Union Budget Strengthens the Focus on Growth

Union Finance Minister Nirmala Sitharaman truly pre­sented a historic budget with growth as the centrepiece and a focus on delivering next-gen reforms. The measures announced in the budget are expected to be transformative and signal the resurgence of a self-confident India. The pump priming of the economy with an emphasis on capital spending aimed towards critical areas of healthcare, infra­structure, financial sector among others, is encouraging and will buttress the strengthening of the growth recovery process which is currently underway. The budget spelled out a vision for providing further impetus to the government’s flagship Atmanirb­har Bharat Programme by articulating the measures under the critical six pillars.

Recognising the need for the government to support and nurture the green shoots of recovery by budgeting an increase in the capital spending by an impressive 34.5 per cent in 2021-22 was a much-needed push at an hour when India is struggling to revive demand post the pandemic. Among the several announcements to provide a fillip to the infrastructure sector was the move to set up Development Finance Institutions (DFIs), which is expected to play a critical role in channelising investments in infrastructure. 

In addition, the setting up of a National Asset Monetisation Pipeline is a nota­ble move by the government and is likely to not only boost sentiment but will also generate additional resources for the government. Both these announcements were something that the CII had been very strongly advocating with the government. The setting up of seven Mega Investment Textile parks, doubling ship recycling capacity by 2024, announcement of new economic corridors, ushering in of com­petition in distribution of utilities, are the other noteworthy measures announced in the budget.

Complementing the expansion in physical infrastructure, social infra­structure also received a shot in the arm through the budget. The pandemic has served as a reminder that it is critical to build on our health infrastructure. Acknowledging this, the budget an­nounced a large 137 per cent increase in health and wellbeing spending for the next fiscal which included several sig­nificant announcements such as launch of a new centrally funded scheme, the Pradhan Mantri Swasthya Suraksha Yojana, Mission Poshan 2.0, and commitment to provide Rs 35,000 crore for the Covid-19 vaccine in FY22.

The announcement of extension of social secu­rity benefits to gig and platform workers and ap­plicability of minimum wages to all categories of workers are all remarkable measures indeed.

The agriculture sector, which has proven to be the bellwether for the economy this fiscal, saw some signifi­cant announcements in the budget. These include measures such as the in­tegration of 1,000 more mandis with e-NAM, making the agri infrastructure fund available to APMCs which are expected to strengthen the marketing infra­structure and access to markets for the farmers. In addition, the doubling of the corpus of Micro-Irrigation Fund will complement the existing irrigation infrastruc­ture projects and help in optimising usage and improving water productivity. 

The Financial Sector 

The financial sector is a critical artery of the economy and its robust operations are a key pillar in supporting India’s growth journey. Acknowledging this, the sector saw several landmark announcements, including setting up a Bad Bank in the form of an Asset Reconstruction & Manage­ment Company which is in line with CII’s recommendations. The Public Sector Banks (PSBs) which have large NPAs in their balance sheet, have been impacted in their capacity to provide credit to the economy. With credit flows being the lubricant for the real sector of the economy, there was an urgent need to accelerate the process of transferring NPAs outside the PSBs in particular, and creation of a Bad Bank in the form of Asset Reconstruction and Management Company is a step in this direction. In addition, the increase in FDI limit to 74 per cent with foreign management and control with sufficient safeguards and the move to further reduce the monetary limit to Rs 20 lakh for NBFCs to enforce the SARFAESI Act are all welcome moves. 

Expansionary Fiscal Policy 

The budget pursued an expansionary fiscal policy to boost the nascent economic recov­ery, with the 2021-22 fiscal deficit pegged at 6.8 per cent of the GDP. The deficit print for the current fiscal was also revised higher to 9.5 per cent of GDP on higher capex spending and because some off-budget spending items were taken on the balance sheet. Encouragingly, the government also announced its decision to amend the Fiscal Responsibility & Budget Manage­ment Act (FRBM Act) and laid down the medium-term fiscal consolidation path of taking the deficit to be­low 4.5 per cent of the GDP by 2025-26. 

The budget has pro­posed an aggressive disin­vestment programme and asset monetisation pro­gramme. The proposal to disinvest two public sec­tor banks and one general insurance company in FY 2022, in addition to the announcement of the LIC IPO are all bold moves and one hopes that the government is able to successfully implement these. 

Overall, the budget retained the focus on growth while moving towards fiscal consolidation in a phased manner.

Chandrajit Banerjee

Guest Author The author is Director General, Confederation of Indian Industry