India’s Budget 2021 sets the pace for next phase of growth

An ambitious Health and Wellness Programme of US$30 billion, establishment of a company to finance infrastructure projects, and a major programme to divest government investment from major companies and undertakings are among the initiatives that have been proposed in the Union Budget of India for 2021.

It was in many ways first of its kind- the most important of all, a Digital Budget.

Six Pillars of the Budget

Finance Minister Nirmala Sitharaman has yet again proved that she can command courage and inspire confidence among investors and businesses in general and among the common people when she spoke of the ‘Six Pillars’ on which her Budget 2021 rests.

They include Health and Wellbeing, Physical & Financial Capital, and Infrastructure, Inclusive Development for Aspirational India, Reinvigorating Human Capital, Innovation and R&D and  Minimum Government and Maximum Governance.

Reading the Indian Budget has never been easy, for it always contains proposals and provisions of an ever-expanding economy, which ever-inherent problems that are political, social, communal and a myriad other issues but the Federal government in increasingly using informatics, charts and tables to provide highlights that can be quickly grasped.

Unprecedented contraction

In presenting the Budget in Parliament on February 1, 2021, Ms Sitharaman spoke of the unprecedented contraction of the world economy and the unimaginable loss of human lives in most countries affected by Covid-19 pandemic  and the emergence of a health crisis.

“The risk of not having a lockdown was far too high. Within 48 hours of declaring a three-week-long complete lockdown, the Prime Minister announced the Pradhan Mantri Garib Kalyan Yojana, valued at 2.76 lakh crores (US307.65 billion), which provided  free food grain to 800 million people, free cooking gas for 80 million families for months, and cash directly to over 400 million farmers, women, elderly, the poor and the needy,” she said.

Some Budget highlights

Notwithstanding the adverse effects of Covid-19 (reduced GDP, soaring unemployment, a crisis-ridden banking sector and the worst of all the ongoing Farmers Protests), Budget 2021 is steering the economy towards an expansionary path.

Ms Sitharaman believes that is the only way to sustain and order higher levels of growth.

“Today, we are reaching a US$3 trillion level. So, when we aspire to reach a $US 5 trillion level, many wonder if it is possible. If we can appreciate our citizens’ ‘Purusharth,’ or their ‘Goals of Human Pursuit,’ filled with their inherent desire to progress led by the dedicated leadership present in this House, the target is eminently achievable,” she told Parliament.

Major takeaways

The largest beneficiary of Budget 2021 is the Health sector, which receives US$30 billion, up by 137%, an answer to the long-neglected area of the economy, accounting for only 1.3% of the GDP. Ms Sitharaman intends to spend more than US$ 8. 5 billion to upgrade infrastructure at the Primary, Secondary and Tertiary level over the next six years.

As a part of the spending, the government is launching the P M Atma Nirbhar Swasth Bharat Yojana (National Health Plan through Self-Reliance).

“This will also strengthen existing national institutions and create new institutions to cater to detection and cure of new and emerging diseases. This will be in addition to the National Health Mission,” Ms Sitharaman said.

The biggest Vaccination in human history has begun in India (Getty Images)

The government has already committed another US$4.8 billion to India’s Covid Vaccination Programme, the world’s largest drive, which will extend to more than 1.3 billion people.

Shipments of Covishield and Covaxin (the two approved vaccines) have been made across the country. While Covishield was developed jointly by Oxford University and UK based Astra Zeneca, Covaxin is the result of collaboration between India’s Bharat Biotech and the Indian Council of Medical Research (the National Institute of Virology), another matter of pride.

Infrastructure gets a boost

The Federal government will establish a new Development Finance Institution with an initial capital of US$2.7 billion to support large-scale infrastructure projects.

According to the Budget proposal, this is expected to initiate spending and offer some relief to banks which are burdened by a mountain of debt.

Also in the works is an Asset Reconstruction and Management Company or a ‘Bad Bank,’ that will take on unpaid debt from existing banks to free up their lending capacity.

National highway projects and infrastructure corridors have been cleared in poll-bound states such as Tamil Nadu, Kerala, Assam and West Bengal. And a scheme has been announced to set up textile parks across the country.

Overall spending on infrastructure is up sharply by 35%.

Disinvestment Programme

Ms Sitharaman has set a target of US$23 billion for disinvestment during the 2021-2022 Financial Year, which will extend to all public sector undertaking, except four strategic areas.

The government plans to sell off a clutch of public sector companies, including the debt-laden national carrier Air India, by the end of financial year 2021-22.

“A number of transactions, namely, Bharat Petroleum Corporation Limited, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, Bharat Earthmovers Limited, Pawan Hans and Neelachal Ispat Nigam Limited are among the companies would be completed in 2021-2202. Other than the IDBI Bank, we propose to take up the privatisation of two Public Sector Banks and one General Insurance company this year,” Ms Sitharaman said and added that legislative amendments will be introduced to Parliament shortly.

In a move that experts are touting as a major reform, two public banks and an insurance company will be privatised.

Opening up India’s financial services sector further, the budget also increased foreign investment limits in insurance companies, allowing foreign ownership and control, with safeguards.

The stock markets welcomed the announcements, clocking gains in excess of 4.5%.

Year 2020 saw significant growth in agricultural produce (Getty Images

Increasing Fiscal Deficit

India’s fiscal deficit for the current financial year is set to rise to 9.5%, the highest since the country opened its markets to the world in 1991. For 2021-22, the deficit is being targeted at 6.8%, significantly higher than the consensus estimate of 5.6%.

Ms Sitharaman said the goal was to halve it in the next five years.

Experts are also predicting a sharp rebound in India’s economy, which is now projected to contract 7.7% in the current financial year, but grow at 11% levels in 2021-22, making it among the fastest growing economies in the world. The sharp rebound comes from a much lower base, given that GDP entered the negative zone in 2020-21.

Year of Milestones

Year 2021 would witness significant milestones for India.

It marks 75th year of Independence; 60 years of Goa’s accession to India; 50 years of the 1971 India-Pakistan War; it will be the year of the 8th Census of Independent India; it will also be India’s turn at the BRICS (a grouping of Brazil, Russia, India, China and South Africa Presidency; the year for our Chandrayaan-3 Mission; and the Haridwar Maha Kumbh, which is expected to attract about 70 million people, the world’s largest gathering.

The above Report has been sponsored by