Union Budget 2021: Change in ideology brings breath of fresh air

By Ajay Mahajan

Indian Union Budget 2021-22: We need to look differently at the Budget (which is a landmark one) as efforts have been made to change the way in which we go about raising revenue and spending the same. The FM has taken a bold step of not procrastinating crucial expenditure at a time when fiscal deficit is already running very high and traditional sources for revenues appeared to be very limited. It has hence simultaneously looked at new ways to garner resources. This would be the main takeaway from the FM’s presentation on the 1st of February.

What will strike the reader is that the Budget does not look at the usual avenues when it comes to raising revenue and hence, we see minimal alterations to the tax rates. Where they have been done, it is more for correcting the disadvantages that Indian industry face when it comes to imports. Tax slabs have been left largely unchanged which means that there are new thought processes in motion that have been implemented this time. This is also indicative of how things will be in future.

Here the asset monetisation scheme that has been proposed is significant because this can change the way we look a resource mobilisation in future. Monetisation of potential brownfield infra-assets will be launched during the year and the sponsored InvITs of NHAI and PGCL will attract domestic and foreign investors. Railways will be monetising freight corridors which is again an innovative step.

The SPV to monetise land owned by the government and PSUs will be another source of revenue. This will lay the bricks for the future too and as the government will be driving the high growth agenda, there will be enhanced activity here. This, I believe, is a major philosophical change that has metamorphised which actually moves away from the conventional path of raising taxes to more innovative ways which is the need of the day. In a way it can be said that as tax buoyancy has come down and the immediate growth path is not one which will garner accelerated revenue, new ideas are required which have been brought in.

This idea also blends into the new approach to disinvestment which now is tilted towards privatisation. This comes not just from the steps announced but also the language used by the FM though this was made clear during the Atmanirbhar announcements last year. Units that don’t perform should be sold, and those that have high value should be leveraged. Hence the focus now seems to be on privatisation and the distinction is necessary as it sends a different signal to investors who can look to owning these companies over a period of time.

Hence even the number that we see of `1.75 lakh crore appears to be a firm value that has been calculated rather than a balancing item of the difference between total revenue and expenditure. The target this year is lower than what was budgeted last year, but the names of the companies are more specific which means that the plans to divest them are very much in place.

The fact that the plan includes two banks in the public sector gels well with the other announcement of creating a bad bank which will take away the NPAs of these banks and probably be capitalised through the allocations that have been made. Hence, what enters the market is not a weak beak but strong entities which carry less of the past baggage with them. Even insurance features in this package and to show that the government means business, reforms in terms of enhanced FDI limits for this sector have been introduced.

On the expenditure side too, the Budget has put money where the accelerator is more efficient and hence the higher capex will help to foster growth. The focus on roads and railways can again be interlinked with the asset monetisation process which will create a symbiotic process that will be self-fulfiling.

As the focus is on infra spending, the Budget has spoken of a new DFI to be set up. It has been debated even in the past on the need to have specialised institutions to drive long term funding given the inherent ALM challenges for commercial banks.

Such an institution with government backing should help to get in other investors, maybe, even sovereign wealth funds, to target a loan portfolio of Rs 5 lakh crore. A similar thrust being given to the corporate bond market this time through the creation of an institutional framework to create a body that would purchase investment grade debt securities in normal and stressed times. This will hence provide a comprehensive solution to companies in need for long term debt financing.

The finance minister hence has announced so many potential sources of disinvestment and privatisation amongst a slew of measures that are innovative, thoughtful and underscore the new thinking of raising resources from monetisation of government owned assets. Combined with the focussed expenditure and creation of an enabling financial framework, the Budget has put the economy on the right track.