Union Budget 2021-22: A Milestone in Nation Building

Among other things, it envisages to accelerated the pace of structural reforms under the Aatmanirbhar Bharat (May 2020) ANB 2.0 and ANB 3.0. The notable reforms included commercialisation of mineral sector, Labour and Agricultural Reforms, Privatisation of PSUs, One Nation one Ration Card, financial inclusion and production linked incentive scheme. Budget has set the pace for India to become self-reliant or Aatmanirbhar.

Review of Literature

The Constitution of India mandates upon the Union government to lay down ‘annual financial statement’ (which is referred to as budget) before the Parliament. The budget is a statement of the financial statistics of the government for three years, the last year, the current year and the ensuing year. Traditionally, Union budget is classified in revenue and capital budget categories and it comes with proposals for various sectors of the economy and various sections of the society along with tax related proposals in the Finance Bill. The budget is considered as an important policy document because it reflects the financial position and fiscal policy stance of the government along with the direction in which the government intends to steer the economy.

Article 112 and 202 of the constitution of India mentions about the presentation of annual financial statements by the Union and State Governments respectively (Basu, 2009). Under article 112(2), the estimates are shown separately for votable expenditure charged upon the Consolidated Fund of India and the sums required to meet other non-votable expenditures proposed to be made from the Consolidated Fund (Sury, 2002). Further, tax proposals are shown in the Annual Finance Bill. As mentioned earlier, Government presents the budget in the form of ‘revenue budget’ and ‘capital budget’. Revenue budget shows revenue receipts and revenue expenditures. While capital budget shows capital receipts and capital expenditures of the Government, revenue receipts are all those receipts which neither reduces the asset position nor increases liability position of the Government. Capital receipts, on the other hand, are all those receipts which either reduces the asset position or increases liability position of the Government. Similarly, the revenue expenditure and capital expenditure can also be defined on the basis of asset and liability. Any expenditure which increases assets or decreases liability is classified as capital expenditure while any expenditure which neither increases assets nor decreases liability of the government is classified as revenue expenditure (CBGA, 2021).

The classification of budget in revenue and capital component brings out the spending behaviour of the government in a meaningful manner. Revenue account deficit and capital account deficit, as two components of overall budget deficit; highlight the fiscal policy stance of the government whether it is contractionary or expansionary in nature. Expansionary fiscal policy, incurring high fiscal deficit, is an unavoidable choice for India in the present circumstances. However, we must be mindful that high fiscal deficit relative to GDP tends not only to cause a sharp increase in debt-GDP ratio, but also affect saving and investment and consequently economic growth (Rangarajan & Srivastava, 2005). Hence, a countercyclical fiscal expansion in the budget has been adopted cautiously to crowd in rather than crowd out private investment.

Budget 2021-22: Provisions and Prospects

Budget 2021 intends to achieve a real GDP growth rate of 11 percent in the coming financial year 2021-22 while the revised estimate of economic growth is -7.7 percent in the current year, 2020-21. Given the shrunk base and 4.2 percent growth rate in 2019-20, a target of 11 percent is quite reasonable but yet will need a lot of efforts to achieve under the prevailing circumstances.

Estimated total expenditure in the budget of 2021-22 is INR 34,83,236 crores which is INR 32,931 crores higher than the revised estimates of total expenditure in 2020-21. Revenue expenditure is budgeted at INR 29,92,000 crores with a reduction of INR 19,142 Crore compared to INR 30,11,142 crores in RE 2020-21. Capital expenditure on the other hand is estimated at INR 5,54,236 crores in BE 2021-22 which is 34.5 percent more than the budgeted figure for 2020-21. Thus, revenue expenditure and capital expenditure are about 84 percent and 16 percent respectively of the total budget.

Table-1 shows allocation of funds to ministries, departments and others¹. The table shows the significance of various major ministries in the overall allocations of funds. There are fifty-three central ministries and about 93 percent of the allocations are concentrated in the 14 ministries only. Such a low significance of the large number of ministries reflects the quest of the Government to achieve ‘minimum government and maximum governance’ where the State is keen to direct and regulate the private sector rather than involve itself directly in the provisioning of goods and services.

