View: Third time lucky, but no real help for the worst-hit by the pandemic

By Raghavan Jagannathan

Nirmala Sitharaman’s third budget may or may not live up to its once-in-a-century label. But there is little doubt that it is her best so far. Tough times have brought out the best in her and the Modi government.

The main questions swirling around the budget were the following: Would Sitharaman abandon fiscal fundamentalism to give growth and revival a fillip? Will healthcare get the long-delayed booster shot? Will the financial sector, which bore the brunt of Covid’s loan moratoria and could yet face a deterioration in the bad loans scenario, get the capital it needs? Will infrastructure get big bucks? Will manufacturing get sops? Will job-creating sectors like real estate, construction and housing get pick-me-ups? Will the jobs lost during the pandemic be quickly revived? And will the worst-affected get special attention?


The answers, in serial order, are yes, yes, yes, yes, yes, yes, and yes to all, except the last. There are no special boosters for sectors that were worst impacted by Covid, and the expectation is that the general buoyancy in the economy ignited by an expansionary budget, and the vaccination drive, will help all high-touch sectors currently reeling from lack of demand get their mojo back.

The fiscal deficit for 2020-21 is a high 9.5%. But this is after reintegrating the off-balance sheet borrowing by some PSUs like the Food Corporation of India (FCI) back into the budget. For 2021-22, it’s down to 6.8%, the reduction reflecting not a curtailment of expenditure, but an expansion in the denominator — GDP growth — that is expected next year. Full marks for transparency and fiscal push.

The investment cycle gets a pep-up with a 34% boost in capital outlays to ₹5.54 lakh crore, with another ₹2 lakh crore going to states and autonomous bodies for capital expenditure. Clearly, if the pandemic year was all about increasing revenue spends on providing relief to people and companies, this time it is correctly refocused towards capital and infrastructure. The investment cycle should get some furious pedalling.

As expected, healthcare outlays — a major laggard in terms of public investment — will be more than doubled from ₹94,452 crore in the current year’s budget estimate to ₹223,846 crore. Of course, Covid is the reason. But in 2021-22 — when vaccinations will take a significant ₹35,000 crore share of the outlay — this investment will be crucial to get the economy back on track, businesses back to normal, and people back to jobs. The challenge is to maintain the share of health spending in GDP once Covid recedes.

The financial sector, especially the banking sector, gets two initiatives: an asset reconstruction company and an asset management company — with the former buying off the bad assets of public sector banks (PSBs), and the latter managing the capital requirements. Capital infusions are limited to ₹20,000 crore, which may need revisiting if banks are not able to raise more money from the markets.

A big plus: GoI has not lost its appetite for privatisation despite two years of underperformance. Not only will Air India, BPCL, SCI and Concor get sold, but two PSBs and one insurance company will also be privatised. One has to wait and see if the political opposition prevents the law changes that will enable this.

On jobs, the stimulus is more indirect, with interest payments for affordable housing retaining its additional tax break for one more year. The Apprenticeship Act is being tweaked to boost skilling on the job. But it may not be enough. The expectation clearly is that the economic revival will, at least, bring back jobs lost during the lockdowns and supply disruptions.

Which brings us to the first major lapse in this revival budget. There are no direct sops for sectors like travel and tourism, airlines, transport (except public transport) and services. There was also no effort to put money in the pockets of people so that consumption demand can pick up.

Perhaps, the worst idea in the budget is the decision to raise customs duties on a wide range of imports. The problem is not whether these changes will impact ultimate consumer prices or not. But the renewed itemisation of yearly changes in import duty structures. Unless we shift gears, there is a danger that this could lead to a gradual slideback to the import protection regime.

Warts and all, though, this budget is probably the best one produced by the NDA so far. That it needed a pandemic to have a growth budget is what makes it special.

The writer is the Editorial Director, Swarajya