07 FEB,2021 | MEDC
In the backdrop of the pandemic, the Union Budget 2021 was one of the most important in India’s economic history. We are on the cusp of a massive socioeconomic transition, and the Budget has, within its constraints, attempted to do justice to key sectors of the economy. However, it is essentially a Budget for industry and infrastructure. The green shoots of recovery were becoming visible throughout the economy, and it is important not to slacken and risk losing this positive momentum. Industry and infrastructure development form the core of any sustained economic recovery, and fiscal policy plays an important supporting role here. The government has attempted to streamline fiscal policy, by phasing out tax breaks and focusing more on public spending in the economy. In these challenging times, the fiscal deficit has been curtailed at a single digit rate (9.5%). The focus on asset monetization bodes well for managing the current deficit, until additional revenues kick in from a streamlining of GST. This will also help control inflation, and minimize its potential damage to the economy. The budget’s attention to healthcare infrastructure is particularly welcome. Covid has taught us that nothing can henceforth be taken for granted, and that it is only a holistic and systemic approach that will yield optimal results. The budget focus on capacity building and promoting wellness shows that the government prefers an integrated strategy for what is essentially going to be a long and convoluted journey to economic revival. Strengthening food and nutrition security, especially in the 112 aspirational districts of India, will help improve health outcomes as well as the productivity of the local population. Dealing with air pollution, waste management, bioremediation of legacy dump sites, and vehicle scrapping as healthcare-related issues signals an integrated and noteworthy policy change. In its essence, the Budget pushes for capital formation driven growth and focusses on supply-side reforms to stimulate the investment cycle. That will, in turn, help boost inclusive and sustainable growth.Tangible incentives are provided for domestic manufacturing, and the underlying philosophy of Atmanirbhar Bharat is stressed throughout. The stability and simplicity of tax structure aiding both individuals and industry is stressed throughout. India’s weak infrastructure and high logistic costs hamper its industrial competitiveness. Both have been convincingly addressed in the Budget. No one expects miracles in the Budget, but the government has put its best food forward. Infrastructure development not only improves economic competitiveness, but it also has a multiplier effect on productivity and job creation. The government’s focus on infrastructure is also evident from the proposed capex of 2.5% of GDP in FY22, compared to an average spend of 1.8% in the past five years. The Budget has touched all the right buttons, and policymakers are now expected to use both conventional and unconventional tools to promote macroeconomic stabilization and revive the growth process.
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