Farmers’ Welfare & Rural Development

Assistance to farmers is rendered in various forms like crop insurance, short term credit, marketing, minimum support price and income security, etc. In this direction there are ten central sector schemes and nineteen centrally sponsored schemes through which funds are made available for direct and indirect benefits of the farmers. Apart from that farmers get benefits from the minimum support price system and other schemes of the government for rural development.

The budget allocations for the year 2021-22 have been reduced for the central sector schemes and centrally sponsored schemes in comparison to the budgeted figures for the year 2020-21 (Table-2). This is an unanticipated cut which may affect farmers and agriculture sector adversely. However, contractionary effects of this reduction on rural economy may be more than offset by a substantial hike in the allocations under various schemes of the Ministry of Rural Development as shown in the Figure-1.

Health and Wellbeing

Health and wellbeing of 1.36 billion people of the country, in the hindsight of the pandemic, has become immensely challenging for which capacity enhancement is greatly required in the healthcare sector. Apart from medical facilities, health and wellbeing include nutrition, water and sanitation also. Health sector in India requires infrastructural upgradation along with increase in the human resource. In this direction, the budget substantially expands the investment expenditure on health infrastructure. The budget has a proposal for a centrally Sponsored Scheme, to be named as PM Aatmanirbhar Swasth Bharat Yojna (PMASBY), which aims to develop capacity of health care system by strengthening existing institutions and creating new institutions.

As far as financial provisioning is concerned the health and wellbeing allocations have been proposed to be about INR 2.23 lakh crores which is 137 percentage higher than the allocations made in the year 2020-21 which is a steep hike even though the allocations for the Ministry of Health and AYUSH as a percentage of the Budget have been reduced (Figure-2). INR 64180 crores have been proposed for the PMASBY over next six years for capacity enhancement at primary, secondary and tertiary health care. Within the overall allocations for health and wellbeing, an allocation of INR 35000 has been earmarked for COVID-19 vaccination. Looking at the year wise allocations to the Ministry of Health and Family Welfare and Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy the trend in allocation is upward excluding the exceptional year 2020-21 where the allocations to the ministry spiked suddenly above the uptrend due to sudden rise in public expenditure due to COVID-19 pandemic.

However, if we have a closer look at these allocations as a percentage of GDP have gone up only by a minuscule 0.3 percent of GDP relative to the allocations made in a 2019-20 that too when the country is facing the stiffest challenge in the health sector. It is needless to say that the COVID-19 pandemic reminded us of the importance of public sector health care infrastructure. The country requires free health care to ensure healthy human resource. Hence the sector requires a greater hike in public expenditure on health and wellbeing.

Physical Capital, Financial Capital and Infrastructure

Capital and infrastructure are considered as the fundamental requirements of economic growth. Future growth prospects of a country depend upon its stock of capital and infrastructure base. So, a growing economy needs to ensure adequate spending on these areas for rapid economic growth. The budget proposals show due recognition to the capital and infrastructural requirements of the country. As an indication, the budget proposes a sharp enhancement of 34.5 per cent in the Capital expenditure. Such an increase in the proportion of capital expenditure is much desirable and likely to boost up the economy from demand as well as supply side. Capital expenditure along with developmental expenditure are two important indicators of the quality of public expenditure. However, raising capital expenditure by raising resources from disinvestment of PSUs and their assets may partly offset the positive effects on demand and supply sides.

As a novel initiative, infrastructural projects will be developed under the National Infrastructure Pipeline (NIP) through institutional set up, monetisation of assets and by enhancing the share of capital expenditure in the budgets of the Centre and the States. Proposed Development Financial Institution (DFI) is one such institution which will facilitate in procurement of long-term debt finances for the infrastructural projects. It will prove to be a catalyst for infrastructure financing and development. The budget recognises the need to provide to consumers a choice in choosing service provider in the power distribution sector and to create competition with a focus on the viability of the distribution companies.

