In the most trying circumstances created by the unprecedented Covid-19 pandemic, every section expected something from the finance minister. But Nirmala Sitharaman, thankfully, didn’t indulge in any welfare grandstanding and presented her third Budget that can be described as the best possible in the current scenario. It is by far the most promising Budget delivered under the Narendra Modi government in terms of its intent and direction. It is heartening that Budget 2021-22 has exclusively focused on job creation by creating conditions that could boost industrial growth.
At the core of the Budget are the government’s huge allocations for infrastructure through expenditure on the railways and roads and policy support to the automobile and construction sectors via tax and customs duty concessions and a vehicle scrappage policy. The proposal to expand freight corridors and introduce lighter metro rail versions will have two effects -- one, boosting construction business and thereby creating jobs, and two, offering an alternative to fossil fuel-based modes of transport. An additional deduction of Rs 1.5 lakhs in income-tax for people to buy an affordable house could boost realty demand.
The policy direction given by the government’s decision to continue the disinvestment, indeed privatisation, of Central government enterprises more vigorously by including two more public sector banks other than IDBI Bank could finally reshape the Indian economy by removing the deadwood. The decision to set up an Asset Restructuring Company — or a “bad bank” — to take over the non-performing loans of public sector banks could be a step in the direction of their disinvestment, as it would restore the state-owned lenders to the pink of health and help the government to realise a better valuation for its stake. The decision to monetise non-core assets is a step in the right direction as public sector enterprises sit on huge tracts of land and buildings.
The establishment of a new development finance bank is a result of the late realisation that commercial banks with short-term depositors cannot fund projects with long gestation periods. The decision to raise foreign direct investment in insurance companies and to allow foreign firms to have management control with safeguards could invigorate the financial sector, especially the insurance space that requires promoters with deep pockets. It could become a game-changer if the government follows the same policy in the other sectors.
The proposal to extend social security to informal workers could set the stage for drastic labour reforms, which India badly needs if it seeks to become the base for companies looking for an alternative to China. There is relief that the minister did not resort to a new cess to fund the Covid-19 vaccination programme. The prices of some imported electronic items, including mobile phones, chemicals, refrigerators, among others, may see a small increase in prices to boost local manufacturing.
The major miss in the Budget is its failure to spend adequate resources to improve healthcare infrastructure to make the country ready to deal with any future pandemics. Despite its tall claims to hiking healthcare spending to Rs 2.23 lakh crores from Rs 94,452 crores, the actual hike for healthcare is just around Rs 20,000 crores, with the remaining funds going to water projects and vaccination programmes. But despite the misses, the intent and direction of the Budget are good, and the government must work on delivering on its promises as early as possible.