Budget 2021 has Rishabh Pant’s swashbuckling cover-drives and Cheteshwar Pujara’s watchful defence

Finance Minister Nirmala Sitharaman (Centre).

Just ahead of Budget 2021, the Chief Economic Adviser drew attention to the cricket team’s emphatic victory in Australia, and highlighted that in the Budget there will be policy measures which combines the flamboyance and aggressive stroke play of Rishabh Pant with the conservative-cum-stolid approach of Cheteshwar Pujara.

Very much in line with these statements, the Budget announced by Finance Minister Nirmala Sitharaman took a leaf out of the batting styles of both these batsmen to announce an infrastructure-focussed budget with bits of notable reform agenda and more transparency in the revenue and deficit projections.

First, although a number of analysts/economists have gone wrong in the estimation of the fiscal deficit number for FY21(RE) and even FY22(BE) to some extent, no one will be complaining as it shows a true extrapolation of the current state of the government finances. The shortfall in tax revenues and non-tax revenues at close to Rs 5 lakh-crore and Rs 1.8 lakh-crore respectively, stable estimation of the disinvestment proceeds at Rs 30,000 crore (currently at around Rs 20,000 crore) and expanding the total expenditure by almost Rs 4 lakh crore has led to the widening of the fiscal deficit to 9.5 percent of the lower GDP number of Rs 195 lakh-crore.

Sixty percent of the widening of the fiscal deficit can be ascribed to revenue shortfall, but the government has met the balance shortfall via enhancing its market borrowing programmes, which is a credible step as against slashing expenditures during a pandemic. At the same time, the government has not jumped the hurdle in case of the fiscal consolidation roadmap and provided a reasonable target of achieving the fiscal deficit target of 4.5 percent by 2025-26.

Second, the push towards infrastructure development is a welcome move and this has been supplemented well by creating the apposite financial capital infrastructure by proposing a development financial institutions (DFIs) and creating a national monetisation pipeline of brownfield infrastructure assets. Although the Budget mentions the details of some concrete measures in the direction of the monetisation plan, the important aspect which will be closely monitored is the lending portfolio of the DFIs which is projected at Rs 5 lakh-crore in the next three years.

This number looks a little bit optimistic as the total bank credit to the infrastructure segment stands at Rs 10 lakh-crore as of December 2020. Additionally, the capital expenditure is budgeted at Rs 5.5 lakh-crore in FY22(BE), 26 percent higher than FY21(RE) which also shows the government’s commitment towards a public investment driven reinvigoration of the economy with multipliers at play.

The only concerning thing about this is the bold projections of an outlay of nearly Rs 3 lakh-crore over five years in the result-linked power distribution sector scheme, of which the total allocation to the Ministry of Power is only Rs 15,000 crore in FY22(BE).

Third, the pandemic has redefined the concept of health in the Budget by providing a holistic approach of curative and well-being. Health, which primarily included the centrally-sponsored scheme of National Health Mission had a total outlay of around Rs 65,000 crore in FY20 and FY21. However, in this Budget it had a big-bang announcement of Rs 2.24 lakh-crore for FY22 based upon its revised definition. Interestingly, further analysis shows that the definition which includes wellbeing, has an allocation of Rs 1 lakh-crore towards water and sanitation. Though conceptually this is not incorrect, we should be reading this mammoth number with a pinch of salt.

Four, the idea of the ‘bad bank’ has been finally proposed in the form of an Asset Reconstruction Company (ARC) in which case the non-performing assets (NPAs) of banks will be transferred to this institution. Unlike the DFIs, there are no details of funding of this ARC, quantum of transfer of NPAs and whether it will be an ongoing project or a one-time affair — all imperative details which are awaited.

Finally, from the individual tax-payers perspective, neither did the Finance Minister make any changes to the income tax slabs and popular deductions such as 80C, 80D, nor did she impose fresh tax levies in the form of cesses, surcharges and capital gains. Not levying a cess and allowing the states with an additional borrowing limit of 4 percent reassures the government’s approach towards cooperative federalism — with a hope of this continuing even in the GST council.

Individual tax-payers will have to wait for at least one more year or probably economic activities to normalise before it announces tax exemption and deduction measures. The only pain point for the consumers is the hike in customs duty of consumer durable items such as refrigerators, ACs, certain mobile phones — this could lead to short-term losses but be beneficial in terms of future domestic manufacturing and export competitiveness.

To conclude, this Budget had some swashbuckling cover-drives (allocations and infrastructure push) from the Pant side, and had the watchful defence (fiscal consolidation and credible projections) of Pujara. Budget 2021 is exactly akin to a fourth mini-Budget with three already announced displaying reasonable numbers and sticking to its reform agenda.