estimated at 9.5%. The implication of this is that besides favourably impacting other sectors’ income generation, the GDP estimate for the third and fourth quarter from public administration, defence and other services is likely to turn positive from -14.9% witnessed in the first half of the year.

The Budget shows a higher growth of revenue at 15%. The tax revenue is expected to be higher by 14.9% over the revised estimates of 2020-21 and non-tax revenue is expected to increase by 15.4%. The disinvestment proceeds are placed at Rs. 1,75,000 crore as against the estimate of Rs. 32,000 crore for the year. However, the budgeted increase in expenditure for the next year is just 0.95%. As a ratio of GDP, next year is likely to see lower expenditure by two percentage points. Interestingly, the revenue expenditure is expected to be compressed by 2.7% whereas capital expenditure budgeted is 26.2%. The increased revenues and disinvestment proceeds have helped to finance higher public expenditure and the fiscal deficit for 2021-22 remains elevated at 6.8% which is lower than the current year, but higher than the expectations. The decision to continue with higher spending to allow full economic recovery is on expected lines.

Sectoral allocations

In terms of sectoral allocations, it was expected that the health and defence sectors would get larger allocation this year. Health is a State subject and much of the increase has to come from the States. The Union Budget provides for a new centrally sponsored scheme, PM AtmaNirbhar Swasth Bharat Yojana, and announces that Rs. 64,180 crore will be spent in six years (the allocation for 2021-22 is not available). On defence, the declining trend in allocation continues. The Budget estimate of total expenditure (revenue plus capital excluding pensions) on defence services for 2021-22 is estimated at Rs. 4.05 lakh crore as against Rs. 4.01 lakh crore in 2020-21 and it works out to just 1.8% of the GDP.

The most important part of the Budget is the reform signals it gives. Besides providing Rs. 20,000 crore for recapitalisation of public sector banks (PSB), an Asset Reconstruction Company and an Asset Management Company are to be set up to purchase the bad assets of banks. The decision to privatise two PSBs and a host of other companies such as Air India, Shipping Corporation of India, Pawan Hans and Containment Corporation of India, and the statement on disinvestment in strategic sectors, provides a clear signal. Increasing FDI in insurance, too, is on similar lines. Similarly, the creation of Alternate Investment Funds is important to avoid asset-liability mismatch in the banking sector. These are important announcements. However, there will be questions about the funding and governance of the new institutions.

The disappointing thing about the Budget, however, is the continuation of the protectionist trend. In the name of self-reliance, we seem to be returning to the pre-1991 days. The Budget seeks to remove exemptions on a number of items and increases rates on some others, including some agricultural products such as cotton, raw silk and silk yarn. There is a broad-based infrastructure cess as well. This is surely retrograde in an otherwise promising Budget.

In the name of self-reliance, we seem to be returning to the pre-1991 days. The Budget seeks to remove exemptions on a number of items and increases rates on some others. There is a broad-based infrastructure cess as well. This is surely retrograde.

This Budget scores very high marks on credibility and on its potential to create domestic output and jobs, but much more remains to be done

The National Statistical Office estimates that our COVID-19-impacted economy will contract by 7.7% in the current fiscal year 2020-21 (FY21). While severe, this estimate likely does not incorporate the significantly higher distress amongst many of our micro, small and medium enterprises.

Thankfully, there are silver linings. We have avoided a second wave of COVID-19, and the worst is hopefully well behind us. Economic activity is rebounding – witness the encouraging GST collections of a record Rs. 1.2 lakh crore for January 2021. But our economy, which was structurally weak even before COVID-19 hit us and has since suffered a body blow, needs to be nursed back to full health.

Against this backdrop, the 2021 Budget can be evaluated on three parameters. First, on the credibility of the Budget math. Second, on its potential to deliver what India ultimately needs — adequate domestic output and jobs. And third, on how the Budget raises resources, and its impact on the economic recovery.

The credibility of the math

This Budget scores very high marks on credibility. For too long now, our Budgets have resorted to accounting smokescreens that masked the true extent of our fiscal imbalance. Thus, revised estimates of revenue receipts would invariably be unrealistically high, only to be brought down sharply later when the books were finalised. Likewise, under the cash accounting that our governments follow, expenditure would be brought down by simply not releasing payments. Instead, entities such as the Food Corporation of India would be ‘encouraged’ to borrow from elsewhere, in lieu of dues from the government.

