Finance Minister Nirmala Sitharaman more than doubled the outlay for healthcare to Rs 2.2 lakh crore, including Rs 35,000 crore for Covid vaccines, and sharply stepped up capital expenditure on infrastructure projects in a Rs 35 lakh crore spending plan aimed at repairing the havoc wreaked by the Covid19 pandemic and kickstart economic growth.
Tabling the Union Budget for 2021-22 in Parliament on Monday – her third Budget, and the first ‘paperless’ one in history, read out from a Made in India tablet – the FM said the budget rested on six pillars -- health and wellbeing, physical & financial capital and infrastructure, inclusive development for aspirational India, reinvigorating human capital, innovation and R&D and minimum government, maximum governance.
This massive surge in spending – both in the current fiscal, which saw total expenditure surge to Rs 34.5 lakh crore, as against a Budget Estimate of Rs 30-42 lakh crore for 2020-21, as well as the Rs34.83 lakh crore for FY 2021-22 – will send the fiscal deficit to 6.8 per cent of GDP in the coming fiscal.
While this is lower than deficit of 9.5 per cent for the ongoing fiscal, this is well above the 3 per cent mandated by the FRBM Act, which is now proposed to be amended in view of the changed circumstances. The deficit is to be financed largely through sharply stepped up government borrowing, as well as disinvestment of public sector units, including at least one bank, a general insurance company and dilution of stake in LIC, to mop up a planned Rs 1.75 lakh crore.
While she avoided levying any new taxes on income – a ‘Covid cess’ was widely feared – she disappointed the middle class, which has been hard hit by job losses and pay cuts forced by the slowdown by refraining from offering any relief on the income tax front. However, compliance burden was eased, with simpler procedures for small disputes and an exemption from filing a return (although not an exemption from tax) for senior citizens aged 75 years or older, who relied solely on pension and interest income.
In a major reform move, the foreign direct investment limit in insurance was upped to 74 per cent from the 49 per cent earlier, although restrictions will continue on board composition and the amount of profit that can be remitted. She also proposed to create a new asset reconstruction company – a so-called ‘bad bank’ – which will take over the stressed assets of public sector banks and manage them, which will free the PSU banks’ books for fresh lending, as well as make them more attractive disinvestment targets.
The big thrust, however, will be on infrastructure, with roads and highways getting a record allocation of Rs 1.18 lakh crore. “By March 2022, we will be awarding an additional 8,500 kms of road projects and completing 11,000 kms of national corridors,” Sitharaman said.
The Budget was also a shrewd exercise in politics, with a significant share of the new road and railway projects being allocated to the four poll-bound states of West Bengal, Assam, Tamil Nadu and Kerala. Both Kochi and Chennai Metro projects got fresh funds, while Tamil Nadu also got an innovative seaweed park, as well as new fishing harbours and other projects.
While the ongoing farmers’ protest did not get a direct mention – clear messages were nevertheless sent. The target for Agriculture credit was raised to Rs 16.5 lakh crore. 1.54 crore farmers have benefited from MSP in paddy and wheat in FY21 vs 1.24 crore YoY, Sitharaman pointed out, adding that the amount paid to farmers for wheat in FY21 was Rs 75,060 crore vs Rs 62,802 crore in FY20, and for paddy in FY21 Rs 1.72 crore vs Rs 1.41 lakh crore in FY20, the FM added.
In another clear message that the existing APMC mandi system will not be unwound, the FM proposed an Agriculture Infrastructure and Development Cess (AIDC) on a number of items, including petrol, diesel, gold and silver and imported alcoholic beverages among others.
"However, while applying this cess, we have taken care not to put additional burden on consumers on most items," she added. The allocations for Rural Infrastructure Development Fund and Micro Irrigation Fund were increased, while the Agriculture Infrastructure Fund was extended to APMCs for augmenting infrastructure facilities.
However, spending on the Mahatma Gandhi National Rural Employment Guarantee Scheme (MNREGS), which had surged to a record Rs 1.11 lakh crore in the current fiscal as the government sought to mitigate rural distress accentuated by millions of migrant workers returning home, has been sharply cut back to Rs 73,000 crore in the 2021-22 budget, indicating the government’s belief that the worst was over and a reviving economy will recreate lost jobs. PM Modi lauded the Budget as a “proactive” one and said farmers and villages “are at the heart of this year's budget”.
The Opposition, predictably, wasn’t as friendly, with Mamata Banerjee condemning it as “anti-farmer” and “anti-poor”. “Forget putting cash in the hands of people, Modi Govt plans to hand over India's assets to his crony capitalist friends,” Rahul Gandhi Tweeted, while Akali leader and erstwhile ally Manpreet Brar claimed the North had been ignored as it wasn’t facing elections. But the stock markets cheered the Budget – the Sensex gained over 2,300 points -- bond yields rose 12 basis points, signifying debt market worries at the size of government borrowing.
However, Sitharaman turned to Tamil poet Thiruvalluvar, whom she has quoted in earlier Budget speeches as well, to defend her plan. “A king/ruler is the one who creates and acquires wealth, protects and distributes it for common good,” she said.