A key area which has been highlighted in the budget is monetisation of public sector assets for building new infrastructure. Existing idle assets and surplus land with government, ministries, department, public sector enterprises such will be monetised. Asset monetisation will provide necessary finance to the government. National Monetisation Pipeline along with Asset Monetisation Dashboard are proposed to be launched to facilitate the monetisation process.

The budget envisages to reduce the logistic costs of the industry further. It is one of the key essentialities for the ‘Make in India’ campaign. Government has persistently shown its commitment towards this end. Construction of highways has been one of the key achievements of the government in recent years. The budget further adds to the construction of highways through ambitious Bharatmala Pariyojna Project which is a centrally sponsored scheme of the Government of India. The budget proposes financial allocations for the construction of economic corridors under the Bharatmala Pariyojna Project in Tamil Nadu, Kerala, West Bengal and Assam. The budget also allocates funds to further the objectives under the National Rail Plan for India-2030 for achieving ‘future ready’ Railway System by 2030. The proposals include construction of Eastern and Western dedicated freight corridors and electrification of railway tracks with a target of 100 per cent broad gauge electrification by December, 2023. Apart from expansion and upgradation, safety measures have also been well recognised under the National Rail Plan through indigenously developed automatic train protection system that eliminates the possibility of train collision due to human error on high density and high utilised networks. It is a much-needed requirement of the railway operations to prevent enormous loss of life and property.

Budget recognised the significance of the Production Linked Incentive Scheme (PLI) which has been introduced by the government in the year 2020 for pharmaceuticals, automobiles and auto components, telecom and networking products, textile, solar modules, food products, white goods, and speciality steel and extended it to thirteen sectors. These incentives are expected to boost up R&D in newer areas and will attract investment in cutting edge technology. This will help in creating a viable environment for Indian companies to be competitive in the global markets and will help the country to move toward a five trillion-dollar economy. It will help our manufacturing sector to become an integral part of the global supply chains. We need Indian global companies for an Aatmanirbhar Bharat in different sectors of the economy. PLI scheme will increase the size and scale of companies in key sectors wherein job opportunities will arise in the near future. The proposed Mega investment Textile Parks (MITRA) will further be an add-on to PLI scheme to enable the Indian textile industry to become globally competitive and attract large investment which will boost employment opportunities.

Banking and Financial Sector Reforms

In the banking sector the budget proposes recapitalisation of public sector banks of INR 20000 crores along with disinvestment in two public sector banks in the financial year 2021-22. Government has infused capital in banks in each of the successive recent years. Further, proposed amendments in Deposit Insurance and Credit Guarantee Corporation (DICGC) Act, 1961 will ensure that bank depositors get easy and timely access to their insured deposits in the event of a bank facing temporary difficulty in meeting its obligations. This is an important step toward increasing confidence of depositors in the banks and lessening the fragility of the banking system.

Indian capital market suffers from a number of problems like fair disclosure of financial information, prevalence of insider trading, front running, manipulation of security prices, unofficial trading in securities, lack of adequate control over brokers, high cost of transactions due to the lack of well-defined norms for institutional investment. The budget proposes to take us a step ahead in the direction of capital market reforms. Two much needed capital market reforms introduced in the budget are:

1. Rationalised Single Securities Market Code by subsuming the SEBI Act, 1992, Depositories Act, 1996, Securities Contracts (Regulation) Act, 1996 and Government Securities Act, 2007.
2. Development of bond market by creating a permanent institutional framework.

The reform will ease the process of raising finance capital for corporate sector and will boost up confidence of foreign institutional investors in Indian bond and security markets.

