India will look beyond fiscal deficits to get the economy back on its feet after a difficult year. This was the message conveyed by Finance Minister Nirmala Sitharaman. In the Union Budget 2021-2022 which was presented on February 1, 2021.
India’s spending plan aims to jumpstart the economy that has been going through a protracted slump in the 2020-21 fiscal year.
The GDP growth is projected to contract by 7.8 per cent. That’s hardly surprising since all other major economies have taken the fiscal boost route to revive the flagging economic growth.
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Under the current environment, government spending is a significant component to boost production, consumption and job creation.
Of course, it has long-term consequences in terms of potential debt overhang, a surge in inflation, huge interest in government borrowings currency instability and potential payment crisis in the future.
The government will increase capital expenditure to Rs 5.54 trillion in the next fiscal year from a revised Rs 4.39 trillion in the current year. Although total spending increased by less than 1 per cent from this year’s revised estimate of Rs 34.5 trillion.
In the global context, India’s deficit challenge is not unique. Other emerging-market heavyweights also are seeing their fiscal deficits balloon as they fight the pandemic.
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Union Budget 2021-2022: Important Highlights
1. Healthcare
The finance minister has accorded special attention to the healthcare sector. The overall outlay is nearly Rs 2.25 trillion, which is an increase of more than 135 per cent over the last year.
The enhanced allocation includes areas such as nutrition, sanitation, clean drinking water and pollution control.
The allocation of Rs 350 billion towards COVID-19 vaccination is also a welcome step. India currently spends about 1% of GDP on health, among the lowest for any major economy.
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2. Infrastructure
India requires massive infrastructure investments for growth. The government’s big fiscal boost will go a long way in modernising roads, rail, air and water transport networks.
The proposal to involve the private sector through public-private partnerships and monetisation of existing infrastructure through full or part sale will add to the government revenues and make the capital expenditures more efficient.
Proposed spending in the infrastructure sector includes a Rs 2.87 trillion allocation for clean water supplies over the next five years. Rs 3 trillion for the power sector for the next five years and 10 billion rupees for Solar Energy Corporation of India.
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3. Support for Financial Services
The plan to set up a development finance institution to fund the infrastructure pipeline is a significant step.
The introduction of an asset reconstruction company (for banking) is likely to provide much-needed support for banks as stressed assets rise because of the pandemic.
To address concerns around asset quality, credit loss, and liquidity stress. This Union Budget 2021-2022 has been proactive in infusing additional capital of 200 billion rupees to PSU banks.
Providing continued credit access to wholesale and retail borrowers and therefore pushing the growth agenda.
One of the most significant proposals in the Union Budget 2021-2022 is to increase the foreign investment cap in insurance to 74 per cent from 49 per cent.
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4. Revenue the Weak Link
Even as India’s revenue collection has been declining because of COVID-induced lockdowns. The Union Budget 2021-2022 is short on new revenue augmenting tax reforms.
No major changes are seen in direct and indirect taxes except for a few changes in import duties targeted at supporting domestic companies.
While the tax revenue shortfall will widen the fiscal deficit. The government has partly addressed it through government asset sales, disinvestment in public sector companies and monetisation of some government-owned infrastructure such as toll roads, airports and key rail corridors.
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5. AatmaNirbhar Bharat
Various sectors have been thought of for a while, considering Aatma Nirbhar Bharat. The government has come up with strategic policies for various public sectors.
The sectors that come under AatmaNirbhar Bharat are atomic energy, space and defence, transport and telecommunication, power petroleum, coal and other minerals, banking, insurance and financial services.
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6. Looming Fiscal Deficit
Lower revenues stemming from higher spending will result in higher fiscal deficits. The finance minister has projected a fiscal deficit of 6.8 per cent of gross domestic product for 2021-22.
The current year is expected to end with a deficit of 9.5 per cent — up from the 7 per cent expected earlier and the medium-term target of 3 per cent.
Millions of people lost their jobs when the government ordered a lockdown last year to combat the coronavirus. The government estimates that the economy will contract by 7.7 per cent in the current fiscal year ending in March.
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But then recover to show 11 per cent growth in 2021-22. That would make India the world’s fastest-growing major economy ahead of China’s projected 8.1 percent growth.
India’s bold spending plan of Rs 34.83 trillion, risks higher and longer fiscal deficits to lift the country out of COVID-19. An induced economic slump is expected to see a GDP contraction of about 7.8 per cent in the current financial year.
Sitharaman’s plan to reboot the economy and gain the pace for sustainable growth comes with a massive capital expenditure outlay, spanning infrastructure, healthcare, agriculture, energy, domestic production, and exports.
Asia’s third-largest economy is betting big on government spending to bring back GDP growth, jobs, consumer demand, and improvements in public health.
Know More about Union Budget 2021-2022
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Union Budget 2021-2022: Economy & Capital
The budget has increased capital expenditure to Rs5.54 trillion in the next fiscal from a revised Rs4.39 trillion in the current year. Although total spending increased by less than 1 percentage point from this year’s revised estimate of Rs34.5 trillion.
Like other major global economies, India has no other choice but to spend its way out of the slump and get back to a growth trajectory. That supports the livelihoods of hundreds of millions of people.
However, its impact on public finance will be huge in terms of revenue augmentation and managing deficits in the long term. While the government has been lagging in revenue collection following the pandemic.
The budget has not significantly changed the direct and indirect taxes. On the revenue side, it relies on proposals such as higher customs levies on some imports to boost self-reliance, selling state assets and public sector dividend income.
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Additionally, Sitharaman plans to raise 1.75 trillion rupees by selling state assets. That leaves a significant revenue gap, which the government plans to bridge through public borrowing to the tune of Rs12 trillion. That will widen the fiscal deficit for an extended period.
For the current financial year, it is estimated at 9.5 per cent of GDP; for 2021-22 it is projected at 6.8 per cent, and it is likely to remain elevated above 5 per cent through 2025-26.
That simply means the government’s plans of keeping fiscal deficits below 3 per cent will remain a moving target shortly.
The Finance Minister stated that India’s fight against COVID-19 continues into 2021. The political, economic and strategic relations in the post-Covid world are changing in the dawn of a new era. An era in which India is well poised to truly be a land of promise and hope.
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Union Budget 2021-2022: FAQ
What Is the Meaning of Union Budget
As per Article 112 of the Indian Constitution, the Union Budget of a year also referred to as the annual financial statement is an estimated expenditure and receipt of a government for the next coming financial year.
Who Prepares Union Budget
The Department of Economic Affairs is responsible for the formulation of the Union Budget. This department works under the supervision of the Ministry of Finance. The Ministry of Finance issued the guidelines for the expenditure and receipts for the financial year.
How Is the Union Budget Prepared
Union Budget is prepared under the supervision of the Ministry of Finance. along with several other ministries and governing bodies NITI Aayog and several other ministries. The Ministry of Finance issued the guidelines for the expenditure and receipts for the financial year.
How To Understand Union Budget
The Union Budget is a skill-based process that requires proper allocation of revenue sources, taxes, expenditures, and revenue for the financial year. To plan and execute the Union Budget, proper allocation is required with good governance and well-designed policies.
What Is the Union Budget of India
As per Article 112 of the Indian Constitution, the Union Budget of a year also referred to as the annual financial statement is an estimated expenditure and receipt of a government for the next coming financial year.
When is the Union Budget Presented
The Finance Minister of India presents the Union Budget in February every year in the Indian Parliament.
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