14 FEB,2021 | MEDC
The Finance Minister has recently presented a Budget having the potential to lift India’s growth prospects. Higher expenditure will support a near-term revival, and the renewed thrust on infrastructure development will benefit long-term economic productivity. At 9.5% of GDP, the fiscal deficit is certainly beyond policymakers’ comfort zone, but still manageable. The key is to reduce India’s debt-to-GDP ratio, which is likely to touch a record high of 90% this year. A spike in this ratio restricts the country’s ability to increase its spending significantly and thus support economy activity. In this regard, some innovative financing mechanisms have also been proposed.
Budget 2021 is appropriate for tough times, but its protectionist tendencies are worrying. Protecting domestic manufacturing through trade policy is not compatible with the modern concept of an open economy, which demands cross-border flexibility and access to land, labour, capital and enterprise. Policymakers need to think carefully whether, at the cost of achieving Atmanirbhar Bharat, tinkering with tariffs which dis-incentivizes FDI and compromises exports should be attempted. The pandemic is not going to remain with us forever, and, sooner or later, we are again going to witness large-scale liberalization, privatization and globalization. At that time, we cannot riskdiminishing our economic imagegloballyby having followed the wrong trade policies for far too long.
As far as agriculture goes, the mere existence of MSP will not do much for Indian farmers. However, the government’s announcements on the agricultural sector reiterate its focus on rural development. The increase in agricultural credit with a target of Rs. 16.5 lakh crore and the allocation of an infrastructure fund for the development of APMCs is a positive step. The government needs to have the courage to stick to its convictions and change the system. After all, it is unfair to blame farmers in certain parts of the country for growing excess rice and wheat when the existing policy incentivizes them to do so.
The priority accorded to healthcare is welcome. There is an increase of 37% over the previous budget. Half of this is allocated to vaccination, with more to come if needed. If India can vaccinate its entire population in 2021-22, it will have a positive impact on the economy. Implementation will play a huge role in the success of this policy, and state governments should also follow this lead.
Whatever be the shortcomings of Budget 2021, the basic intent to grow our way out of this once-in-a-centurycrisis is the right one, and it had to be undertaken sooner or later. A major search and rescue operation for the economy is now unfolding, and we need to believe that it will succeed. As the saying goes, dream big because small dreams have no magic.
*Photo Credit: Google