By K Kumar & Rumki Majumdar
Indian Union Budget 2021-22: Recently, a video had gone viral on the social media exactly where a man collapsed at an international airport, and a healthcare student performed cardiopulmonary resuscitation (CPR) for 10 minutes to revive him. It has been 10 months considering the fact that the nationwide lockdown and the government, as well, has been performing CPR to revive the economy that collapsed by an unprecedented magnitude.
Policymakers ushered in a mix of Keynesian and Friedman policies in a series of many mini budgets by means of 2020. The Union Budget FY22 announced on February 1 was one more in this series with an equal emphasis on development and social objectives. It is heartening to see the emphasis of budgetary allocation was on places that have a larger multiplier impact and can aid in producing employment and revenue amongst low-and-medium skilled workers.
With costs budgeted to be higher in the coming years, there is an ongoing debate about how the government will fund its costs and mobilise sources for infrastructure bank recapitalisation and capital expenditure, which is anticipated to rise by 34.5% from final year’s price range estimates. At the similar time, it has not raised taxes, and revenues are most likely to be low since of subdued financial activity. For the government, bridging the gap amongst intention and implementation for quite a few of these projects could be a challenge.
The government recognises the widening gap amongst costs and income that could arise in the coming years. It also understands that the alternate alternative of larger borrowings, other than what it has currently announced, will have implications on the country’s deficit, debt and yields. This will not only limit its potential to borrow and raise borrowing charges, but will also undermine the efficacy of the accommodative monetary policy influence.
To raise funds, the government is, consequently, relying on sources such as privatisation and monetisation of land assets, which have extended gestation periods. The inflow of funds following the completion of the deal could stretch more than a period of time. Besides, the government has had restricted good results in realising the scale of disinvestments announced more than the previous couple of years. Therefore, raising the targeted funds for such projects from private and foreign sources inside the preferred time is most likely to be tough than usual.
To the government’s credit, the disinvestment and privatisation strategy is considerably more granular and has particular timelines for completion in this Budget. Given that the stock market place is at an all-time higher, a timely execution could aid the government realise the complete prospective of its assets.
The second challenge will be how the government distributes its planned allocation of the budgeted quantity for multi-year projects. Several of these projects with higher multipliers are spread more than a horizon of more than one year. India desires to invest and develop jobs now to help the financial recovery that has just taken off. Therefore, the window for the government to invest and help the nascent recovery is quick. If the share of total spending is more skewed in the later years of the timelines specified, then the economy could not get the preferred spending increase it desires more than the next year.
In other words, the government has to realise the sources of funds instantly and front-finish its spending. For that, it has to guarantee stability in policies and get the projects off the ground devoid of these acquiring mired in regulatory and structural bottlenecks. Certainties linked with the completion of the projects will be crucial.
The government should also work towards exploring alternate quick sources. It should tap into the increasing household savings and broaden its tax base in the coming months. Improving compliance and plugging loopholes that encourage tax evasion could be a couple of smarter techniques.
This Budget announcement is an indication that the government is determined to do all it requires to revive the economy and has ticked all the appropriate boxes. It is also unlikely that this Budget will be the final one in the series. Therefore, it will be critical to comprehend more particular specifics and clarity on spending, which, in turn, will figure out the strength and pace of sustainable financial recovery.
Kumar is companion and Majumdar is economist, Deloitte India