There will be relief all around that despite the extraordinary burden of the coronavirus pandemic, the Finance Minister did not increase income and corporate taxes. This was widely feared. And undeniably, there was justification for tapping the big fish to contribute more to the national kitty in a year when the expenditure ballooned and revenue shrank enormously. As a consequence, the fiscal deficit pole-vaulted from the originally estimated 3.5 per cent, to a whopping 9.5 per cent, with an additional pandemic-related expenditure of Rs. 4.1 lakh crore, taking the total to Rs. 34.4 lakh crore.
Maybe the one big reason why the stock markets reacted with such joy at Nirmala Sitharaman’s Budget was the relief that she had spared the corporate sector in a year when the country was beset with not only the once-in-a-century pandemic but the on-going challenge at the border, with the Indian troops amassed in extreme winter weather to repulse the Chinese aggression.
Really, she has pulled off a great feat - of putting together a national balance-sheet, which pointedly aimed at not hurting any one section of the earning classes. Admittedly, the salaried middle-class will complain that it has received no tangible benefit but the fact that it has been spared even a slight hike in personal taxes in the year of the pandemic is itself a matter of relief.
On a broader plane, the Finance Minister seems to have correctly read the mood of the nation, budgeting the fiscal deficit for ’21-’22 at 6.8 per cent, projecting reduction to 4.5 per cent in only four years. Fiscal conservatives seem to have lost the case, with the pandemic serving as the most clinching argument. Though she did not project a figure for inflation, it is expected that despite a higher fisc, it would stay within the RBI-prescribed benchmark of four to six per cent.
Should it step out of range, the RBI can step in with its own monetary tools. However, the Central bank might have to take note of the huge Rs 12 lakh crore borrowing by the Centre; add to this the borrowing by the States and a pressure on interest rates is unavoidable. Under the circumstances, it will fall to the Central bank, to keep the interest rate under check. Fortunately, the food inflation has moderated and the FCI’s godowns are bursting at the seams.
Ordinary people will benefit from the tax sops for home loans and interest write-off on these for the pandemic months. Hike in customs duties on select items too does not impact them and is justified for boosting domestic industries. At a time when the Punjab farmers are squatting at the capital’s borders seeking the repeal of the agri-reforms, the FM made a pointed mention of the much higher outgo on the procurement of wheat, paddy and cotton at the minimum support prices. Even the reference to the total agriculture credit package, which was Rs 16.5 lakh crore, was meant to convey the message that the Government was always solicitous of the farmers’ welfare and concerns. The levying of an agri cess of Rs 2.5 on petrol and Rs 4 on diesel without passing it to the consumers was a clear attempt to assuage the farm lobby. If only the stubborn Punjab farmers could see reason…
The true worth of a Budget can be realised only after its implementation. But there are a couple of things which are crucial for the economy to return to the pre-Covid normal. Among them is the success of the ongoing vaccination drive. Sitharaman has allocated Rs 35,000 crore for the inoculation of the poor. Presumably, the vaccines will be apportioned to private medical facilities for being administered at a reasonable cost, otherwise the budgeted amount may not be sufficient to give free jabs to all 1.35 billion Indians.
On the whole, health and defence have received a huge jump in allocation, with the capex for the latter expectedly increasing, in view of the stand-off with China. However, if we were to single out the one claim of the FM which on past record inspires little or no confidence, it is about raising Rs. 1.75 lakh crore from disinvestment/privatisation. Given that not even a fraction of the projected Rs 2.1 lakh crore from disinvestment was raised in ’20-’21 --- not even Air India was sold --- we remain skeptical about the promise to sell two banks, two insurance companies, aside from BPCL and other PSUs. Hopefully, the LIC IPO will finally roll out. And the higher FDI limit in insurance, from 49 per cent to 74 per cent might still make disinvestment in the public sector insurance companies further attractive.
How many 75-year-olds file their IT returns is not clear but exempting them is a good gesture. Further eliminating the human factor in taxation matters too is welcome. Nor can Sitharaman be faulted for making a poll pitch for her party by pointedly earmarking higher outlays for road- and highway-building in the poll-bound states of West Bengal, Assam, Tamil Nadu and Kerala. She was thoughtful too, in providing an extra Rs 1,000 crore for tea works in Assam and West Bengal. If the potential beneficiaries fail to appreciate the grand gesture, you can expect the ruling party loudspeakers to din it in their ears during the coming campaign.
For the rest, the setting up of a bad bank for transferring the collective NPAs of banks at one place is welcome but how far it frees the scheduled banks to pursue sound credit practices remains to be seen. The proposed Development Financial Institution is a bid to re-do the failed experiment, which had earlier led to the establishment of the IDBI. We hope the DFI succeeds where the IDBI had failed.
The allocation of Rs 20,000 crore for the capitalisation of public sector banks is grossly inadequate, especially given their NPAs post-Covid were close to 15 per cent. But then, her hands were tied in a year where the corona disruption had distorted all budgeting, forward-planning. The best that can be said for the Budget is that it belied the worst fears while arousing hope of a slow and steady revival of growth. She wisely pitched some of the key investment targets over a five-year period, disarming critics till the life of this Government. All said and done, a clever effort.