As a result, against the FY20 revised fiscal deficit estimate of 3.8% of the GDP presented in last year’s Budget, shorn of accounting jugglery, the true deficit is estimated at 5.4% of GDP. Adding borrowings of other central public sector enterprises, the Central Public Sector Borrowing Requirement stood at 7.2% of GDP, nearly twice the official headline central fiscal deficit.

This year, the Finance Minister has largely come clean on the budget math. She has declared much higher than expected fiscal deficit numbers of 9.5% of the GDP and 6.8% of the GDP for FY21 and FY22, respectively. In doing so, she has put out realistic estimates of revenue receipts, and recognised ‘off balance sheet’ expenditures. She has also likely released pending government dues to both the public and private sectors.

This truth augurs well on several fronts. First, with realistic revenue budgets, the pressure on tax authorities to engage in tax terrorism should subside. Second, the government can now release its payments and refunds on time, easing a financial bottleneck that has dogged us for a while. Third, a focus on the ‘real’ numbers should allow for a better-informed debate on ways to improve our fiscal balance.

Hopefully, our State governments will also follow this example of providing credible budget math. The ‘true’ Centre and State combined fiscal deficit is likely around 15% of GDP, far higher than we have ever seen before.

Domestic output and jobs

There is one path for us to pay down this accumulating public debt, achieve durable growth, keep inflation in check, and ensure stable external balance – and that is by creating adequate domestic output and jobs.

The Budget scores well on its potential to create domestic output and jobs.

While expenditure for FY22 has been maintained at the elevated levels of FY21, there is a shift away from revenue expenditure – the regular payments towards items such as administration, interest, and subsidies, that are arguably less productive – and towards productive investments. Capital expenditure in FY22 is budgeted to increase by 26% over FY21, with focus on areas such as infrastructure, roads, and textile parks.

Alongside a promise to deliver more on health, education, nutrition and urban infrastructure, these complement ongoing efforts to foster domestic jobs and output, including reform of labour laws, corporate tax rate cuts and production-linked incentives.

There are 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 warehouse some of the large non-performing assets that permeate the industry. She also announced the creation of a new development financial institution to facilitate and fund infrastructure investments. While in principle these are welcome ideas, much depends on how the modalities are structured and on their execution. We await clarity on this score.

The Budget focuses on raising funds via disinvestment and asset sales, rather than via additional taxes. Again, I commend this choice – while the wealthy can perhaps pay more to fund our deficit, we should avoid endangering our fragile economic recovery from COVID-19 with any additional tax burdens.

The long road ahead

While the Budget has delivered on truth and held out some potential for the creation of domestic output and jobs, there is still much more to be done.

Several sectors of the economy are still reeling under chronic stresses – including pockets of financial services, power, real estate, telecom, airlines and shipping, contact-based services and micro, small and medium enterprises. Any path to a recovery in domestic output and jobs will have to solve for many of these stresses.

Likewise, it would be a mistake to assume that a revival in consumption and government spending would automatically result in durable growth. After the global financial crisis in 2008, we saw a strong revival in consumption, government spending and investments. However, we failed to deliver adequate growth in domestic output and jobs. The result was any central bank’s worst nightmare – high inflation, high imports and external imbalance, inadequate real growth, inequity and fiscal imbalance. All this finally culminated in financial instability, when the Federal Reserve taper tantrum hit us in mid-2013.

The onus is now on the real economy and the government to avoid a repeat of history, to focus on execution, and to deliver on adequate domestic output and jobs. The road ahead will be long and hard, but for now at least, the Finance Minister has delivered.

The Finance Minister has largely come clean on the budget math. She has declared much higher than expected fiscal deficit numbers of 9.5% of the GDP and 6.8% of the GDP for FY21 and FY22, respectively. In doing so, she has put out realistic estimates of revenue receipts, and recognised ‘off balance sheet’ expenditures.

