This year's Union Budget has a significant backdrop given that 2020-21 is the year that has seen the largest economic contraction in post-independence India. Chief Economic Advisor (CEA) Krishnamurthy Subramanian, in his press conference, drew reference to the contrasting batting styles of Pant and Pujara as a template that the policymakers could undertake to put the economy back on track.
The finance minister had a tough job, to say the least, in front of her. The need of the hour was to boost investment, spending and address the structural wounds of various sectors. In this article, we try to evaluate the hits and misses of the budget and see whether it could capture Fortress Gabba.
The underlying vision of the budget was AatmaNirbharta and the 6-pillar strategy supported this vision. The government has set its priorities right and has been bold in undertaking the necessary steps. The focus area for spending has predominantly been the Financial Sector, Health, and Infrastructure.
Hits of the Budget
Health Reforms: The budget announced a new scheme that shall be in addition to the National Health Mission called the PM AtmaNirbhar Swasth Bharat Yojana, which will help develop India's ailing healthcare system. The COVID 19 vaccine got a substantial allocation and a commitment to provide further funds as required besides other vital reforms such as Mission Poshan 2.0, universal coverage of water supply through Jal Jeevan Mission and emphasis on cleaner air through the voluntary vehicle scrapping policy.
Capital and Infrastructure: The increased focus on the PLI scheme and the National Infrastructure Pipeline (NIP) showcases that the government went on the front foot to boost the economy. This also showcases that the government was courageous enough to spend on the areas that were in distress. Infrastructure companies were facing a capital crunch which was further alleviated due to the pandemic. The creation of a Development Financial Institution (DFI) would be a welcome step in this regard.
As a sector, insurance is highly underdeveloped in our country and offers an excellent opportunity for development. In this regard, the increase in the FDI limits would encourage foreign investments and increase the country's insurance penetration.
To support the government’s expansionary policy, the proposed asset monetization is an innovative step. On the one hand, it provides funds to the government but at the same time does not levy tax burden on ordinary citizens or corporations.
Post the RBI Governor's estimates on the NPA situation; the banking sector desperately needed attention. The finance minister did not disappoint as she announced the creation of Asset Reconstruction Company (ARC) and Asset Management Company (AMC) to address distressed debts.
Relief in Direct tax: The government announced measures to ease tax compliance. The faceless assessment was given a further push and reassessment provisions saw a revision, both of which are in favour of the taxpayers. An increased emphasis to encourage start-up businesses and the housing sector was given in the form of tax holidays and exemptions.
Misses of the Budget
The measures in the budget to push the rural economy seem inadequate. Given the government's focus on doubling farmer's income by 2022, we await the roadmap ahead as announced by the finance minister in the post-budget press conference. The reduction in allocation to MGNREGA, considering the high level of unemployment, maybe a disappointment.
The government could have initiated some more direct measures to help job creation. Sectors such as tourism, hospitality, etc., which were severely hit by the pandemic, remained neglected.
A new cess called agricultural infrastructure development was introduced. Though the finance minister assured that there should be no significant increase in the prices, we await to see the impact of this cess on the price level and the subsequent impact on demand.
The one challenge that lies in front of the government is maintaining fiscal prudence in the coming years and achieving the ambitious divestment target.
Conclusion:
This budget showcases some bold and innovative shots reflecting the Pant strategy. At the same time, it shows the resilience and game plan of Pujara. Though we shall wait to see the successful implementation of these measures, this budget is a positive step forward. It reflects a strong determination of the government to achieve its objective, just like the Indian Cricket team.
About The Author
Niveshak is IIM Shillong's Finance and Investment club. The club has progressively evolved into a strong platform for building a long-standing and mutually beneficial relationship between the corporates and the student community. It manages the Niveshak Investment Fund (NIF), a student-run diversified equity portfolio. The club also organizes finance knowledge sessions, publishes its widely circulated monthly magazine"Niveshak" and hosts competitions that witness participation from B-schools across the country.