Two weeks ahead of the Union Budget, Finance Minister Nirmala Sitharaman has promised what she called a ‘a post-pandemic budget never seen before in a hundred years.’ Whether she mixed up the reference to once-in-a-century pandemic with the Budget or she was genuinely confident of overwhelming the nation with her offering on February 1 was not clear. But nonetheless, the impact of the Budget for '21-'22 in the shadow of the crippling coronavirus pandemic cannot be exaggerated. She has her job cut out for her.
Given how the economy has taken a serious hit due to the unforeseen disruption, a lot more than in normal years is riding on the budget. Incentivising key sectors which have suffered severely in multiple lockdowns and their aftermaths will require special attention. For instance, the services sector, which accounts for more than half of the GDP, is still gasping for breath despite the economy slowly but steadily coming back on stream. Aviation, entertainment, hospitality, tourism, hotels, restaurant businesses, etc., need serious hand-holding, especially as these together, employ a huge number of people. Tax-breaks can be considered for some of these segments, to compensate for the near-complete washout in the pandemic year.
As for aviation, the finance minister can hope that the long-overdue disinvestment in the white elephant that is Air India comes through in the dying months of the current financial year or, if not, in 21-22. Along with a concerted effort to disinvest in Air India, funds can be mopped up by pushing ahead with the sale of Bharat Petroleum and the Shipping Corporation of India, besides a number of public sector banks.
Given how despite its best efforts, the government has failed to offload Air India, we can only hope a renewed zeal will inform the disinvestment effort in the coming year. Of course, she has little wiggle room to distribute goodies, especially in a year when the revenue is constricted due to the pandemic and expenditure on the health-related crisis has increased enormously.
Yet, underwriting fully the costs of a free nation-wide inoculation programme to neutralise the fear of coronavirus will pay handsome returns by way of a faster and unhindered return to normalcy. Whatever the revenue constraints, Sitharaman should not flinch from the provision of free vaccines. Twin-pricing based on an income criterion can only cause confusion and corruption.
Public health system
Meanwhile, some of the most glaring gaps in the public health system, as exposed by the pandemic, need to be filled by a higher allocation. A paltry 1.29 per cent of the GDP on healthcare in a country of 1.3 billion people is woefully inadequate. This needs to be increased gradually, with the aim of establishing a health centre with qualified professionals in every taluka in the country. The growth spin-off from a healthy population is not to be sniffed at. Another area requiring her special attention is defence. Like health, defence too needed additional funding in the outgoing year. The Chinese are still amassed at the Ladakh border. We have had to make emergency defence purchases of materials and equipment and have had to fast-track procurement of sophisticated other militaryware.
While rationalising the defence pension scheme, which burns an inordinately big hole in the defence budget, remains an unfinished task of the concerned ministry, the finance minister cannot be niggardly in defence allocation. From a little over two per cent to three per cent of the GDP for defence in the coming year ought to be the objective. Hopefully, the defence minster can avoid the temptation of a defence cess across-the-board, as it were, to raise funds because such a universal levy when incomes of most people have shrunk, would be unfair and harsh.
Instead, she should shed the trademark obsession of Finance Ministers with keeping the fiscal deficit within prescribed limits, and instead, print money to bolster growth in what she herself called 'a year of once-in-a-century pandemic’. Every economy in the western world liberally opened its purse-strings, providing incentives and financial handouts to people to overcome disruptions. In contrast, we were restrained in putting cash in the hands of all Indians, choosing to target specific disadvantaged groups such as the poor, women, farmers, etc. , or small and medium entrepreneurs. But to restore growth momentum, the Finance Minister has to increase infrastructure funding on roads, highways, public housing, etc.
Fears of a runaway inflation are overdone by fiscal conservatives who fail to appreciate the extraordinary challenge of the post-Covid year, nor do they learn from the example of the western economies which have kept such cautions aside to try and kickstart their economic engines. In the year of the pandemic, nothing short of a bold and big-bang Budget would be right for the Indian economy.