Shedding Baggage

Unusual times call for unusual measures. At a time when resilience of Democracies is being tested from Washington to New Delhi; spirit of Globalisation is being tested from UK to Europe & China to the US, and even fundamentals of Economics are being tested in pocket-busting stimulus measures by governments around the world, Finance Minister Nirmala Sitharaman has shed old baggage and broken new grounds. Budget 2021 has re-imagined both spending and borrowing and reposed faith in large-scale infrastructure building and healthcare as well as bold disinvestment to trigger economic growth and consumption cycle in the economy. That's just what the doctor ordered.

For the past four years, despite a rapidly decelerating economy, a defiant government stayed the course on supply side economics. Pumping liquidity, announcing reforms, goading private sector to borrow and invest. Clearly, the measures fell way short of slogans of firing up the "animal spirits" or delivering "China-like" investment-led growth. Especially, since none of the initiatives were aimed at reviving demand and consumption in the economy.

Until now, that is. Starting October, Centre kicked off a capital expenditure cycle in large-scale infrastructure development that has raised the Budget expenditure for FY21 already by Rs 4 lakh crore and increased fiscal deficit to 9.5 per cent of GDP. That would have sounded warning bells in a normal year. But not in the Covid-affected year. Borrow, spend and build is not just a necessity but also the only way to prevent what the Economic Survey calls an Economic Hysteresis - large-scale bankruptcies and job losses in the economy. Stock markets gave a thumbs up to Budget 2021 with its biggest intra-day surge since 1999.

But that's just one way in which Budget 2021 has reset the nation's economic priorities. The highest-ever allocation towards health and well-being, a roadmap for monetisation of government assets including pipelines, power grids, railways and stadia, and disinvestment from non-strategic sectors remain progressive moves, despite a dismal track record of successive governments in disinvestment in the country.

The spiralling allocation to the agriculture sector is another dramatic shift in the Centre's directions to the banking sector. FY22 agri credit target of Rs 16.5 lakh crore is a new high and a 10 per cent jump over the previous year.

A major chunk of the higher fiscal deficit reported in current year FY21 is due to more transparent accounting, a shift from the opaque and off-Budget financing of Budgets of the past. About 2 per cent of the 9.5 per cent fiscal deficit projected this year is due to food and fertiliser subsidy which was parked in Food Corporation of India as a highly criticised off-budget financing move. In the interest of transparency, the Centre decided to bring it on to its own balance sheet this year.

Finally, No News is, after all, very good news on the tax front. Despite the pre-Budget hysteria around a possible Covid-cess, FinMin officials say new taxes were not even on the table for discussion this year.

On the downside, the near-flat Budget expenditure projected in FY22 as compared to FY21 is perplexing. Even though capital expenditure is going up 34.5 per cent to Rs 5.54 lakh crore, flat total expenditure could only mean two things: projected fall in fiscal deficit from 9.5 per cent to 6.8 per cent is being achieved by flat spending; and shaky buoyancy in tax revenue in FY22!