View: Sharp increase in capital expenditure to provide major thrust to Aatmanirbhar Bharat

The budget announcements give vision and road map to take the physical and the financial infrastructure to great heights. We may also call this an ‘Infrastructure Budget’. The budget proposals have rightly addressed the demand side by expanding the role of the government through a sharp increase in capital expenditure of 34.5 per cent over the BE 2020-2021to Rs 5.54 lakh crore.

The announcements aim at providing a major thrust to ‘Aatmanirbhar Bharat’, which includes doubling farmers’ income, strong infrastructure, healthy India, good governance, opportunities for the youth, education for all, women empowerment, and inclusive development, among others.

Augmentation of health infrastructure has been given adequate focus with the launch of ‘PM Aatmanirbhar Swasth Bharat Yojana’. The government has committed resources to create infrastructure such as roads under Bharatmala Pariyojana, National Rail Plan for India – 2030, metro rails in tier 1 and 2 cities, and operational management of major ports on a PPP basis.

The fact that the expenditure announcements have been matched with status quo on taxes will bolster market sentiments.

-Dinesh Khara

The viability of distribution companies has received the attention they needed. The issue of infrastructure financing has been addressed covering debt component, asset monetisation and foreign participation through the InvITs and REITs route.

To allow funding of infrastructure, it is proposed to make zero coupon bonds issued by notified IDF eligible for tax benefit. The budget has taken the long-pending issue of creating a pan-India development financial institution to address debt component of infrastructure financing. With this thrust, capital expenditure for FY22 is pegged at Rs 5.54 lakh crore. The proposal to consolidate various Acts governing different segments of the financial market under the Securities Market Code is good.

PSBs will have capital infusion of Rs 20,000 crore. An asset reconstruction company and asset management company would be set up to consolidate and take over the existing stressed debt, thus preventing any further erosion of capital. These will ensure healthy competition, fair price and cash recovery.

Under the assumption of 14.4 per cent growth in nominal GDP, the fiscal deficit in BE 2021-2022 is estimated to be 6.8 per cent of GDP. The gross borrowing from the market for the next year would be around Rs 12 lakh crore. In principle, the budget has rationalised the off-balance sheet borrowings and headline fiscal deficit numbers, which will please the market and rating agencies. The fact that the expenditure announcements have been matched with status quo on taxes will bolster market sentiments.

The medium-term fiscal consolidation path envisages reaching a fiscal deficit level below 4.5 per cent of GDP by 2025-26. The consolidation will rest on increasing the buoyancy of tax revenue through improved compliance, and secondly, by increased receipts from monetisation of assets, including PSEs and land and strategic disinvestments.

In the backdrop of the pandemic, this budget has achieved a balanced demand stimulus to correct the output gap.

(The writer is Chairman, SBI)