Inclusive Development

In the direction of inclusive development, budget proposals aim at agriculture, farmers, migrant workers, rural development and financial inclusion among other things. The budget of 2021-22 manifests the commitment of the Government for the welfare of farmers through enhanced MSP for all agricultural commodities, enhanced agricultural credit and substantial hike in allocations to the Rural Infrastructure Development Fund (RIDF) from INR 30,000 crores to INR 40,000 crores. It also proposes to expand the cover of the SWAMITVA scheme to all the States/UTs and enlarge the Operation Green Scheme to include 22 perishable agricultural goods. Apart from that, the proposal of integration of mandies with Electronic National Agriculture Market (e-NAM) will further boost up transparency and competitiveness in agricultural markets.

The plight of Indian migrant workers during mass exodus after the announcement of the lockdown of the country damaged the sentiments of the society. This happened primarily due to the lack social security, food security and loss of livelihood of these migrant workers engaged in the unorganised sector. Lack of information on migrant workers with the government agencies proved to be a major hurdle in rendering timely assistance to these people. Government recognised the plight of migrant workers and marginalised people and began a series of initiatives which have been further synergised with the proposals in the budget. Migrant workers usually remain deprived of public sector goods and services in their place of destination due to necessary documentation. In this direction, ‘One Nation One Card (ONOP)’ is a novel initiative through which beneficiaries can claim ration from anywhere in the country. Migrant members of a family will get the benefit of ONOP at the place of destination while the family members staying at home will continue to get their food ration at the native place. The budget proposes to enlarge the ONOP scheme to cover remaining four states and UTs. Another important proposed initiative is launching a portal for migrant workers to collect relevant information about them which will help the government in formulating health, housing, insurance, skills, credit and food scheme for them. Apart from that implementation of four labour codes and extension of social security cover and minimum wages are other important initiatives. Safety concerns for working women have also been explicitly recognised in the budget document. While the series of initiatives are welcome, there is need to provide respectable employment avenues to the inter-state migrant workers by revamping and reinforcing the Inter State Migrant Workers Act (Regulation of Employment and Conditions of Service) Act, 1979 which is the only regulation which explicitly recognises the rights of the inter-state migrant workers.

Social Security, Poverty Alleviation and Employment Generation

Figure-3 shows an upward trend and an unanticipated rise in 2020-21 in the total expenditure on social security schemes for workers. In the hindsight of the pandemic and ensuing difficulties of workers the budget of 2021-22 shows a greater commitment and emphasis on providing better social security cover to the workers.

On poverty alleviation front, the budget does not appear to be very impressive. Concerted efforts and commitments are not visible in the budget proposal. Budget proposals are mostly built around the Pradhan Mantri Garib Kalyan Yojna to help the most vulnerable sections of society the poorest of the poor, Tribals, Dalits, migrant workers, elderly and children. Apart from the availability of food and social security people also need access to safe water, sanitation and pollution free environment.

After the remarkable success of Jal Jeevan Mission (Rural) under the Ministry of Jal Shakti, Jal Jeevan Mission (Urban) will be launched for Universal water supply in all 4378 urban local bodies and liquid waste management in 500 Atal Mission for Rejuvenation and Urban Transformation (AMRUT) cities. Urban Swachh Bharat Mission 2.0 aims at faecal sludge management, waste water treatment, source segregation of garbage, reduction in single use plastic, reduction in air pollution by effectively managing waste from construction and demolition activities. Urban pollution has emerged as a big challenge in recent year. The budget has recognised 42 urban centres and allocations have been made to combat urban air pollution.

In the direction of poverty alleviation and in pursuance of the provisions of Article 41 under the Directive Principles of State Policy in the Constitution of India, which mandates upon the State to provide public assistance to its citizens in case of unemployment, old age, sickness and disablement and in other cases of undeserved want within the limit of its economic capacity and development, National Social Assistance Program has played significant role. It intends to secure for the citizens adequate means of livelihood, raise the standard of living, improve public health, provide free and compulsory education for children in rural as well as urban areas. Budgetary allocations for five consecutive years under the NSAP are shown in the Figure-4. The revised figures for the year 2020-21 show a steep hike in the expenditure under NSAP. The expenditure allocations have been moreover restored for the year 2021-22 to pre-COVID-19 level. The allocation under the MNREGA programme has been increased substantially in the budget of 2020-21 (Figure-5), which shows a serious concern for employment generation. It will greatly supplement the job availability and will help many people who became jobless in the pandemic.

