What Union Budget 20212022 gets right
It has shown transparency in numbers, ambition in reforms, and pragmatism
There were no unpleasant surprises in Union Budget 2021-22, and that was the biggest surprise. There was no new Covid tax, no wealth tax, no super-rich tax, no levy of the kind that made markets edgy in the run-up to February 1. Budgets are about headline management, effective implementation, and outcomes. Purists give the three equal weightage, but in the popular reckoning, budgets get remembered for the first more than anything else. And by steering clear of these fears, not changing the income tax regime, and focusing on health and infrastructure, this budget has managed the headlines well. Sure, there was the matter of the agri-cess (which will not mean an increase in price for either the importer or the enduser), and an increase in some import levies in the spirit of Atmanirbharta (self-reliance), but on almost every critical parameter, the Union Budget ticked the right boxes.
On health, it announced a six-year plan, costing ₹64,180 crore to strengthen the country’s health infrastructure — evidence that India has learnt its lessons from the pandemic. On government spending, the budget has increased allocation to capital expenditure by over a third, even as the overall number remains the same as in the revised estimates for 2020-21 (which are anyway higher than the budget estimates for the year, on account of the pandemic). There may be some quibbling about this because it means operating expenditure across several government departments, and on select welfare schemes, will come down from highs seen during the pandemic. But this is in keeping with both life and the economy returning to the prepandemic normal. Capital expenditure is generally considered more productive — and should result both in an increase in demand and help create more jobs.
On the fiscal deficit, the budget has taken the long view (and the correct one, in this newspaper’s perspective), with the government giving itself the leeway to spend more even as it has defined a gradual (and achievable) glide path. India is expected to end 2020-21 with a fiscal deficit of 9.5%, 2021-22 with 6.8%, and has targeted a deficit of 4.5% by 202526. On the reforms front, the budget has announced the privatisation of two State-owned banks, and increased the permissible foreign direct investment in insurance companies to 74% from the existing 49%, with some caveats. In a country that nationalised banks, the first is a radical and significant move. On the compliance front, the reduction in the time-frame for reopening IT assessments is welcome, as is removing the requirement for those over 75 to file returns if their income comes from pension and interest.
The numbers behind Union Budget 2021-22 appear pragmatic, and, most importantly, believable. The budget has assumed a 14.4% nominal growth in Gross Domestic Product (GDP), lower than the Economic Survey’s 15.4%. This means that if the actual nominal growth is closer to the predictions of the Economic Survey, the fiscal deficit could be lower. Union Budget 2021-22 assumes a tax revenue of ₹15.45 lakh crore, lower than the current year’s budget estimates of ₹16.35 lakh crore (revised estimates: ₹13.44 lakh crore). The corresponding figure for 2019-20 was ₹13.56 lakh crore. It is even more pragmatic when it comes to non-tax revenue. It has assumed a non-tax revenue of ₹2.4 lakh crore, lower than this year’s budget estimate of ₹3.8 lakh crore (revised estimate: ₹2.1 lakh crore) and also 2019-20’s ₹3.2 lakh crore. There is no reason to doubt any of these numbers — especially in the context of the sequential recovery underway, evident in a clutch of high-frequency indicators. There are other interesting aspects about the government’s planned revenue gathering efforts – from an initial public offering for the Life Insurance Corporation to the monetisation of land owned by the government and State-owned companies, but these are clearly workin progress; revenue from these has not been factored into the budget.
If there is one thing budget 2021-22 can be faulted for, it is the absence of any direct measures to drive demand, although there are enough indirect ones. Still, given everything else in the budget, and the fact that a 14.4% nominal growth suggests a substantial recovery in demand, no one is likely to complain about it too much.