Extraordinary situations call for extraordinary responses. This year’s budget rises to the unprecedented challenges faced by the economy in the wake of the pandemic.
The finance minister brought to the fore — bold, ambitious and unconventional thinking. As a result, the Budget promises to propel Indian economy
into a higher growth orbit over the next few years, reversing the pandemic-induced slowdown.
The budget targets a sharp 35 per cent jump in capex next year — with a thrust on various infrastructure sectors. This is a well-timed spending boost — coming at a moment when the economy is already seeing signs of recovery, following the near-normalisation in economic activity. The central government’s capex will be further bolstered by the increased borrowing cap for State governments next year.
More importantly, this will not be just a one-year stimulus. This is a multi-year investment push. The government has re-aligned the fiscal consolidation trajectory over the next five years in line with the economy’s requirements and is now targeting to glide its fiscal deficit from 6.8 per cent of GDP next year to 4.5 per cent by FY26, as against the erstwhile fiscal deficit target of 3 per cent of GDP. This reflects a more realistic and growth-supportive reassessment of the government’s fiscal policy.
It gives a medium-term visibility to the support that the government will provide to the National Infrastructure Pipeline. Apart from spending from its budget, the government is also creating a facilitative framework of asset monetisation initiatives, Development Financial Institution and tax-free infrastructure bonds - besides removing the hurdles for investment from sovereign wealth funds into infrastructure. These steps will add vigour to the infrastructure sector, creating a solid foundation for a $5-trillion economy.
The reform thrust of the Budget is also remarkable. The government has moved with conviction on its privatisation agenda, signalling an intent to stay invested in just strategic sectors. The move to privatise two public sector banks and one general insurance company marks a seminal shift in mindset. The increase in FDI limit in insurance to 74 per cent, the announcement regarding a single securities markets code, introduction of an investor charter for all financial products and creation of a permanent institutional framework for enhancing liquidity in the corporate bond market are positive steps for the financial sector. There are also several measures to ease compliance burden of companies and taxpayers.
There are two announcements in this Budget that are particularly important for addressing the legacy issues for the economy. The setting up of an asset reconstruction company and asset management company to take over stressed assets of the banking sector is another attempt at cleaning up the NPA issue. One hopes that this new initiative will be comprehensive and effective enough to dilute the overhang of NPAs on credit growth.
On the other issue of outstanding losses of the power distribution sector, the Budget has announced a new scheme with a substantial outlay of over Rs 3 trillion over the next 5 years. The scheme will promote reforms in the power distribution sector. Both these announcements reflect a recognition that these legacy issues have weighed upon economic growth.
As in the previous years, the social sector and vulnerable sections of the economy received a lot of attention in the Budget, which demonstrates the government’s intent to balance growth with inclusivity. In the aftermath of the pandemic, new schemes have been announced in the healthcare sector and also for migrant workers. Social security benefits are being extended to gig economy workers. With the new initiatives for capacity building in the healthcare sector, the provision for health and well-being in the budget has been increased by 137 per cent, which is remarkable.
Overall, I find this Budget to be bold, ambitious and cognizant of the needs of an aspirational India. Indeed, if executed well, this budget can reignite the animal spirits of entrepreneurs and investors — rewriting India’s script in the years to come.