Education, Skill, Innovation and Research

The budget proposes to expand educational infrastructure under the New Education Policy and proposes to establish a Higher Education Commission for India, Central University of Leh and Eklavya model residential schools in tribal areas. In order to add to the Skill India initiatives collaborative skill programs with Japan, U.A.E. and other countries will be launched to benchmark skill qualifications, assessment, certification and transfer of skills. A National Research Foundation will be instituted for innovation and research and development (R&D) and to upgrade overall research ecosystem in the country. Figure-6 shows the dwindling share of education in the budgets of the successive years. The share education in the budget is even lower than many developing countries.

Fiscal Reforms

Fiscal discipline had been institutionalised since the enactment of the Fiscal Responsibility and Budget Management Act, 2003 wherein the Union Government and State Governments are required to eliminate revenue deficit, prune fiscal deficit and adopt fiscal prudence in the public spending. Sincere, concerted and coordinated efforts have been observed at the central and state government but the central government could not yet achieve the target fiscal deficit of 3% of GDP stipulated under the FRBM rules due to unforeseen and unprecedented circumstances which required huge increase in public expenditure. Pandemic resulted in weak revenue flow along with high expenditure requirements to provide relief to poor, marginalised and vulnerable people. So, the revised fiscal deficit has been estimated to have increased to 9.5 percent of GDP in the year 2020-21 (Table-3). The focus of the budget for the year 2021-22 has now changed to boosting up of aggregate domestic demand. Revised expenditure increased to 34.5 lakh crore from budgeted expenditure of 30.42 lakh crore in the year 2020-21. However, higher quality of expenditure has been maintained with 34.5 percent higher share of capital expenditure than projected.

In spite of tremendous financial pressure, the budgeted fiscal deficit has been proposed to be kept at 6.8 % for the ensuing financial year with gross market borrowings of INR 12 lakh crores. Path of fiscal consolidation is being followed with a serious intention to reach the fiscal deficit to 4.5% of GDP by the year 2025-26 by raising buoyancy of tax revenue through increased compliance and by increased receipts from monetisation of PSUs and public assets.

Table-3 shows that the budgeted fiscal deficit for 2021-22 is estimated to be 6.8 percent of GDP which is sharp reduction from the year 2020-21. This sharp decline in fiscal deficit reflects Government’s commitment towards the fiscal health of the economy. The Gross Tax Revenue (GTR) is estimated to grow by 16.7 percent wherein direct tax revenue, indirect tax revenue and non-tax revenue are estimated to grow by 22.4 percent, 11.4 percent and 15.4 percent over the revised estimates of 2020-21. Non-debt capital receipts are estimated to be INR 1,88,000 crores which indicates huge increase of INR 1,41,503 crores over 2020-21. Targeted disinvestment of INR 1,75,000 crores are the main reason behind this estimate. Total net borrowings in BE 2021-22 are projected at INR 9,67,708 crores compared to INR 12,73,788 crores in RE 2020-21 which shows a substantial decline of 25 percent.

Concluding Remarks

The budget is remarkable in its resolve for Nation First, good governance, inclusive development, doubling farmer’s income, strong infrastructure, healthy India, education for all, opportunities for youth, and Women Empowerment etc. The focus of the budget is two dimensional. First is to supplement the functioning of the private sector through infrastructural development, easing financing norms, easing laws and regulations and disinvestment of public sector. Second is to achieve inclusive development by providing social security, food security, and expanding the access to education and basic facilities for all. In totality the budget tries to address the provision of public goods and services, improve the functioning of markets along with appropriate safety net for poor while speeding up growth to achieve double digit growth in near future through enhanced global competitiveness of Indian companies, structural reforms and self-reliance. The budget also envisages achieving another milestone in achieving ‘minimum government and maximum governance’.