A lenient tax regime that favours private capital, and restrained debt-financed spending are quite evident

Bruised by the COVID-19 pandemic, Indians, like their counterparts elsewhere in the world, are looking for renewal. So, even granting that an annual budget is not a corrective for all ills, evidence of a change in course was expected in Budget 2021. Change also seemed possible. With the worst of COVID-19 and the lockdown-triggered contraction behind it, the government could intensify efforts to not just accelerate recovery but also turn its attention to the neglected health sector and redress the damage inflicted on the poor by the novel coronavirus pandemic.

Conflicting signals

Official signals were, however, conflicting. Coming at the end of a year of the pandemic, Finance Minister Nirmala Sitharaman claimed that the Budget would be one “like never before”. But experience did not give cause for confidence. Additional expenditure by the Centre incorporated in multiple packages over the last year have been estimated as amounting to only around 1.5% of GDP. Yet, there were statements to the effect that much had already been done before the Budget. The multiple stimulus packages were identified as several mini-Budget-like interventions, and the Budget, it was argued, had to be seen as just one more event in that series.

Overall, the Budget seems to carry over the fiscal conservatism witnessed during 2020-21. In that fiscal year, when the crisis called for hugely enhanced spending, total central government expenditure increased by just 13.4%, relative to what had been originally budgeted, when the pandemic had not been factored in. Since expenditure on the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) programme and on food subsidies had to be increased as minimal support measures in the context of the economic disruption, spending elsewhere had clearly been reduced. Despite the extraordinary crisis, falling revenues had led to the government holding back on its aggregate spending to rein in the fiscal deficit and its debt.

Revenue base erosion

Tax concessions, such as the sharp reduction in corporate tax rates in September 2019, and the misconceived Goods and Services Tax regime, underlie the erosion of the revenue base. Though presented before the COVID-19 pandemic was officially acknowledged, the Budget for 2020-21 had projected only a modest increase in the revenue receipts of the Centre, from Rs. 16.8-lakh crore in 2019-20 to Rs. 20.2-lakh crore. The revised estimates suggest that revenue receipts actually fell to Rs. 15.6-lakh crore.

Moreover, the government’s ambitious disinvestment agenda that was expected to pull in Rs. 2.1-lakh crore of non-debt capital receipts seems to have been completely derailed. The sum garnered was just Rs. 32,000 crore. In the event, if spending had to be hiked significantly, deficit concerns had to be dropped. The government was clearly not willing to go in that direction, keeping expenditure growth low relative to requirement. That conservatism seems to persist. Total expenditure is projected to rise by just 0.95% in 2021-22 relative to revised estimates for 2020-21, even if 14.5% relative to the Budget estimate for 2020-21.

Unwinding support measures

With fiscal conservatism persisting, the government is set to wind down even the limited support it afforded to those hit hard by the pandemic. During the current fiscal, expenditure on the MGNREGA programme touched an estimated Rs. 1,11,500 crore (RE) as compared with a budgeted Rs. 61,500 crore and an actual expenditure of Rs. 71,687 crore in 2019-20. Many deprived of jobs and livelihoods were supported by the programme. There is no reason to believe that all of them can now return to their erstwhile occupations, since the economy is still performing poorly.

Yet, allocations for the MGNREGA programme are, going by Budget figures, to be drastically curtailed, from the Rs. 1,11,500 crore spent in 2020-21 to Rs. 73,300 crore in 2021-22. The picture is the same with food subsidies, which are to be reduced from as much as Rs. 4,22,618 crore in 2020-21 to Rs. 2,42,836 crore in 2021-22. Clearly, in the government’s perception, the case for support is over, and the time has come to unwind even the limited support measures that the pandemic forced it to undertake.

What then makes the Finance Minister declare this Budget as being one “like never before”? Amid the multiple claims made in Part A of the Budget speech, two claims seem to be specially geared to creating the image of a never before Budget.

One is a declaration that the Budget incorporates a package for “health and well being” that would take spending on its constituent items from a budgeted Rs. 94,452 crore in 2020-21 to Rs. 2,23,846 crore in 2021-22. An increase in health spending, of 137%,is presumably influenced by the lessons from the pandemic.

The other is a multi-faceted infrastructural investment thrust supported with a claimed 35% increase in capital spending, from Rs. 4.12-lakh crore budgeted in 2020-21 to Rs. 5.54-lakh crore in the Budget for 2021-22.

