Feb 1, 2021
Will Finance Minister Nirmala Sitharaman budget provide relief to the pandemic-hit common man and as well focus on driving the economic recovery?
As India surfaces from the COVID-19 crisis, the budget is broadly expected to focus on boosting spending on job creation and rural development, generous allocations for development schemes, putting more money in the hands of the average taxpayer and easing rules to attract foreign investments.
The budget has to be the starting point for picking up the pieces after the economic destruction caused by the COVID-19 pandemic. It has to be a vision statement, a roadmap to get the world’s fastest-growing major economy back on track.
A budget, which goes a long way in instilling confidence, cannot be replaced by ‘mini-budgets’ such as the one in September 2019 when the government cut corporate tax rate just two months after Sitharaman presented her maiden one, or the periodic announcements of economic measures that dotted 2020.
There is a larger agreement among economists that the annual GDP for FY21 will decline by 7-8 percent, one of the weakest performances among the developing nations.
The government has to play a serious role in bringing up the economy and create a viable economic revival and hence this budget tends to be special.
Since the last budget, the size of the economy has reduced from Rs. 2.24 lakh crore nominal GDP considered in the FY21 budget to Rs. 1.94 lakh crore. There has been lower-than-budgeted revenue growth and higher expenditure to offset the adverse impact of the pandemic.
Amongst the most-watched figures in the budget would be the expenditure on vaccination in FY22 which could be shared among the central government, state governments and households.
India has started the largest vaccination program in the world from January 16 and is using two vaccines – Covishield and Covaxin.
Four elements must be activated to build economic vibrancy over the long term – give infrastructure a significant push through public and private investments facilitate large-scale private and foreign investments across industrial, services and agricultural sector; incentivize private consumption in the near a term without significant compromises on tax revenues, and step up allocation in health and education sectors.
Irrefutably, the government has a difficult task of maneuvering the nascent recovery of the economy and managing the fiscal burden, which is expected to remain high not only for the current year but also for the subsequent years, he said.
In the current scenario, it would be impossible not only for India but for countries globally to shoulder the pandemic without fiscal destabilization in the short to medium term.
India Ratings and Research said the government finances need to be steered in a way that puts the economy back on track. Projecting a Rs. 60,000 crore revenue shortfall in the fiscal year ending March 31, it estimated the fiscal deficit at over 7 percent in the current fiscal as against the budget target of 3.5 percent. For the next, it put the fiscal deficit at 6.2 percent.
It is expected that the upcoming budget to prioritize growth-oriented measures with the commitment to warrant that the momentum of recovery seen in the economy recently remains sustainable.
GlobalData, a leading data and analytics company said the need of the hour is to increase credit flows, especially to small and medium enterprises sector, as well as investment in education and health sectors to boost production and consumption.