Anupam Thakuria

While dealing with a higher fiscal deficit regime, the Finance Minister has not forgotten to continue the path of fiscal consolidation. She said that the Government intends to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period. This can be done by increasing the buoyancy of tax revenue through improved compliance, and by increased receipts from monetization of assets.

The article titled ‘Union Budget: A vicious cycle of deficit and debt’ (AT, February 2) has painted a totally grim picture for the economy. It has basically highlighted the negative aspects of an existing deficit fiscal regime, while completely ignoring the situational disadvantages posed by the time. It has also stopped short of recognizing the potential for growth induced by the deficit spending activities.

In November 2020, the National Statistical Office of the Ministry of Statistics and Programme Implementation had suggested an economic recovery in India during the second quarter. The advance estimates of national income published on January 7, 2021 projected a contraction of 7.7% for real GDP. The rate of contraction from the 23.9% in the first quarter to 7.7% in the second quarter indicates a definite path to recovery. The subsequent monetary policy statements of the RBI too have projected positive growth in the economy. In fact, the IMF has estimated India’s GDP growth in 2021-22 to be the highest among the economies it had picked. Against this backdrop, the budget presented by Finance Minister Nirmala Sitharaman has been cautiously optimistic about the situation and it has been able to underscore the fact that in the path of present recovery, the growth is still fragile.

As the budget has been tasked to get the Indian economy back on track amidst the pandemic-ridden disruptions, it became one of the most closely watched budgets in India. The economic background necessitates a good amount of fiscal interventions amidst the constraints in the Government’s execution capacity. The article has rightly pointed out this constraint imposed by the FRBM Act. However, it’s heartening to note that the budget has tried to create the necessary fiscal space for an enhanced public expenditure to keep the momentum going. A significant increase in fiscal incentives for the economy facilitated by an expansionary budget with ‘higher- than-trend expenditure’ allocations has already been advocated by rating agencies and experts alike. The FM has reiterated in her budget speech that “we have spent, we have spent, we have spent”. With an increased limit on spending and borrowing in the coming year, the fiscal deficit has been estimated to be around 9.5%. However, this is commensurate with the need of the hour as the economy is to emerge faster from the pandemic effects.

The interest rate in our country is historically low at present along with a very low burden of servicing of debt. So the Government can afford to raise the ceiling of heightened spending even while slipping some percentage points on the deficit frontier. Nobel Laureate Paul Krugman had long before vouched for government spending as part of a set of rules in budget making and suggested that it could be hugely beneficial in times of crisis. He also offered prescriptions in the form of government debt as opposed to the ideas laid down in the article mentioned in the beginning. Taking a cue from his rule book, economists generally agree to the fact that public debt is not always a problem as has been traditionally assumed, especially in a situation like this.

The Finance Minister has highlighted the need to boost up the healthcare sector along with the need to build a strong human capital base. She announced a total spend of more than Rs 2 lakh crore on healthcare with Rs 35,000 crore on Covid-19 vaccine development and inoculation. This amounts to a 137% increase from last year’s outlay.

It has also pitched for a strong manufacturing and infrastructure network in the country. The Finance Minister stressed on double digit growth on a sustained basis for our manufacturers. To achieve this, PLI schemes for an Atmanirbhar Bharat have been announced for 13 sectors. Here the Government has committed nearly Rs 1.97 lakh crore in the next five years. The National Infrastructure Pipeline which was launched with 6835 projects with an investment of Rs 111 lakh crore by 2025 has now been expanded to 7,400 projects.

As the expenditure on infrastructure can have a large multiplier impact, the budget has made substantial provision in this sector. The Finance Minister stressed the need for long-term debt financing in infrastructure. For this, a Bill to set up a DFI will be introduced. The Government has provided a sum of Rs 20,000 crore to capitalize this institution and the ambition is to have a lending portfolio of at least Rs 5 lakh crore for this DFI in three years’ time.

To provide adequate credit to our farmers, the Government has enhanced the agricultural credit target to Rs 16.5 lakh crore in FY22. Similarly, the allocation to the Rural Infrastructure Development Fund increased from Rs 30,000 crore to Rs 40,000 crore. The Micro Irrigation Fund created under NABARD is proposed to be doubled. To give a fillip to value addition in agriculture, the scope of ‘Operation Green Scheme’ has been enlarged to include 22 perishable products.

While dealing with a higher fiscal deficit regime, the Finance Minister has not forgotten to continue the path of fiscal consolidation. She said that the Government intends to reach a fiscal deficit level below 4.5% of GDP by 2025-2026 with a fairly steady decline over the period. This can be done by increasing the buoyancy of tax revenue through improved compliance, and by increased receipts from monetization of assets.

It was observed that the economies which rebounded fast in the post-global financial crisis were the ones which had resorted to significant fiscal stimulus measures. Hence the Finance Minister has made provisions for targeted state interventions in health, infrastructure, education, agriculture and allied sectors. Since the expenditure incurred on private final consumption activities is low, a fiscal aggressiveness on the part of the government is the crying need of the hour.