Explaining health spending

However, these claims lose force when subjected to scrutiny. To generate the huge increase in health spending, the Budget speech resorts to a rather expansive definition of what can be considered health. In fact, allocations for the Department of Health and Family Welfare do not reveal any significant increase. Budget 2020 provided for around Rs. 65,000 crore for the Department of Health. Compared to that figure, the Budget estimate for 2021, of Rs. 71,269 crore, points to a not-too-spectacular 9.6% increase.

What is more, the Budget estimate for 2021-22 is 9.6% lower than the revised estimate of expenditure of the Department of Health and Family Welfare in 2020-21, of Rs. 78,866 crore. To generate the impressive increase in the allocation to “health and well being”, the Budget speech includes in the figure expenditure on the Jal Jeevan Mission aimed at providing safe and adequate drinking water through individual household tap connections. That component of the “health and well being” Budget rises from Rs. 10,905.50 crore in the revised estimate for 2020-21 to Rs. 49,757.75 crore in the Budget estimate for 2021-22, being favoured by a Rs. 50,000 crore allocation from the cess-financed Central Road and Infrastructure Fund originally created to finance roads and highways. Drinking water matters and must be provided but cannot be a substitute for core health facilities.

Wishful thinking

In the case of the infrastructural push described in the speech, the budgetary funding provided hardly seems adequate. What emerges is that the intention is to experiment with diverting resources garnered from the sale of existing assets of the public sector to part finance new investments in infrastructure. Besides disinvestment of equity, strategic sale, and privatisation of the public financial sector, expected to yield Rs. 1.75-lakh crore in 2021-22, there is much stress on “monetising idle assets”, especially land, available with public agencies.

As the failed experiment with an overambitious disinvestment agenda included in Budget 2021 suggests, this effort to strip public units of their assets to support private-led infrastructural expansion may be more in the nature of wishful thinking.

The pandemic notwithstanding, Budget 2021-22 suggests that there is no change in the neoliberal fiscal stance of the current government. A lenient tax regime that favours private capital, restrained debt-financed spending, and excessive reliance on disposing of public assets to finance limited expenditures remain the principal elements of that stance. The pandemic may have forced increased spending in a couple of areas. But even before it recedes, the government seems bent on restoring the old normal.

C.P. Chandrasekhar is an economist and columnist based in New Delhi

That there is no targeted employment programme to alleviate the immediate crisis is a matter of concern

The Budget, at its simplest, is the government’s tentative income and expenditure statement. Like all financial statements, the devil lies in the fine print. At its broadest, the Budget is a pious statement of the government’s policy and ideological intentions. It is also the government’s statement of how it seeks to tackle the immediate political (electoral) and economic challenges. Hence, any quick assessment of the Budget has to be preliminary. So how is the Budget likely to affect the lives of citizens immediately, and economic aggregates such as investment, output, employment and income distribution in the medium term?

India’s meagre response

Domestic output or GDP, net of inflation, is expected to decline by 7.7% in the current financial year (FY2020-21), compared to the previous year (FY2019-20). The decline in per capita income is by 8.7%. The contraction is one of the worst among the world’s major countries. The novel coronavirus pandemic and the resultant lockdown led to massive job and livelihood losses (https://bit.ly/3r8KUcu). Unlike most advanced countries and emerging market economies, India’s response to address the distress of the masses has been meagre. The government’s additional public spending to cope with the unprecedented crisis has been a little over 1% of GDP. As is widely known, the output (GDP) contraction in 2020-21 has come on top of a slowdown in GDP growth over much of the previous decade (the 2010s), fall in employment, the decline in real wages, rise in the number of people in poverty, and, hence, an expected rise in the proportion of undernourished children. Much of the decline in the growth rate is on account of an unprecedented fall in fixed investment rate as a ratio of GDP, especially in infrastructure sectors.

Capital expenditure proposal

Given the context, the present Budget’s focus on stepping up public investment by 34.5% in the coming fiscal year (compared to the current year) is a welcome sign. The Finance Minister’s speech said the government will borrow an additional Rs. 80,000 crore for the purpose in the next two months. The estimated fiscal deficit for FY2021-22 is 6.8% of GDP for the central government. AndStates are allowed a higher fiscal deficit, if the expenditure is on capital investment.

