Catering to a pandemic-battered economy

Sushma Ramachandran

Senior Financial Journalist

This may not be the best-ever Budget, but it is certainly tailored to meet the needs of a pandemic-battered economy. Finance Minister Nirmala Sitharaman has not pulled rabbits out of a hat, but framed a workmanlike product with broad strokes to push the country on the road to recovery. The big-bang areas are the rise of 34.5 per cent in capital expenditure, the steep boost in health spending, the clear-cut moves towards privatisation of the public sector, raising foreign equity limits in insurance and a spate of banking reforms — all this without raising taxes, barring a cess for agriculture infrastructure and development. It goes straight on to petrol and diesel, but consumers are spared by a matching cut in other petroleum tariffs.

The big disappointment is on one front. The Finance Minister could have taken the opportunity to make direct transfers into bank accounts of the poorest of the poor through the well-organised digital banking systems that are in place now for quite some time. This has been a plea made by many economists and observers ever since the lockdown in March.

The arguments against this proposal have been on the grounds of insufficient resources and also the assumption that this would not translate into higher consumption since such bank accounts have remained intact over this period. But this is largely due to the insecurity of the account holders, many of whom have lost livelihoods over this period and are facing perilous times. Besides, this would have been an immediate support to millions, while the rest of the proposals are likely to have medium — or long-term outcomes.

The two most welcome areas of the Budget proposals, however, are the hike in spending on infrastructure and the expansion of investments on health and well-being. Infrastructure spending will give the push in 2021-22 that is needed to achieve the target of 11.5 per cent growth.

As far as health is concerned, it is a relief that the infirmities of this sector revealed during the Covid crisis have been sought to be removed as soon as possible. The 137 per cent increase in health expenditure should hopefully raise the existing dismal level of 1.5 per cent of GDP on this sector.

It must be stressed that this kind of upgrade needs to be matched by state governments as health is a state subject. Its neglect is mainly due to the fact that healthcare is simply not a political issue during elections and is thus sidelined till a medical tragedy hits the headlines.

In the banking arena, a series of major reforms has been announced, giving the stock markets another reason to cheer. First, the creation of an asset reconstruction and management company is an idea whose time has finally come. The need for a bad bank to handle stressed assets has been discussed for quite some time, given the growing burden of NPAs on the banking sector after the pandemic.

Second, the setting up of a new development finance institution is now on the cards. There are those who feel this is a concept that has not worked in the past. But much depends on implementation of the plan to set up the institution.

Third is the capital infusion of

Rs 20,000 crore in the banking sector which may not be enough but is adequate in these Covid-straitened times. And finally, there is a move to privatise two public sector banks and one insurance company which gives a hint for future movement in this direction. It looks as if there is finally an acceptance that some inefficient elements of the public sector banking industry may have to be privatised.

The other much-awaited reform is in the same area of public sector disinvestment. The Budget proposals lay down a clear roadmap for disinvestment in the next fiscal as well as detailed plans for monetisation of public sector assets. These include toll roads and gas pipelines. The amount sought to be raised through disinvestment is a huge Rs 1.75 lakh crore.

But one will have to wait for the actual implementation as big disinvestment targets have been set for the past few years, but none of these have been achieved. At least this year, advantage should be taken of the bullish market trends to offload equity in several blue chip companies while moving ahead quickly to sell loss-making entities.

In the backdrop of the farmers’ protests, the Finance Minister did not lose an opportunity to highlight the enormous amounts being shelled out to the agricultural community on account of the minimum support prices on wheat, paddy, pulses and cotton.

She also made a commitment to upgrade the development of the mandi infrastructure by utilising a Rs 1 lakh crore infrastructure fund for this purpose. Whether this is sufficient to appease farmers who feel the mandi system is being threatened by the new farm laws is yet to be seen.

As for the fiscal deficit, much debate over the past 10 months has been over the government’s reluctance to raise spending and allow the deficit to widen as these are extraordinary times. Comparisons have also been made with other countries which have had been large deficits owing to the Covid crisis.

Ultimately, it is abundantly clear that the government has been listening to these discussions. The fiscal deficit for 2019-20 is at 9.5 per cent while the projected deficit for 2020-21 is 6.8 per cent. This is a far cry from the deficit of 3.5 per cent projected originally for the current fiscal.

It is clear that a huge leap is being made to revive the economy by a massive spending surge. With revenues at the lowest ebb in 2019-20, this is the boldest move so far since the pandemic began to rage in March last year. The Budget proposals may thus not be the best in all respects but are possibly the most efficient that could be conjured up in these worst of times.

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