Budget 2021: Rise in expenditure marginal but shift in its composition significant, says Dr Rangarajan

Indian Union Budget 2021-22: Economist and the former governor of the Reserve Bank of India (RBI) Dr C Rangarajan who has been watching the economy closely as tries to cope with the economic scars following the pandemic, is happy that there is a shift in the expenditures in favour of higher capital expenditure. He however, reminds us that the difference between the total expenditure this year and next is quite marginal. “The revised estimates for total expenditure for 2020-21 amounts to Rs 34.50 lakh crore and the budget estimate for 2021-22 is Rs 34.83 lakh crore. Therefore the difference is very little. But there has been a substantial shift in the composition of the expenditure in favour of capital expenditures and this is a welcome development,” he says.

Speaking to Financial Express Online, Dr Rangarajan says what is important is that the capital expenditure “has increased from 1.64 per cent of the GDP (Gross Domestic Product) in 2019-20 to 2.25 per cent in 2020-21 and to 2.48 per cent in 2021-22. This shift in the composition of expenditures is welcome and is a reflection of the fact that the government spends more in favour of infrastructure and asset-building.”

Further rise in fiscal deficit likely The other element that needs attention in the budget is the picture on the revenue side – the increase in the total revenue receipts. “The centre’s tax revenue for 2021-22 is budgeted to increase by 14.9 per cent. This is against a backdrop of expected increase in nominal GDP by 14.4 per cent. Therefore, the buoyancy is little over 1, which is an acceptable level of buoyancy. But the question is whether the nominal GDP will grow by 14.4 per cent because there are some doubts on that score because the projections on revenue appear to be optimistic and this has implications for the budget deficit and therefore a matter of concern,” he says.

Dr Rangarajan says the announced budget deficit (revised estimate) of 9.5 per cent for 2020-21 though quite high is on account of steep fall in revenue. But feels the projected fiscal deficit (budget estimate) of 6.8 per cent (of the GDP) for 2021-22 is likely to be exceeded. It all boils down to question whether the nominal GDP will increase by 14.4 per cent. It all depends on what the real GDP growth will be and what inflation will be. Dr Rangarajan also points out that the government in its economic survey the previous day put out that the real GDP growth for 2021-22 will be 11 per cent, which to him, still needs to be watched as given that the economy is still facing restrictions and vaccinations have still to be done and the economic activity has still to gather steam, expectations are the real GDP increase could be in the region of 8 to 11 per cent. The movement on the fiscal consolidation plan till 2025-26 is, he says, all hinged on to what the fiscal deficit will be in 2021-22. Finally, considering that the expenditures in the current year and the next are more or less at the same level then while some sectors have seen an increased allocation, it by implication also means some have taken a hit and that also needs to be kept in mind while looking at the economic recovery.