These figures certainly look impressive. Realisation of these investments would crucially depend on tax revenue realisations, disinvestment proceeds, sale of rail and road assets and the government’s ability to raise resources from the market, without raising interest rates for the private sector. There is no mention of the government’s recourse to debt monetisation. While the investment intentions are evident, its financing efforts seem to have too many loose ends.

The proposed Development Finance Institution (DFI) is also welcome. One of the reasons for poor industrial and infrastructure investment during the last decade was a lack of long-term credit for infrastructure, which by definition yields low rates of return spread over a long period of time. Commercial banks, whose deposits are for short to medium term, find it difficult to lend for long term (more than five years) for the fear of maturity mismatch. Moreover, as banks were laden with rising non-performing assets on account of poor corporate sector performance during the last decade, their ability to make fresh loans was adversely affected. Further, contemporary experience shows that most successful industrialising economies have relied on DFIs for providing long-term credit (https://bit.ly/3j5cqVs).

While the renewal of the idea of DFI is welcome, many caveats are in order. Its Achilles heel is in securing stable long-term, low cost sources of finance. The Finance Minister’s speech mentioned that the proposed DFI will be financed by foreign portfolio investments (FPI), which is a cause for concern. By definition, FPI represents short term inflows with exchange rate risks, while infrastructure investment is for long term whose revenues will be mostly in rupees. Such an investment will inevitably lead to currency and maturity miss-match, raising cost of capital. Hence, there is a need to consider alternative long-term sources, preferably from domestic sources, or international development agencies.

Health and employment

The first of the “6 pillars” that the Finance Minister described in her speech deals with health infrastructure — rightly so. If the announcement made represents a substantial annual fixed investment in improving urban sanitation, drinking water and sewage facilities, it is indeed a welcome step. There are lessons to be learnt from rural Swachh Bharat Abhiyan, however. As the recent National Family Health Survey data for 2019-20 for select States showed, just constructing toilets in household premises is of little use without adequate access to water and sewage facilities, which are public goods in nature (best provided by local governments). Unless these complementary facilities are constructed in a coordinated manner, the effectiveness of such investments would be minimal.

The Budget has very little to say about employment. Surely, the proposed step-up in infrastructure would create labour demand. It bears repetition that the 2010s were a decade of job loss growth, as in official National Sample survey estimates. The pandemic has rubbed salt into the country’s wound, leading to the migration crisis, which is still with us (as the report cited above shows). Unfortunately, there is very little acknowledgement and response to the crisis in the Budget.

Inequality glossed over

There is no mention of the stupendous rise in economic inequality during just the last year. While the poor lost their jobs and livelihoods in 2020, corporate India’s profits zoomed. The rank of the richest Indian has moved up to the 11th spot on the Bloomberg Billionaire Index. Why could not the Budget consider a special tax on the super-rich — as many countries are now mooting? The Budget does not seem to reckon with such a rise in inequality, let alone seek to redress it.

In summary, if the capital expenditure plan outlined in the Budget speech is credible, and implemented with assured financial backing, it could revive the investment cycle. The proposed development bank for term lending for infrastructure is welcome, provided its sources of finance are cheap, long term and mostly domestic. Investments in urban public health infrastructure — sanitation, water supply and sewage — are in the right direction if implemented in a coordinated manner.

That there is no targeted employment programme to alleviate the immediate crisis is a matter of concern. Government apathy towards those who lost jobs and livelihoods due to the health and economic shocks last year seems galling.

R. Nagaraj is with the Centre for Development Studies, Thiruvanathapuram, Kerala

In times that call for deft stewardship of the economy, this year’s Budget is a starting point

