The Indian Finance Minister has balanced the need for fiscal prudence with the imperatives of pushing consumption and demand with a renewed focus on spending big on infrastructure and healthcare – without unduly burdening the economy with new taxes.
Presenting her third Budget in the backdrop of a Covid-ravaged economy and a society that seems wary of returning to their normal ways of spending, Indian Finance Minister Nirmala Sitharaman delivered a six-pack booster dose that promises to recharge the country’s Atma Nirbharta (self-reliance), infrastructure, agriculture and growth rates, revive consumption, create jobs and most importantly, lift the veil of pandemic-induced fear that is looming large over a nascent economic recovery.
And she did all of this without any major increase in taxes that would have put additional burden on the people. She had to overshoot her fiscal deficit target by a huge margin to do this – the government will have to borrow 9.5 per cent of GDP to balance its books in the current fiscal and 6.8 per cent of GDP in the coming financial year – but many Indian and foreign economists, who had advocated a loosening of government purse-strings to navigate the country out its current economic slowdown, will be happy.
How the global rating agencies, who are usually very hawkish about deficits, will view this remains to be seen, but given the unusual circumstances under which this Budget was prepared and presented, it is reasonable to expect them to leave India’s sovereign rating unchanged.
“A bold budget in many senses,” commented Abheek Barua, Chief Economist, HDFC Bank. “The central intent has been to use expansionary fiscal policy to support growth sidestepping concerns over debt sustainability and sovereign rating. The fiscal deficit is pegged at 6.8 per cent of GDP in FY22 compared to a revised estimate of 9.5 per cent for FY21. The focus has been on increasing capital expenditure both by the centre as well as states.”
The most important of these is the $4.8 billion she has allocated for providing Covid 19 vaccines to India’s vulnerable population. At roughly $5.5 per shot, this means the Modi government is planning to pay for vaccinating about 70 per cent of India’s 1.3 billion people.
This, most health experts and economists feel should be sufficient to ensure the health security of the entire country.
The economic spin-off from this relatively small outlay can be spectacular if the vaccines work. A caveat: The long-term efficacy of the vaccines is still not 100 per cent guaranteed.
But the government’s initiative to cover about 900 million people under the free vaccine programme should go a long way in blowing away the cloud of fear and the pall of gloom that is keeping people from going out and spending money on eating out, cinemas, travel and other such activities.
Then, Sitharaman has hiked the total allocation towards health to 6.4 per cent of her budgetary outlay for 2021-22, up 137 per cent over the figure for the current year. This should go a long way in addressing the persistent criticism that Indian governments have historically had to face, cutting across party lines, that it spends far too little on the health and well-being of its people.
This should go a long way in ensuring a healthy population, which is the foundation of any productive and upwardly mobile population.
Remember, services comprise about 60 per cent of the Indian economy. The economy will not be able to sustain its current bounce unless the services sector recovers completely. The vaccination programme can help kickstart this critical engine of growth by encouraging people to get a life once again.
In the run up to the Budget, there was a lot of discussion on what steps the Finance Minister would take to boost consumption and investment in the economy. In keeping with Prime Minister Narendra Modi’s well known reticence about handing out freebies, Sitharaman has stepped up allocations for spending on infrastructure to achieve the goal of achieving an Atma Nirbhar Bharat (Self-Reliant India).
The government proposes to spend more than $75 billion on capital expenditure from its own resources in 2021-22, up 34.5 per cent over the revised estimates for the current fiscal. In addition, said the federal government will nudge the states to spend an additional $27.5 billion on creating infrastructure.
These investments are expected to generate millions of additional jobs for both qualified professionals as well as semi-skilled and unskilled people, which, in turn, will create demand, boost consumption and keep the wheels of the economy running.