A 'no harm done' Union Budget 2021, on balance

There is no doubt that the Finance Minister had a difficult task at hand with the Union Budget for 2021-22. There has been a complete breakdown of the fiscal arithmetic, seen from the revised estimates for 2020-21: Fiscal deficit is at 9.5% against the budget estimate of 3.5%; revenue deficit is at 7.5% against the budgeted 2.7% as GDP is set to contract by 7.7%.

The numbers speak to the pain of the people and what they have endured as businesses collapsed, tax collections plummeted, and more misery was heaped on the poorest. These shocks will continue to reverberate with roll-on effects, and they demand a careful look at the path ahead to put India on the road to recovery and growth that is balanced and sustainable.

Yet, there have been some positive fallouts. One of them is the increased focus on health, which has been noted as the first of what the FM has called the six pillars of the Budget. There can be a debate on whether the amounts and schemes are good enough and well thought through, but that is the minutiae of what essentially is a directional push forced by the pandemic.

If this direction can be built upon, public spending in this area can unlock benefits across the system and mark the beginning of the end of apathy on issues of primary health and related areas. Separately, the FM has done well to resist the temptation to add to the burden of the ordinary taxpayer -– not much has been given as relief, but no new taxes have been added either. This is on balance a positive.

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The government’s answer to the growth collapse is to go in for a massive increase in spending to revive demand. This means a massive government borrowing programme as we attempt to spend our way out of the crisis. But absent a clear roadmap for fiscal consolidation, this is entering a vicious cycle of deficit and debt that carries the risk of higher inflation, which is a tax on the poor and will imperil any efforts at inclusive growth. The Budget also envisages a bigger role for the private sector as it looks for an ambitious disinvestment programme, which will likely not be met given past record.

Directionally, this push is significant. But what is urgently required to drive impact, credibility and sustainability is governance. It is lack of governance that has caused some of the problems the economy faced even before the pandemic hit. We can spend more, but we also need to do more to protect public funds if the full benefits of the schemes of the government are to bear fruit for the people of India.