Finance Minister Nirmala Sitharaman made a brave effort to make good use of the lessons learnt from the unprecedented global health crisis and ensuing economic setback to put lives and livelihoods back on track. There is greater spending on health care and some fiscal push to undergird the struggling demand in the pandemic-hit economy. But this is no transformative budget that lives up to the heightened expectations of a weary population waiting for manna from the government. A lot more could have been done to address the chronic underinvestment in India’s public health infrastructure by appreciably raising expenditure. The Union Budget for 2021-2022 presented to Parliament on Monday, instead reveals an estimated health outlay of Rs. 74,602 crore, almost 10% lower than the revised estimate of Rs. 82,445 crore earmarked for health spending in the current fiscal year. The Minister, however, has claimed a 137% increase in the budgetary outlay on ‘health and well-being’ by including a one-time expenditure of Rs. 35,000 crore set aside for the COVID-19 vaccination programme, Rs. 60,030 crore budgeted for the department of drinking water and sanitation, as well as the Finance Commission’s grants for both water and sanitation and health totalling to almost Rs. 50,000 crore. While it is an inarguable fact that the availability of vaccines, ensuring universal access to safe drinking water and proper sanitation and adequate nutrition are all key in determining a population’s well-being, an abiding thrust on creating and maintaining a sizeably more extensive public health infrastructure needed a substantially higher outlay on the standalone head. In fact, the Economic Survey had eloquently made the case for providing a massive boost to health spending, which it reasoned would serve as a direct means to raising overall economic output by reducing the economic burden of illnesses. To her credit, the Minister did announce that the government intends to introduce a new centrally sponsored scheme, ‘PM Atma Nirbhar Swasth Bharat Yojana’, to develop primary, secondary, and tertiary care capacities over the next six years, at an estimated cost of Rs. 64,180 crore. How exactly this scheme pans out in terms of strengthening the beleaguered public health infrastructure in the remote and far-flung corners could well determine how prepared India is for the next unforeseen health emergency. A sizeable fiscal stimulus to reinvigorate consumption demand could have gone a long way in completing the recovery. While the revised estimates for the current financial year project a fiscal deficit of 9.5% of GDP on account of expenditure surging to Rs. 34.50-lakh crore, the Minister has opted for a mere Rs. 33,000 crore increase in the overall expenditure outlay in her Budget estimates for the next fiscal. Here again, she has pointed to the Rs. 5.54-lakh crore set aside for capital expenditure to contend a 34.5% increase in outlay over the current year’s Budget estimate. Far from being an expansionary Budget, Ms. Sitharaman has opted to contain overall spending so as to rein in the fiscal deficit to 6.8% in the coming fiscal itself. The country cannot afford a premature scaling down of fiscal support at a time of rising inequality.

Strapped as the government is for funds in the wake of this year’s economic contraction denting its revenue receipts, the Budget does make bold to set out a few avenues for resource mobilisation. With the Minister announcing her resolve to complete the pandemic-delayed strategic stake sale in several state-owned companies in the coming fiscal, the Budget has accounted for Rs. 1.75-lakh crore in capital receipts from disinvestment. She also proposes to privatise two more public sector banks and a general insurer in 2021-22 and has committed to ensuring that the necessary legislative amendments to enable the LIC’s IPO are introduced in the current session of Parliament. The Budget also throws open the doors for increased FDI in insurance — the foreign ownership limit would be raised to 74% after amendments to the Insurance Act, 1938. Still, it remains to be seen how eager overseas insurers may be to raise their stakes, given the government’s intention to make its proposal politically acceptable by including safeguards such as mandating that a majority of board positions and key management personnel be restricted to resident Indians and requiring the companies to set aside a specified percentage of profits as general reserve. Also on the block for possible sale or lease through concessions are state-owned undertakings’ land assets that the government intends to monetise. In finding the capital for its National Infrastructure Pipeline, the Budget proposes an asset monetisation pipeline that would include highways, airports and ports. The aggressive stance on privatisation notwithstanding, the government is still likely to face an uphill task in achieving its ambitious disinvestment goal given that private investment is still anaemic. Ms. Sitharaman has also embarked on creating a ‘bad bank’ for dealing with the pile of stressed and bad bank loans. The Budget proposes establishing both an Asset Reconstruction Company and an Asset Management Company that would consolidate and take over existing stressed debt and then help dispose of the assets. It is these plans to privatise two state-run banks and also undertake a clean up of the stressed assets that have prompted the Minister to set aside just Rs. 20,000 crore to recapitalise the remaining public banks. Ultimately though, given its effort to mobilise resources without tweaking direct taxes at a time when several States are headed to the polls, the government has had little option but to tap the market for debt. With the Budget positing a gross market borrowing of Rs. 12-lakh crore, the government will end up getting 36 paise of every rupee it nets from borrowings and other liabilities, an 80% increase. Given these challenges, the Budget can only be the starting point for a year that calls for deft stewardship of the economy.