Push for growth through infra spends but high deficit looms large 

Corporates and income earners in the higher brackets were bracing themselves for increased taxation. There were rumours before the Budget about a smack-on-the-face coming with higher wealth tax or a Covid cess. When these did not happen—in fact the income tax slabs have been left untouched—there was a welcome sigh of relief, and the Budget looked much better than it was! At the same time, Union Finance Minister Nirmala Sitharaman pulled out a few aces by softening some draconian income tax provisions and making the regulatory system easier.

The Damocles sword of having your IT returns opened up even after six years has now been softened to just three years. A national faceless IT Appellate Tribunal has been set up and dispute resolution made easier. 

On the macro-plane, the Budget has identified the right buttons to press for post-Covid growth. There is high spending on infrastructure and a capital expenditure outlay of Rs 5.54 lakh crore (compared to Rs 4.41 crore last year) will go towards building roads and improving urban life. This will all add up to stoking demand for manufacturing and thus generate jobs and give a lifeline to small and medium enterprises (SMEs). Significantly, 11,000 km of road building has been projected, but the bulk of the allocations are in the four poll-bound states Tamil Nadu will receive Rs 1.03 lakh crore, Kerala Rs 65,000 crore and Bengal Rs 25,000 crore. If polls are held as per BJP policy simultaneously once in five years, the cash-strapped states will get nothing. Ironically, the current cycle of state elections works better in loosening the purse strings of politicians. 

Health and wellness have similarly received a much-needed boost. The government has proposed a Rs 2.24 lakh crore budgetary outlay compared to the current fiscal’s Rs 94,452 crore, an increase of 137%. In addition, the FM announced the PM’s Atmanirbhar Swasth Bharat Yojana of Rs 64,180 crore to boost healthcare infrastructure across the country, as well as Rs 35,000 crore for Covid-19 vaccines. There is also some fresh thinking evident in the Budget proposals to improve the travails of modern, urban life. For the first time, we are seeing an outlay of Rs 2,217 crore to counter air pollution and a vehicle scrapping policy being introduced that will outlaw old commercial and passenger vehicles. 

Many of these figures are misleading, though, and seem larger than they are. For instance, healthcare. The US spends the largest on healthcare at 14.3% of its GDP, Germany spends 9.7% and Norway 8.6%. India is almost at the bottom of the table with a spend of just 1.8% of GDP last fiscal, and with these spends, we may cross 2%. Then, water and sanitation get clubbed with healthcare, boosting numbers. Seeing the impact of Covid-19 should have made the government sensitive to spending four-five times the current levels over the next five years if we are serious about healthcare. Another outlay that looks big is the Rs 1.42 lakh crore proposed for the Urban Swachh Bharat Mission. Read the fine print and it is an outlay over five years! An outlay of about Rs 28,000 crore annually to improve sewage disposal and water supply for 300+ Indian cities with a population over 1 lakh is not even a drop in the ocean. 

Given the ongoing farm agitation, there were expectations of a strong budgetary intervention to improve farm conditions. However, all we saw was the FM reeling off a comparative table of expenditure incurred on minimum price support (MSP) activity for paddy, wheat, pulses and cotton. It may be ammunition against the government’s detractors, but how did it find place in the Union Budget? The only positive note on this front was the announcement of the development of five fishing harbours and an allocation for seaweed farming in TN. Strangely, despite the hostile build-up on our border with China, defence finds no mention in the Budget. There is little to help for the states too. 

Overall, the pandemic has taken its toll and the government’s balancing of revenue and expenditure are in tatters. The indicator is the government conceding that the fiscal deficit for the current financial year has shot up to 9.5% of GDP and that it is still scouting for Rs 80,000 crore in borrowings for the remaining portion of the year. For FY2022, the fiscal deficit has been estimated at 6.8% of GDP. Going by the extended impact of the pandemic and the lack of fresh revenue-raising proposals, the deficit will probably be far larger and survival on large borrowings will be a much longer spell than government optimism indicates.