Amidst much anticipation and fanfare, the first digital budget of India was presented by the Finance Ministry on February 01, 2021, for the fiscal year 2021- 22. Presented at a time when India is still making its way out of the pandemic, the budget provides some respite and mostly hope by focusing and investing enormous amounts of money in six major fields- health and well-being, physical and financial capital and infrastructure, inclusive development, human capital, innovation and research development and minimum government and maximum governance. Envisioned with the hope of bringing the fiscal deficit below the 4.5% mark by 2025-26, the budget primarily focuses on increased government spending on capital projects and policy measures that promote private and foreign investment.
Nirmala Sitaraman’s budget has been a matter of scrutiny, discussion, and debate since the day it was announced amongst bureaucrats, politicians, and the common citizens. This article is a critical analysis of the budget, closely looking at its advantages and inefficiencies.
The budget plans to spend around Rs 2 lakh crore on healthcare, and has assigned 35,000 crores on the Vaccination Drive against COVID-19. It has further allocated a sum of 1.10 lakh crore for railways and the completion of 11,000 km of national highway infrastructure this year. The government has tried pleasing various stakeholders by bringing instrumental changes to the existing system. This includes exemption granted to senior citizens aged 75 years and above from paying taxes and filing income tax returns, relaxations to NRIs by removing hardship for double taxation, no increase in the standard deduction and no raise in tax slabs for the aam admi. The budget also systematically allocates an amount close to 1 lakh crore for farmers that shall offer medium to long term financing for investments in farm projects.
The budget places a step forward in ensuring people’s dream of affordable housing is fulfilled. Affordable housing is not only the cornerstone of all human lives but also the catalyst for growth, development, and employment in the economy. By providing an additional deduction of interest amounting to 1.5 lakh rupees to first-time buyers and further extending the eligibility of this condition till March 31st 2022, the budget projects a rise in the sale of residential units which will not only increase rental returns but will also augment investor and real estate developer participation in the housing sector.
Secondly, the budget in many ways plans to strengthen the startup system and entrepreneurial culture in India. The Finance Minister has announced that a one person company (OPC) can be converted into a public or private company anytime. Furthermore, it has allowed NRIs to incorporate OPC in India and has removed the restrictions on paid-up capital and turnover that were currently imposed on OPCs (which were earlier Rs 50 Lakh and Rs 2 crore respectively). This shall lead to the creation of a more favorable atmosphere for the growth of innovation and research in the nation further giving employment opportunities to young men and women spread across Tier I, Tier II, and Tier III cities.
Thirdly, the budget provides an array of opportunities for India to become the world’s textile outsourcing capital. Sitaraman has announced the setting up of seven mega textile parks in the next seven years. The government’s attempt to raise customs duty on cotton from nil to 10% and on raw silk and yarn from 10% to 15% will benefit farmers and boost domestic manufacturing. Such allocations to the textile sector will welcome global apparel brands to Indian shores as they would be incentivized to manufacture in India, eventually leading to a healthier ecosystem for the textile sector.
Firstly, the budget does not paint a true picture about the revenues and expenditures of the current and upcoming fiscal year; it rather places a huge emphasis on borrowings to the finance government, completely oblivious of the interest implications of long term debt. This raises two fundamental questions: How long can the government function on borrowed money? Can a debt-funded budget promise a bright future? Instead of resorting to borrowing money to finance new schemes, the government should rather try cutting down its wasteful expenditure. In simpler terms, to get the economy back on track, the government has to ensure that the returns from growth have exceeded interest and repayment burden of debt.
Moreover, the budget has proposed the formation of a new bad bank to unburden banks with toxic assets, better known as, non-performing assets. However, it seems that the budget has skipped providing answers to questions such as: how would such entities, whether an asset reconstruction or a management company, operate? From where will such entities be financed? At what price and timeline will the bad loans of the banks be transferred to it and how will transparency be maintained during the entire process?.
The Union budget is silent on the immediate need to provide interim income to the millions of people hailing from less privileged backgrounds who have been affected the most in this pandemic mostly migrant workers. The budget fails to provide any safety provision to the millions of frontline health workers, anganwadi and ANM workers (auxiliary nurse midwife) that have been toiling away since the onset of the pandemic by putting their lives at risk. The budget also fails to bring issues such as rising women unemployment, precarious livelihoods and the steep rise in inequalities to the podium. There has been a steep fall in women unemployment by 2.7 million people between the months of November and December in comparison to a decline of 2 million for men. The absence of any provisions in such areas hints at the government’s negligence in ensuring inclusive growth in the economy.
Fourthly, the government has been inefficient in its approach of making the health sector more holistic. The health sector in India gives equal emphasis to both; robust health infrastructure and professional and efficient human resources. While the budget effectively allocates a hefty amount near to 65,000 crores for new health schemes that shall revolve around health infrastructure, it fails to address the softer part — the human resources. There is an underlying need for trained personnel that can work in health centers and clinics. What better than the pandemic could highlight the need for the same.
The budget also brings into light the new centrally sponsored scheme — PM Aatma Nirbhar Swasth Bharat Yojana — under which the government shall establish 17,788 rural and 11,024 urban Health and Wellness Centres and Clinics that will work on three major fields: preventive, curative, and well-being. But what about the existing health care centers that are in dilapidated conditions running with limited resources and inefficient staff? The budget seems to miss this.
There is no doubt in the fact that this year’s budget stands as one of the boldest and most exceptional budgets in the history of Indian finances. Currently, the budget seems to be a bed full of promises. To ensure there is no slippage in the implementation of the proposed measures, it is essential for the government to work in tandem with industries, organizations, and civil society. The budget needs to equally pay adequate attention to important areas such as defense which is an integral component of the Make in India initiative and whose current allocation is very less as compared to China. Increasing female employment, developing primary health care centres, and providing income and food security to the bottom 30% of the Indian population should also be the priority areas of the government.
Overall, Budget 2021 is a well-balanced budget with a huge emphasis on infrastructure and employment opportunities, given the tight fiscal situation at hand. If the conditions of ‘minimum governance and maximum governance’ are fulfilled, this shall be the first budget to take all critical policies — fiscal, trade, monetary, startups, digital, legal etc in perfect coordination.
Om Agarwal is a second-year student at Ashoka University majoring in Economics and Finance.